16/05/2005

BT faces fresh competition from AOL in UK fixed-line telecoms mkt - report - Forbes.com

BT faces fresh competition from AOL in UK fixed-line telecoms mkt - report - Forbes.com

AOL are tempting residential away from BT. Unlimited national and local calls for £7.99 pm (these don't tend to include non-geographic numbers like 0844, 0845, 0870 etc, and mobile, premium rate and international numbers which will incur per minute charges).

The business models for flat rate services can work out on average, but copying US models is dangerous since termination charges can largely be avoided there. In Europe termination charges are the norm, which means if users actually make lots of calls or long duration calls - the service could work out unprofitable.

In the UK BT still has the bulk of connections into homes (over 85% of the copper into premises is owned by BT), so they charge other delicious for the priviledge of originating or terminating these calls (i.e. if a AOL subscriber is using AOL's carrier preselect service, when they dial out it has to get from a BT line to AOL and BT charge for that hop, the same for getting a call back to the subscriber). BT still get the line rental, but the CPS provider gets the call traffic.

In order to minimise the number of hops across BT's network you want to connect to as many BT exchanges as possible so hopefully it's only an internal (exchange) hop. However this is generally unfeasable as there are 5,600 digital local exchanges (BT) in the UK. So large providers like THUS, C&W, Energis and possible Carphone Warehouse connect to about 700+ which means that you're never more than 1 hop away.

The "hop" rates are determined by Ofcom (taking a daytime call for termination, BT will charge between about .25p for a local exchange to 1.02p for a "double-tandem long" hop - per minute, origination is about .27p for local exchange to 1.03p per minute). The telco will then put their own margin on top of. In fact they're likely to offer a blended rate, which will average the price to any UK geographic number.

Since AOL have as yet no UK specific telephony infrastructure, it's likely they're buying the service from someone else.

In future they've said they're going to offer a wholesale line rental (WLR) service, whereby they take-over the line from BT and the user no longer gets a BT "blue-bill" at all. However WLR still has issues and isn't that competetive (the operator has to pay BT near enough £10 per month). That may well change with Ofcom pressure.

AOL are also moving into LLU (local loop unbundling) in which case they can offer voice services directly either using traditional means or using VoDSL (which could be VoIP).

It's going to be an interesting time ahead, though voice will soon just be a give-away to complement other services.
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