Open "local loop unbundling" manifesto - let's create a common enemy to BT!

by Guy Kewney | posted on 02 March 2005

Here's something anybody in local broadband should have in "favourites"   OpenLLU has now been established to provide a common opposition to BT.

Guy Kewney

Here's the organisation's manifesto:

Local Loop Unbundling or LLU to its friends is the process whereby telecomms companies and ISPs can put their own equipment into BT's telephone exchanges. Utilising this equipment they can offer telephony and broadband services which are not reliant on BT.

Up until recently the economics of LLU were very unfavourable, and it was very hard to justify the investment of going down this route and only a few players took the plunge. However Ofcom (the regulatory body) got involved and forced BT to change its pricing which changed the economics enough such that LLU could work and lots of new players have joined in the game.

BT is the competition

In order for LLU to be economically viable, companies need to pick BT exchanges that have a high population density around them and preferably a large number of Internet users too. This way a LLU entrant can expect to get a reasonably large take-up of customers (you need around 300 to 350 customers per exchange to break even).

Unfortunately all the LLU entrants have had the same idea, and pretty much all picked at least some of the same exchanges to build into. BT have even delayed allowing the new operators in to them, as they have to build new co-location facilities to house them all.

So one of the major costs is actually putting equipment into an exchange, the other is what's known as "backhaul" or connecting the equipment back to the LLU supplier's own network and infrastructure.

All the LLU operators are acting pretty much in secret (to each other) and having to install their own equipment and their own backhaul. This of course is what you do in a commercial environment, free market economies, etc.

In reality however, it's BT who is the real competition. They account for over 85% of the infrastructure in the UK (into premises) which means everyone else less than 15%. They have SMP (significant market power) and are the dominant player. Even if a LLU entrant puts their own equipment into the exchange, it's likely they'll purchase (at least some of) their backhaul from BT, just because they don't have network near that exchange (it's expensive to dig fibre).

Cooperation is the key

LLU could REALLY take off if all the LLU operators joined forces AGAINST BT. Rather than everyone fighting each other, they should combine their buying power and purchase as a single shared entity so rather than go into say 300 exchanges, the pooled amount would allow them to go into over 1000. Each entrant would then just rent capacity at the particular exchange depending on the number of users they've persuaded to sign-up.

Again when it comes to backhaul, find out which LLU entrant has connectivity near to each exchange and buy the backhaul from them, only as a last resort purchase from BT. Each entrant could set-up a various interconnection points across the country, and they'd only need to charge for any actual dig that had to take place.

The 21st Century is here

In 2006 BT starts to deploy their 21st Century Network (or 21CN) which is a radical new design (replacing the 100 year old public switched telephony network or PSTN). This network will change the way voice traffic is handled, as it just becomes data. IP (i.e. Internet) will be everywhere, all the way into the home.

If the LLU entrants joined forces rather than competing they'd have a 21CN NOW, and BT may never catch-up.