U.K. telecom Thus says DSL makes no economic sense

The rollout of broadband Internet services in the U.K. suffered yet another set back on Tuesday when Scotland-based telecommunications company Thus PLC announced it was pulling the plug on its aggressive plans to offer DSL (digital subscriber line) service from co-location sites with British Telecom PLC.

Thus cancelled its 40 million pound (US$58.3 million) two-year plan to offer consumer DSL service because the company found "it didn't make economic sense" and was simply too expensive to implement, said Thus spokesman Ken Hills.

"We are still fully committed to DSL as a service, in fact we have 15,000 live DSL customers now," Hills said. But Thus has decided to wait for former U.K. national monopoly BT to offer DSL on a wholesale basis rather than establishing facilities in BT co-location sites where the local loop, or "last mile," is being unbundled. When it comes to "building the kit required by co-location, we don't think we can make the economics stand up," Hills said.

The U.K. national telecommunications regulator, the Office of Telecommunications (Oftel) determined in November 1999 that BT has a monopoly on the local network lines and directed the telecommunications operator to lease the local loop to its competitors. But BT's rivals are finding the option of building their own high speed internet access switching equipment in the exchanges far too expensive.

On average, it is believed that an operator can initially expect to invest around 100,000 euros (US$ 91,700) in the local exchange switching equipment, after which it will need to invest in customer equipment, services and fees to the incumbent. As a result a company would require between 500 and 700 residential users per local exchange to break even, which is considered to be higher than the market can bear at this early stage. "As an average, across the industry, those numbers are not far off the mark, though the costs would be different for each company," said Hills.

It is a decision seemly born out by Oftel itself, which on Friday published a survey claiming that U.K. consumers pay more for DSL and cable modem high bandwidth services that do users in the U.S., France or Germany.

According to Oftel's survey, which compared prices in September of last year, users in the U.K. faced monthly charges of about 40 pounds for residential high bandwidth services, compared to 37 pounds in France, 31 pounds in Germany and 32 pounds in the U.S.

Though prices for DSL services are higher in the U.K. than elsewhere in Europe or in the U.S., Oftel argued that local loop unbundling being carried out by BT will provide competition which will in turn drive down prices. This appears to be a position that BT's rival telecommunications operators are not buying.

Along with Thus, WorldCom Inc., Bulldog Communications PLC and Dutch company Versatel Telecom International NV have all already announced that they will not pursue plans to offer their own DSL consumer service in the U.K.

Furthermore, earlier in the month, Oftel called an industry meeting to determine why, despite regulatory efforts to separate service delivery and infrastructure ownership in local telecommunications services, competitors are staying away. When the first 25 of BT's local exchanges were opened to co-location bids, both Oftel and BT were surprised to find that BT's rival telecommunications companies only placed orders at 14 of those sites. After the meeting, BT announced that it will begin construction of co-location facilities before April 15, as opposed to July, to allow its competitors to install their broadband Internet access equipment in the most sought-after of its local exchanges, which are largely located in urban areas, but the move did not keep Thus from killing its co-location DSL plans.

"We still intend to continue lobbying Oftel to make the wholesale DSL service more viable. But we still have questions for BT concerning speed and service," Hills said.

"The U.K. is definitely behind the rest of Europe in terms of getting onto broadband, at least by six months. BT's whole attitude towards broadband has been 'Oh, what a reckless step,' which is the opposite of inspiring. BT persuaded Oftel to try and get everything perfect before attempting to roll out broadband which was a mistake," said Tim Johnson, principle analyst for market research company Ovum Ltd.

"Oftel is trying to tighten up on BT now" with new regulations, but the regulator is taking actions and learning lessons that it should have come last year, and as a result seriously hampering the progress of broadband services being offered in the U.K., Johnson said.

Thus, in Glasgow, Scotland, can be reached at +44-141-567-1234 or at http://www.thus.co.uk/. BT, in London, can be reached at +44-20-7356-5000 or at http://www.bt.com/. Oftel, in London, can be contacted at +44-20-7634-8750 or at http://www.oftel.gov.uk/.

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