Perspectives on Differences in the Transatlantic Approaches to Broadband Policy

1. Perspectives on Differences in the Transatlantic Approaches to Broadband Policy Aryeh Friedman Senior Competition and Regulatory Counsel BT Global Services Washington DC BT Partners

2. Broadband Defined • FCC Defines Broadband as anything over 200 kbps measure • That is over-inclusive. • More realistic -- Residential • Over 1 Mbps • Residential: Would include DSL, cable modem, Fiber to the Node and Fiber to the Home • Enterprise Market • Over 1-2 Mbps

3. BT’s DSL deployment • Over 99% of UK households are in ADSL enabled exchanges • The remaining exchange areas are extremely rural in nature with ~ 200 customers in each • Solutions to provide broadband to these remote areas are being investigated • Cable provided broadband is available to ~ 55% of the households in the UK

4. Historical view of BT Wholesale Broadband 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 Connections 4,000,000 3,000,000 2,000,000 1,000,000 0 200302 200306 200310 200402 200406 200410 200502 200506 200510 200602 200606 200610 199910 200002 200006 200010 200102 200106 200110 200202 200206 200210 UK Broadband Penetration • Total UK broadband penetration is currently ~55% • Approaching 8.4 million households are served by BT Wholesale broadband • BT Retail has an end customer relationship with ~ 3 million customer. Less than 25% market share. • 1.7 million customers have broadband provided by other communication providers through Local Loop Unbundling • In addition, there are approximately 3 million cable broadband customers

5. Availability of DSL Speeds in the UKAlmost 90% of UK DSL subscribers receive service at speeds of 3 Mbps or more.

6. UK Broadband Connection Speed 40% 30% ≤2Mbps services are falling >2Mbps services are growing 20% 10% 0% Aug-06 Oct-06 Dec-06 Feb-07 Apr-06 Jun-06 128Kbps 512Kbps 1.5Mb 4Mb Don't know 150Kbps 576Kbps 2Mb 8Mb 256Kbps 1Mb 3Mb More than 8Mb

7. UK Retail Broadband Market Has Vibrant Competition % New survey • Recent wave of consolidation and new entrants: • Virgin Media was formed by the merger of NTL, Telewest and Virgin • CPW has bought AOL (but is retaining the brand) • BSkyB (satellite pay TV operator) has bought EasyNet

8. Vibrant Retail Broadband Competition in the UK • LLU now being aggressively deployed by major broadband service providers. • Significant percentage of Broadband (~12%) and rapidly increasing (over 57,000 orders completed per week) • Bulk of retail broadband competition still from cable and CLECs selling BT DSL products. • Most offering up to 8Mb services with intention of using ADSL2+ (i.e., up to 24 Mbps) • Per Ofcom Report, from December 2002 to May 2006, BT speeds (max) have risen from 0.5 to 8Mbps while prices have dropped from 27.99 to 17.99 per month. • Over 60% of small and medium enterprises in the UK use business DSL

9. Vibrant Retail Market in the UK

10. UK Broadband Prices • UK Market structure has produced a wide variety of pricing packages tailored to specific users • Most ISPs offer a number of options based on • Contention ratio • Data cap allowance • Static IP addresses • Included web space • Included e-mail • Value added services • Security services (firewalls & antivirus software) • Domain registration • Dial-up backup • Some additional Virtual / reseller ISPs target local areas Distribution of pricing packages from 69 ISPs Based on 228 consumer ADSL packages Source: http://www.adslguide.org.uk/isps/packagelist.asp

11. US Broadband Market Share Compared (Source: 2006 Broadband Reality Check Report by Free Press et al) Non-Incumbent Sources of Broadband Competition in the USA Is Decreasing.

12. US Non-Incumbent DSL Market Share Compared (Source: 2006 Broadband Reality Check Report by Free Press et al)

13. BT, Verizon, AT&T Residential Broadband Compared * Using OECD’s Purchasing Power Parities Rate used in its Rate Comparisons

14. US. v. EU Regulatory Environments

15. Impact on, e.g. Net Neutrality: OfCom • “The lack of unbundling in the US is likely to mean rapid concentration in the retail ISP market. The result is generally that, at the retail level, consumers only have a choice of broadband operator to the extent that they are able to choose between operators with lines connected to their home – a choice between cable and telcos, rather than multiple ISPs offering bitstream or LLU access. • This lack of choice, it is argued, could lead to abuse of the operator’s resulting market power. And this, it’s then argued, needs to stopped by outlawing any “non-neutral” behavior using new legislation. This is an important point because it is the retail ISP, operating at the IP layer of the network, which can have most impact in prioritising traffic. . . . • As the UK has such strong retail ISP competition, these problems, and therefore a strong case for new ex-ante legislation, are much harder to imagine.” • Speech given by Tom Kiedrowski on behalf of Lord Currie, OFCOM, at CEPS/Progress and Freedom Foundation Conference in Brussels Feb. 22, 2007

16. USA: ICT and Productivity • USA had two productivity surges between 1995-2000 and 2000-2004 that caused USA to leap ahead of Europe in productivity. Only one was ICT-led. • 1995-2000 – use of information communications technology (ICT) dominated this surge. • 2000-2004 – non IT factors dominated this surge. • See Jorgenson, Ho and Stiroh, The Sources of the Second Surge of US Productivity and Implications for the Future (March 2006). • 1995-2000 -- Correlates to period when market opening commitments of 1996 Telecoms Act were being implemented in USA • 2000-2004 – Correlates to period when FCC began to deregulate uncritically

17. A history of investment… • Higher investment in better regulated countries (OECD, ECTA, LE). Source: ECTA Source: Infonetics Research, London economics

18. Effective Regulation vs. Investment • The Report also measures the relationship between the effectiveness of the regulatory environment in each of the Member States surveyed and the level of telecommunications investment in that country, based on OECD data. The economic analysis conducted in this regard shows that effective regulation continues to have a strong and positive impact on the level of investment in telecommunications networks and services. Source: ECTA (European Competitive Telecommunications Association)

19. Thank you