Local Loop Unbundling 'does not increase broadband penetration'

Imperial College is carrying out research for Ofcom and has come up with some surprising results

Local Loop Unbundling (LLU) does not increase broadband penetration in the UK's residential areas, according to research being carried out by Imperial College in London.

LLU allows network operators to connect to BT's incumbent network by charging them for access to its some 5000 plus exchanges to install their own broadband equipment. Up until now it had been assumed that by introducing increased competition into the market through LLU, quality of broadband services and penetration rates in cities and towns would increase.

However, research being carried out on behalf of Ofcom by Professor Tommaso Valletti, using the regulator's datasets and seen by Computerworld UK, has unveiled some surprising results that suggest that although the quality of broadband service may increase, broadband penetration drops in areas where LLU is used.

"If you look at the historical time series, you can see that the use of broadband goes up over time in all areas. It's a success. However, this increase in broadband penetration might just be because people are becoming PC literate," explained Professor Valletti.

"So, overall results show that broadband penetration is on a positive trend. However, what's very intriguing is that over and above this increasing trend, areas with LLU have lower penetration levels than those without," he added.

"The raw difference was that in areas with LLU, broadband penetration is two percent less".

Professor Valletti explained that the surprising results are likely to be due to communication providers withdrawing cheaper broadband services in favour of higher quality ones, which have been made possible by LLU.

"I tried to understand why these may be occurring, so I got some more data from other companies that look at broadband quality, speed, latency and congestion," said Velletti.

"It's interesting that the effect of competition definitely improves the quality a lot. Communication providers, using BT's infrastructure, learn how to offer improved services and supply something that is a lot faster," he added.

"However, where LLU is concerned, they manage to increase the quality, but also the price. They withdraw the cheap packages, because otherwise they would cannibalise the more expensive offers, and so you have both quality and price going up. This seems to result in less take up of those services in areas with LLU".

Communications regulator Ofcom recently lowered the prices that BT Openreach can charge for LLU, in the hope that it leads to real term price reductions for consumers, which may again impact the current results.

For a fully unbundled line to a property, where a communications provider take over the line to provide broadband and telephone services, Ofcom has reduced the annual rental charge Openreach can make from £91.50 to £87.41 for financial year 2012/13.

For a shared unbundled line to a property, where a communication provider uses a proportion of the line only for broadband services, Ofcom has reduced the annual rental charge from £14.70 to £11.92 for the financial year 2012/13.

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