Revolution on the line

BT is losing its grip on local exchanges. Charles Arthur predicts a wealth of new services via phone sockets, such as video-conferencing, television - and free calls

There's a tectonic shift going on in telecommunications. Gradually, but relentlessly, British Telecom is being forced to open up its "local loop" - the lines between its exchanges and your home - to rivals. And those rivals, after years when they have been busy struggling with debt or offering dial-up internet services, are looking to take advantage.

There's a tectonic shift going on in telecommunications. Gradually, but relentlessly, British Telecom is being forced to open up its "local loop" - the lines between its exchanges and your home - to rivals. And those rivals, after years when they have been busy struggling with debt or offering dial-up internet services, are looking to take advantage.

The upshot could be an explosion in the number and type of services being offered through a domestic phone line. Services such as voice-over-internet for cheap international and free domestic calls, video on-demand, video phone-calls and online games, besides the standard web and e-mail use. What's more, the price of services could drop - although it's never wise to bet on that happening. More likely is that future providers will bundle those services together into a (naturally confusingly priced) package. After all, look at what happened with directory enquiries: opening up that monopoly seems to have produced an expensive can of worms.

The change facing BT is called "local loop unbundling" (LLU), under which another company takes over the control of a phone-line between the BT exchange and a home or business, and decides how much to charge and what services to offer. (The consumer has to opt in; LLU cannot be forced on the user of a line.)

By rights, the process should be well under way already: the European Commission ordered European national telecoms companies to allow rivals to take over local lines from the beginning of 2001.

But BT, fearing huge losses to its rental income from phone lines, dragged its feet, while Oftel, the predecessor to the new communications regulator Ofcom, seemed unable to make it speed up. Today, only about 16,000 lines - out of 27.6 million - have been unbundled.

Now, though, everything is changing. Last week, at Ofcom's insistence, BT cut the prices for companies wishing to install LLU systems in its exchanges. And Ofcom also has a dramatic new target for LLU: by the end of next year, it wants a million lines to be operated by non-BT companies.

Plenty of companies seem willing to take the behemoth on. The day before the pricing announcement (which was widely anticipated in the industry), NTL said it would spend £65m on installing equipment in up to 300 BT exchanges in the next two years, to begin supplying its own services to BT customers.

"It's much more cost-effective for the group to expand its customer reach through LLU than by rolling out our cable network," Simon Duffy, NTL's chief executive, explains.

The maths isn't hard: the fibre-optic cable used in the rest of NTL's network costs thousands of pounds to lay per mile; the local loop is already there, can take high-speed connections, and BT has cut the cost of taking over one of its lines at an exchange by 70 per cent in the past few years. Duffy says that the company receives 170,000 enquiries every quarter from would-be customers outside its network coverage area, wanting to get its services such as cable television and high-speed broadband. LLU is the cheap way to reach them, even though it does require installing some expensive kit in each exchange.

Cable & Wireless, another rival to BT, has also announced proposals. It says that it will be bringing LLU to 400 exchanges, spending up to £85m. That, it says, is enough to service one third of the homes and businesses in the UK, even though there are 5,500 in the country.

The French internet provider Wannadoo, owner of what used to be Freeserve, will start LLU work next year, aiming to bring products such as video-on-demand and voice-over-broadband to home and business users. And just to show that this stretches up and down the size range, Bulldog, a smaller, independent internet service provider, this month began taking orders for a combined broadband and phone service in central London, using lines unbundled from BT through which it can offer its top-speed four-megabit-per-second broadband service and phone calls, at £52 per month for consumers.

The Bulldog chief executive, Richard Greco, says: "Experiencing the internet at 4Mbps is like going from riding a bicycle to driving a high-performance sports car. It means you can download music, film or software files faster than ever before. Information is instant. It makes other broadband services feel like dial-up. This is the way the internet is supposed to be."

Yet it's only a glimpse of how it really is, because LLU has been so slow in happening. Just over three years ago, The Independent's enquiries into why companies seeking to offer broadband were having such problems getting their equipment into BT exchanges got the response from one weary competitor that "they must have people in their head office who are paid to make it as difficult as they can. That's the only way I can explain it."

Since then, with the general tightening of security that followed September 11, there have been even more hoops to jump through for staff from outside companies who want to do work in BT's exchanges.

But Ofcom sees the enabling of broadband, and the creation of more competition to offer voice services, as key to Britain's future in competing in a communications- and internet-based global economy. Peter Black, Ofcom's telecommunications adjudicator, has an idea that would turn the complaint of three years ago neatly on its head: to pay BT staff bonuses for each line they unbundle.

But why should we care if BT unbundles its local lines or not? Because, as the Bulldog example shows, rivals can offer different services that may be just what customers want, and be more agile in developing new systems to cope. In France, a company called Free has leapt onto LLU presented by France Telecom to offer its customers free local and national calls, more than 40 digital TV channels and two-megabit broadband, all for about £20 a month.

The reason why France has Free and we have Bulldog, with the notable price difference between the two, is simple. Lines previously freed from BT under LLU were some of the most expensive in Europe. Ofcom's price-cuts bring that into line with the rest of Europe, suggesting that, in 2005, competition will begin producing many more would-be giants.

Yet, at the same time, analysts reckon that BT will only be toppled from its stranglehold on the UK telecoms market - one which even Microsoft might envy - by a big player such as Cable & Wireless, which has the funds to mount a serious marketing challenge for customers.

Julian Hewett, chief analyst at the telecoms and computing research company Ovum, comments of the Cable & Wireless moves: "If these major network operators can make the business model work at these prices, we can expect their ambitions to increase further."

One way those ambitions are expected to grow is in exploiting the possibilities that broadband services offer to the imaginative. Some people will want to use the "always-on" connection to run their own (modestly sized) e-mail and web servers. Others will explore the flexibility that voice calls over the internet offer - such as having an internationally accessible phone number tied to a portable router, so you're always accessible at local rates, or even for free once you plug a phone into the router; high-quality video telephony; high-quality teleconferencing; and collaborative working on shared documents open simultaneously.

Certainly, the past months have seen much trumpeting of the growth in broadband use in Britain: it has passed four million subscribers, more than double what it was a year ago, and roughly 85 per cent of homes and businesses can now get broadband through phone or cable lines.

But the devil is in the detail: 84 per cent of people still connect to the internet via dial-up modem, tying up their phone line. It was good enough in the 1990s, when we were still learning about the net. But at last, change may be coming.