International benchmarking study of Internet access (dial-up and broadband)

Transcription

1 =>? International benchmarking study of Internet access (dial-up and broadband) Issued by the Director General of Telecommunications June Ludgate Hill London EC4M 7JJ Switchboard Fax Textphone Web Crown copyright 2003

2 2 Contents Summary Scope Results for "basic" Internet access Results for broadband Internet access Chapter 1 Introduction Points to bear in mind Outline of the report Chapter 2 Internet access - basic Introduction Market developments Methodology Results for residential baskets Results for business baskets Sensitivity analysis Detailed results Conclusions Chapter 3 Internet access broadband/ always-on Introduction Methodology Results for residential users Results for business users Sensitivity analysis Comparison of dial-up and broadband pricing Conclusions Chapter 4 Broadband take-up and availability Introduction Overview of broadband options Take-up of services Subscriber numbers by type of provider Availability and roll-out Conclusions Chapter 5 Wholesale inputs in the broadband market Introduction Incumbent wholesale and retail products Unbundled local loops Conclusion Chapter 6 Alternative broadband access technologies Introduction Overview of alternative technologies Methodological issues Broadband fixed wireless access (BFWA) Broadband Satellite Access

3 3 Conclusions Annex A: Exchange rates and VAT rates Annex B: Detailed results for Internet access baskets (basic) Annex C: Detailed results for DSL and cable modem services Annex D: Glossary

4 4 Summary Scope S.1 This report is an international benchmarking study of Internet access covering both basic dial-up access and broadband services (Digital Subscriber Line (DSL) and cable modem). The report covers Internet services in France, Germany, Sweden, United Kingdom and the US (the States of Ohio and California are used for dial-up services; the study covers a number of the largest providers of broadband who offer services across a range of States). S.2 This study is a follow up to the study published by Oftel in December 2002 on dial-up and broadband Internet access, based on August 2002 prices. Oftel has carried out the analysis and drafting of this report. The tariff data used in this report have been collected by consultants HI Europe. S.3 For broadband Internet access, the report considers not only comparisons of retail prices but also comparisons of: take-up and availability; availability and price of wholesale DSL products; and price and availability of services provided using "alternative" broadband technologies such as Broadband Fixed Wireless Access and satellite. S.4 Points that should be borne in mind in interpreting the results are detailed in paragraphs of this report. This report is not intended in any way to be a buyer's guide to services in the UK. S.5 The results presented are based on a snapshot of prices as at 13th February Results for "basic" Internet Access S.6 Tables 1, 2 and 3 show the results for the price index for basic Internet access (ie Internet access for consumers who have no particular requirement for access speed), for residential off-peak usage, residential peak usage and for business users respectively. This is expressed relative to the UK price index. S.7 These results show that, based on the sample of service providers selected: for residential consumers, UK prices are cheaper than all countries for peak unmetered and metered services. For off-peak services UK prices are below average; and for business consumers, UK prices for unmetered services are well below those in France and Sweden, but above those in Germany and the US (California). UK prices for limited usage are cheaper than Sweden and the US, but more expensive than France and Germany.

5 5 S.8 In the UK and US, unmetered dial-up services are widely available. In the other European countries this is not the case, and cable modem and DSL services are more cost effective than dial-up for consumers with high usage. The results are based on the average of the two cheapest available options, and hence include some broadband packages. Table 1: Comparison of residential off peak Internet access prices Basket 1 res Basket 2 res Basket 3 res Basket 4 res Basket 5 res Average Unmetered res 2.7 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets Off-peak (UK=100) month month month month month only France Germany Sweden UK US, CA US, OH Table 2: Comparison of residential peak Internet access prices Basket 2p res 10 hours per month Basket 3p res 20 hours per month Basket 4p res 30 hours per month Basket 5p res 40 hours per month Average Limited use baskets only Unmetered res Peak (UK=100) France Germany Sweden UK US, CA US, OH

6 6 Table 3: Comparison of business Internet access prices Basket 6 bus Basket 7 bus Basket 8 bus Basket 9 bus Basket 10 bus Average Unmetered bus 9.6 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets (UK=100) month month month month month only France Germany Sweden UK US, CA US, OH S.9 Compared to the results in the December 2002 report: for residential services, the UK s ranking against other countries has remained the same for peak services and off-peak limited services but other countries have improved their position for off-peak unmetered services; and for business services, the UK s relative position is similar to the last report and the rankings remain the same. Results for broadband Internet access S.10 Table 4 and Table 5 show the results for the price level, price index (relative to the UK) and bandwidth provided for broadband residential and business services. The results are based on the average of the two cheapest deals available from the service providers covered in this research (it is not possible to include all service providers and this study may not represent the cheapest deals available in every case). Prices shown include the monthly subscription, as well as set up costs spread over three years. Results are presented both with and without cable modem offers included. S.11 Since the December 2002 report, Oftel has published a market review of broadband in which broadband is considered to be an always-on service in excess of 256kbit/s. For consistency, the minimum speed of the residential broadband and the low speed business basket has been changed from 129kbit/s to 257kbit/s. An additional entry level always-on residential basket has also been included to take into account the lower speed always-on services available in most benchmarked countries: the minimum speed of the additional basket is 128kbit/s. Residential broadband services S.12 Tables 4 and 5 show the results for the price level, price index (relative to the UK) and (downstream) bandwidth provided for broadband residential services. The results are based on the average of the two cheapest deals available from the service providers covered in this study as at February These results show that as at February 2003:

7 7 for the residential broadband basket (ie where the consumer has a minimum bandwidth requirement of 257kbit/s), UK prices are cheaper then other countries, apart from Sweden, both for DSL only and when cable modems are included; and for the entry level residential basket (ie where the consumer has a minimum bandwidth requirement of 128kbit/s): when cable modems are included the UK is cheaper than all other countries; and when cable modems are excluded prices in the UK are similar to France and Sweden and significantly cheaper than Germany and the US (19-31%). Table 4: Results for price level, price index and (downstream) bandwidth for residential broadband services Include cable modems Exclude cable modems Price level /month Price index Bandwidth kbit/s Price level /month Price index Bandwidth kbit/s France Germany Sweden UK US Table 5: Results for price level, price index and (downstream) bandwidth for entry level residential always-on services Include cable modems Exclude cable modems Price level /month Price index Bandwidth kbit/s Price level /month Price index Bandwidth kbit/s France Germany Sweden UK US S.13 The new basket parameters are not directly comparable with previous benchmarks, hence the August 2002 results were run using the new minimum speeds. This shows that from the period August 2002 to February 2003 the UK s relative position improves for both residential baskets.

8 8 Business broadband services S.14 Table 6 shows the results for the price level, price index (relative to the UK) and bandwidth provided for broadband business services, for a variety of consumer types. The results are based on the average of the two cheapest deals available as at February S.15 From Table 6 it is seen that as at February 2003: for the most basic services available to business (ie where the business has a minimum bandwidth requirement of 257kbit/s) 1 : prices in the UK are similar to Sweden, cheaper than the US and France and more expensive than Germany; and the service speed is lowest in the UK and highest in France. for business services where a minimum geometric mean (ie square root downstream bandwidth x upstream bandwidth) bandwidth of 500kbit/s is required 2 : UK prices are more expensive than elsewhere; and the speed in all countries is similar. for business services where a minimum geometric mean bandwidth of 1000kbit/s is required: services are only available in Germany, Sweden and the US; and prices in Germany are much more expensive than Sweden or the US. Table 6: Results for price level, price index and bandwidth for business broadband services (cable modem services included) Minimum bandwidth of 257kbit/s Price Price level index /month kbit/s Bandwidth - DS Minimum GM bandwidth of 500kbit/s Price Price Bandwidth - level index GM /month kbit/s Minimum GM bandwidth of 1000kbit/s Price Price Bandwidth level index - GM /month kbit/s France , Germany ,012 Sweden ,006 UK US ,037 Note: DS = downstream, GM = geometric mean (this is defined as: square root (downstream bandwidth x upstream bandwidth)) S.16 For the basic business basket the new parameters are not directly comparable with previous benchmarks, hence the August 2002 results were run using the new minimum speed of 257kbit/s. This showed that for the period August 2002 to February 2003, prices decreased significantly in France, Germany 1 In practise in the UK services in this basket have a downstream speed of 512kbit/s. 2 In practise in the UK services in this basket have a downstream speed of 1000kbit/s and an upstream speed of 256kbit/s.

9 9 and Sweden and prices in the UK remained relatively stable. This had a negative impact on the UK s relative position. S.17 When there is a minimum bandwidth of 500kbit/s the UK s relative position also deteriorates and this is again due to relatively stable prices in the UK and large price decreases in France, Germany and Sweden. Take-up of broadband services S.18 Data on take up is presented as a percentage of population (using OECD population figures for 1999) in Figure 1. Broadband take-up rates in each country are shown as at end 1999, end 2000, end 2001 and end of December S.19 While current levels of broadband take-up are low (below 9% of the population) in all of the countries benchmarked, take-up in the US and Sweden is markedly higher than in the other European countries. All countries tend to show a period of relatively slow take-up initially, followed by acceleration in the take-up rate. It is noted that broadband services were launched later in the UK than in other countries and this later start should be borne in mind when viewing this chart. Although the UK is behind in subscriber figures, the growth rate is faster than any other country included in the benchmark. Figure 1: Broadband take-up per 100 population by country for end 1999, end 2000, end 2001 and end of December other cable DSL Source: OECD, companies

10 10 Wholesale DSL products and local loop unbundling S.20 The wholesale DSL price comparisons for the UK and France have been updated with new prices from BT since May These new prices are currently subject to an Oftel investigation following a complaint that they result in a margin squeeze. On the basis of the new prices: for residential DSL services France Telecom's wholesale price is above BT's; for business DSL services with 1Mbit/s downstream, France Telecom's wholesale price is also above BT's; and the margin for the incumbent's ISP is greater in the UK than in France for both the residential and the 1Mbit/s business service. S.21 Local Loop Unbundling (LLU) has been compared on the basis of a number of measures across the benchmarked countries. In all countries, DSL services over unbundled local loops are starting to be provided to end users, particularly business users, increasing the range of broadband services available (eg increasing the range of speeds and contention ratios available). Take-up is currently low in Sweden and the UK, but is growing. In Germany and the US takeup is higher, accounting for around 6 per 100 incumbent DSL lines. The biggest change in the last 6 months has been in France where take-up of LLU (mostly shared access) has increased around 17 fold, although this still leaves France take-up of LLU below that in Germany and the US. Alternative Broadband Technologies S.22 The report has considered the availability, price and take-up of alternative broadband technologies such as Broadband Fixed Wireless Access (BFWA) and broadband satellite access. The market for alternative broadband technologies is still very new. While BFWA and satellite services are offered in all of the benchmarked countries, subscriber numbers are still low. Prices for two-way satellite services are generally above prices for DSL and cable modem services, although it is unclear how much of this price difference can be attributed to differences in the service parameters (such as speed, contention ratio, web hosting, security etc). One-way satellite combined with unlimited dial-up access for the return path is likely to be more expensive than DSL or cable modem services.

11 11 Chapter 1 Introduction 1.1 Oftel s aim is to provide the best possible deal for telecommunications customers in terms of quality, choice and value for money through effective competition. International comparisons of telecom services are one way of assessing the achievement of this aim. 1.2 Oftel carries out regular reviews of the major telecom markets to determine the appropriate level of regulation for the future. Regular benchmarking exercises allow a time trend to be developed, which provides greater information than a single snap shot. The results in this report will form part of the data input for future reviews. 1.3 This study focuses on comparing the cost for representative users for Internet access in each country using a basket methodology. Oftel has carried out its own benchmarking work (as opposed to using alternative published sources) to ensure that the methodology is rigorous and robust and that it addresses the following issues: usage baskets need to reflect a range of patterns of use representative of different groups of consumers; and consumers have a potentially wide range of choices for their telecom services: consumers have a choice of competing service providers all of whom will offer different packages; and each service provider may offer a variety of different packages and discount schemes targeted at different segments of the market. Price comparisons need to take into account the range of products available to the consumer. 1.4 The following countries are included in the analysis: France; Germany; Sweden; UK; and US (the States of Ohio and California are considered for dial-up Internet access; the study covers a number of the largest providers of broadband who offer services across a range of States). 1.5 This study is a follow up to the study, International benchmarking study of Internet access (dial-up and broadband), published by Oftel in December 2002, which was based on tariff data valid as at August A list of the tariffs valid at date and date of publication of previous studies is given in Table 1.1;

12 12 Table 1.1: List of previous studies No. Tariffs valid at date Date published Internet services covered Report prepared by April 2000 DSL Analysys 1. February February May 2000 Dial-up Teligen August 2000 December 2000 Dial-up Oftel 4. October 2000 January 2001 DSL and cable modem Oftel 5. February June 2001 Dial-up Oftel August 2001 December 2001 Dial up, DSL and cable Oftel modem 7. February June 2002 Dial up, DSL and cable Oftel 2002* modem 8. August 2002 December 2002 Dial up, DSL, cable modem Oftel and alternative broadband access. 9. February 2003 June 2003 (current study) Dial up, DSL, cable modem and alternative broadband access Reports can be found at: * Some data for April 2002 was also included here. 1.6 Oftel has carried out the analysis and drafting of this report. Oftel 1.7 Data has been collected from the vast range of tariff packages available to residential and small/medium sized businesses, for major service providers and service providers in each country as at February The tariff data used in this report have been collected by consultants HI Europe. Points to bear in mind 1.8 There are a huge range of operators and service providers offering services to consumers and it is not possible to cover all packages on offer. In addition, it is not possible to fully capture all aspects of innovative tariff products. While it is believed that the sample chosen is fully representative and covers the range of offers available by country, the possibility that consumers have access to additional offers outside the range calculated for the sample used in this report cannot be excluded. Not all tariffs included will be available to all consumers in a particular country. 1.9 The objective of this report is to provide a comparison between countries for a range of consumer usage profiles. A range of profiles is chosen to be illustrative of the most frequent types of customer calling patterns, but is not comprehensive.

13 13 Prices are based on a snap shot as at 13 th February Although providing a sound overall picture, the comparison of companies within a country should not be taken as necessarily being representative for an individual consumer The analysis is based on a basket methodology, which allows prices to be compared across different service providers in different countries. It is not, however, intended to be a buyer s guide to services as: it provides only a snapshot of the price levels for a continually changing set of price packages; and the residential or business consumer will have to access more specific usage information in order to determine the best option for that person or business. The objective is to illustrate the scale and level of prices available to consumers in different countries There are separate industry funded initiatives and reports which seek to help UK consumers be better informed purchasers of telecommunications services (examples are: fixed and mobile quality of service indicators and and information for small businesses about using telecoms and the internet Oftel has also recently produced a range of consumer guides and has introduced a seal of approval, called the Oftel PASS, for websites that compare the prices of different suppliers and provide impartial and accurate information - This report is not part of that body of work as it seeks to compare positions between, not within, countries and it is not, therefore, intended in any way to be a buyer s guide to services in the UK. Outline of the report 1.12 There are five subsequent chapters which present the results for: Internet access basic (Chapter 2); Internet access broadband / always-on (Chapter 3); Internet availability and take-up (Chapter 4); wholesale inputs to the broadband market (Chapter 5); and alternative broadband access technologies(chapter 6) In general, the methodology used is very similar to that used in previous reports. The methodology is designed to allow a comparison to be made of dialup services and broadband services as well as allowing a comparison to be made of the gap between unmetered dial-up and broadband products in each country.

14 14 Chapter 2 Internet access basic Introduction 2.1 This chapter covers basic Internet access, ie access to the Internet by consumers who have no requirement for high speed access. Mainly this will mean PSTN dial-up access, as this is usually the cheapest option. However, there are circumstances where other access mechanisms may be cheaper. In countries where unmetered PSTN dial-up access is not available, broadband access may be a cost effective alternative for consumers with high usage. In this chapter a range of access mechanisms are considered (ie PSTN and ISDN dial-up, DSL and cable modem) and the results then focus on the cheapest available options. Price comparisons for consumers requiring greater access speed, and the always-on facility, provided by DSL and cable modem, are presented in Chapter In January 2002 Oftel published an Effective competition review for dial-up narrowband Internet access which concluded that the retail market for dial-up access was effectively competitive. Past benchmarking studies formed part of the data input to this review. This study forms part of the ongoing monitoring of the retail market for dial-up Internet access. 2.3 The results provide an update of the results presented in the December 2002 report (based on prices as at August 2002). This study is the seventh in a series that started with a study carried out by Teligen for Oftel published in May 2000 (based on prices as at February 2000). 2.4 The selection of service providers for inclusion in this report has been reviewed and some changes have been made to ensure that the tariffs included are representative. These changes may impact on the apparent price trends reported. 2.5 This chapter follows broadly the same format as the previous reports and shows: a summary of developments over the last 6 months; a summary of the methodology used; results for business and residential consumers showing: price indices for a range of baskets; price movements over the last 6 months; charts of the spread of offers by country; sensitivity analysis; detailed results; and conclusions. 2.6 Detailed results for the packages modelled are shown in Annex B.

15 15 Market developments 2.7 Results from Oftel s latest consumer research (conducted in February 2003) show 45% of homes are connected to the Internet, compared to 42% in August Table 2.1 shows that: the percentage of unmetered subscriptions has remained stable over this period; and the average hours per month is increasing. Table 2.1: Residential Internet market developments from August 2002 to February 2003 August 2002 February 2003 Package Hours per month Broadband Narrowband, unmetered Unsure of package Narrowband, metered Average hours per month 13% 38% 18% 29% 9 17% 38% 16% 25% The results also show that around 65% of small and medium sized businesses (SMEs) are connected to the Internet, this has remained stable over the year. Table 2.2 shows that: most SMEs use dial-up (PSTN or ISDN) to connect to the Internet; unmetered access is the favoured type of dial-up package; and the number of broadband packages is increasing. Table 2.2: Business Internet market developments from August 2002 to February 2003 August 2002 February 2003 Type of Internet package types Narrowband Access PSTN ISDN Unmetered Metered Broadband Leased line Don t know 63% 26% 35% 28% 13% 4% 20% 60% 23% 35% 30% 16% 3% 15% Methodology 2.9 The methodology remains the same as the December 2001 report and details are not repeated here.

16 16 Results for residential baskets Price index for residential off-peak services 2.10 The price index (based on the average of the two cheapest packages from different service providers in each country) is presented in Table 2.3 for residential off-peak baskets. Table 2.3: Comparison of Residential off peak package prices Basket 1 res Basket 2 res Basket 3 res Basket 4 res Basket 5 res Average Unmetered res 2.7 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets Off-peak (UK=100) month month month month month only France Germany Sweden UK US, CA US, OH From Table 2.3 it can be seen that: UK prices for unmetered usage are similar to California, cheaper than Ohio and Sweden and more expensive than France and Germany; and for off-peak limited use UK prices are below the US, similar to France and more expensive than Germany and Sweden In several countries, cable modem or DSL services appear as the cheapest package for some baskets. In Sweden, there are no dial-up unmetered packages, in France and Germany services are limited and there are new 64kbit/s cable modem services available that are cheaper than metered dial-up. In these countries prices for the unmetered basket are based on DSL/cable modem offers. In Germany, France and Sweden cable modem or DSL packages start to become cost effective (ie cheaper than dial-up) after 20 hours of usage per month. In France and Germany, new 64kbit/s cable modem services are reflected in the index There has been some movement in the UK s relative position for unmetered Internet access, the UK previously had the lowest prices and now both Sweden and Germany offer cheaper unmetered services. This is due to the 64kbit/s cable services in Germany and a price reduction in a cable service in Sweden.

17 17 Price trend 2.14 A summary of price changes since December 2002 is provided in Table 2.4. The average price change shown is the mean of the percentage changes across each of the original 5 baskets. Price changes are presented in real terms. Changes in Purchasing Power Parity (PPP) exchange rates have some impact on the results. Table 2.4: Percentage change in price levels for residential off-peak baskets August 2002 February 2003 Basket 1 res Basket 2 res Basket 3 res Basket 4 res Basket 5 res Average Unmetered res 2.7 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets (UK=100) month, month month month month only France -1% -1% -2% -7% -7% -4% -21% Germany 2% 1% -18% -18% -22% -11% -22% Sweden 2% 3% 0% -6% -6% -1% -6% UK -1% -2% -2% 1% 1% -1% 1% US, CA 12% -1% -5% -3% -3% 0% -3% US,OH 12% -1% 3% 5% 5% 5% 5% 2.15 From Table 2.4 it is seen that: overall prices for limited usage have dropped slightly in France, Sweden and the UK and more significantly in Germany. Only in Ohio have prices risen; and unmetered prices have dropped slightly in California and Sweden, more significantly in France and Germany, have risen slightly in Ohio and have stayed about the same in the UK The large price drops seen in both France and Germany can be partially explained by new 64kbit/s cable offerings that are cheaper than dial-up services Price changes need to be considered together with price levels. The following chart (Figure 2.1) shows price changes for limited use baskets relative to UK prices as at February This figure shows prices in the US have been consistently higher than European countries over the past year and prices in Europe have fallen steadily over the period Since August 2001 the results have been based on a new methodology (ie including broadband products). For August 2001 a comparison of PSTN only and the new methodology have been included to ensure a consistent comparison can be made throughout the period.

18 18 Figure 2.1: Price trends by country from February 2000 to February 2003 for residential off-peak limited use baskets Price trends index (UK Feb 2000 prices = 100) Feb-00 Aug-00 Feb-01 Aug 01 [PSTN only] Aug-01 [new basis] Feb-02 Aug-02 Feb-03 France Germany Sweden UK US - CA US - Ohio date tariffs valid at Price spread 2.19 The spread of prices was also considered. To make this meaningful, only dial-up packages have been included (otherwise the spread for the low usage baskets would be very wide, as broadband offers are not appropriate for these usage levels). The charts in Figure 2.2 show the price for the cheapest package offered by each operator as a percentage above the cheapest price across all countries, for each basket. Amongst other things, the price spread provides an indication of the level of choice for customers at, or around, the best deal. Figure 2.2 shows that the spread of prices varies by basket. The spread of unmetered prices is not presented due to the relatively small number of dial-up packages currently on offer, ie only widely available in the UK and US.

19 19 Figure 2.2: Price Spread Charts for Residential Off-Peak Baskets (dial-up only) Price Spread for France Price Spread for Germany 1200% 1000% 800% 1200% 1000% 800% 600% 400% 200% 0% % 400% 200% 0% Price Spread for Sweden Price Spread for UK 1200% 1000% 800% 600% 400% 1200% 1000% 800% 600% 400% 200% 0% % 0% Price Spread for USA 1200% 1000% 800% 600% 400% 200% 0% Baskets are shown in order of usage level

20 20 Price index for residential peak services 2.20 The price index (based on the average of the two cheapest packages from different service providers in each country) is presented in Table 2.5 for residential peak baskets. Table 2.5: Comparison of residential peak package prices Basket 2p res Basket 3p res Basket 4p res Basket 5p res Average Unmetered res 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets Peak (UK=100) month month month month only France Germany Sweden UK US, CA US, OH* From Table 2.5 it is seen that: overall, UK prices for limited peak use are cheaper than all other countries, although Germany is cheaper for the two lowest use baskets; and for unmetered peak access, UK prices are also the cheapest of all countries studied As for the off-peak baskets, in several countries, cable modem or DSL services appear as the cheapest package for some baskets. In Sweden, there are no dial-up unmetered packages and in France and Germany services are limited and there are new 64kbit/s cable modem services available that are cheaper than metered dial-up. In these countries prices for the unmetered basket are based on DSL/cable modem offers. In Germany, France and Sweden cable modem or DSL packages start to become cost effective (ie cheaper than dial-up) after 20 hours of usage per month. In France and Germany, new 64kbit/s cable modem services are reflected in the index. Price trend 2.23 A summary of price changes since the August 2002 results is provided in Table 2.6. The average price change shown is the mean of the percentage changes across each of the original 4 baskets. Price changes are presented in real terms. Changes in PPP exchange rates have some impact on the results.

21 21 Table 2.6 Percentage change in price levels for residential peak baskets August 2002 February 2003 Basket 2p res Basket 3p res Basket 4p res Basket 5p res Average Unmetered res 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets peak (UK=100) month month month month only France -1% -2% -7% -7% -4% -21% Germany 2% -19% -18% -22% -14% -22% Sweden -2% -9% -6% -6% -6% -6% UK -10% -5% -5% -5% -6% -5% US, CA -1% -5% -3% -3% -3% -3% US,OH* -1% 3% 5% 5% 3% 5% 2.24 From Table 2.6 it is seen that: overall there has been a decrease in all countries except Ohio for peak limited and unmetered services; prices for limited use baskets have fallen slightly in France, Sweden, the UK and California and more significantly in Germany; and prices for unmetered dial-up access have fallen slightly in the UK, Sweden and California, and more significantly in France and Germany The results present a positive picture for the UK. Although prices have fallen in all countries, in particular France and Germany, the UK still offers the cheapest unmetered service and metered peak services. The price falls in both France and Germany are a result of new 64kbit/s cable modem services Price changes need to be considered together with price levels. The following chart (Figure 2.3) shows price changes for limited use baskets relative to UK prices as at August Since August 2001 the results have been based on a new methodology (ie including broadband products). For August 2001 a comparison of PSTN only and the new methodology have been included to ensure some comparison can be made throughout the period. The spread of prices is much narrower when broadband services are included.

22 22 Figure 2.3: Price trends by country from February 2000 to February 2003 for residential peak limited use baskets index (UK Feb 2000 prices = 100) Price trends Feb-00 Aug-00 Feb-01 Aug-01 Aug-01 Feb-02 Aug-02 Feb-03 [PSTN [new only] basis] date tariffs valid at France Germany Sweden UK US - CA US - Ohio Price spread 2.28 The spread of prices was also considered. To make this meaningful, only dial-up packages have been included (otherwise there would be a very wide spread for the low usage baskets, as this would include broadband offers not appropriate to these usage levels). The charts in Figure 2.4 show the price for the cheapest package offered by each service provider as a percentage above the cheapest price across all countries, for each basket The price spread is particularly large for the UK. In the UK there are some service providers who offer only unmetered/partly unmetered packages, which are not cost-effective at low levels of usage, and others that offer only pay as you go, which are not cost effective at high levels of usage.

23 23 Figure 2.4: Price Spread Charts for Residential Peak Baskets (dial-up only) Price Spread for France Price Spread for Germany 500% 500% 400% 400% 300% 300% 200% 200% 100% 100% 0% % Price Spread for Sweden Price Spread for UK 500% 500% 400% 400% 300% 300% 200% 200% 100% 100% 0% % Price Spread for USA 600% 500% 400% 300% 200% 100% 0% Baskets are shown in order of usage level

24 24 Results for business baskets 2.30 The analysis for the business baskets is based on packages that are specifically targeted at businesses. There are, however, some packages targeted at the residential market that will also be used by small businesses (some residential packages explicitly prohibit business use while others do not). The dividing line between a business and a residential package is not always clear, and the results presented may not represent the prices actually paid by a business. In general, a business will expect to pay more for Internet access than residential consumers as they receive additional value and services in their packages, this includes addresses or web space. Smaller businesses may not require these additional services and residential packages may be sufficient for their needs The price index (based on the average of the two cheapest packages from different service providers in each country) is presented in Table 2.7 for business baskets. Table 2.7: Comparison of Business package prices Basket 6 bus Basket 7 bus Basket 8 bus Basket 9 bus Basket 10 bus Average Unmetered bus 9.6 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets (UK=100) month month month month month only France Germany Sweden UK US, CA US, OH From Table 2.7 it is seen that: UK prices for limited usage are below average and are cheaper than the US and Sweden, and more expensive than Germany and France; and for unmetered access prices in the UK are again below average and are cheaper than France, Sweden and Ohio and more expensive than California and Germany In several countries, cable modem or DSL services appear to be the cheapest package for some baskets. In Germany and Sweden there are no dial-up unmetered packages, and prices for the unmetered basket are based on DSL/cable modem offers. In Germany, cable modem or DSL packages start to become cost effective at 30 hours and in Sweden at 40hours usage per month. In the December 2002 benchmark, France had DSL packages featuring as the cheapest packages for the unmetered basket, in this benchmark this has changed with the introduction of unmetered business services.

25 25 Price trend 2.34 A summary of price changes since August 2003 is provided in Table 2.8. The average price change shown is the mean of the percentage changes across each of the original 5 baskets. Price changes are presented in real terms. Changes in PPP exchange rates have some impact on the results. Table 2.8: Percentage change in price levels for business baskets August 2002 February 2003 Basket 6 bus Basket 7 bus Basket 8 bus Basket 9 bus Basket 10 bus Average Unmetered bus 9.6 hours per 10 hours per 20 hours per 30 hours per 40 hours per Limited use baskets (UK=100) month, month month month month only France -3% -3% -1% -5% -16% -6% -26% Germany 2% 2% 1% -11% -13% -3% -6% Sweden -3% -3% -3% -3% -1% -2% -2% UK -2% -2% -2% -2% -1% -2% -1% US, CA -5% -4% -5% -5% -5% -5% -5% US,OH* -5% -4% -2% -2% -2% -3% -2% 2.35 From Table 2.8 it is seen that: overall, prices for limited use baskets have fallen by 2-6% in all countries; unmetered basket prices have fallen slightly in all countries, except France where prices have dropped significantly. The price fall in France is due to the introduction of unmetered dial-up services for businesses; and the UK s relative position has improved slightly, although the country rankings have remained the same However, price changes need to be considered together with price levels. Figure 2.5 shows price changes for the limited usage baskets relative to UK prices as at February Since August 2001 the results have been based on a new methodology (ie including broadband products). For August 2001 a comparison of PSTN only and the new methodology have been included to ensure some comparison can be made throughout the period. This figure shows that over the period February 2000 and February 2003 prices have dropped in most countries.

26 26 Figure 2.5: Price trends by country from February 2000 to February 2003 for business limited use baskets Price trends 140 index (UK Feb 2000 prices = 100) Feb-00 Aug-00 Feb-01 Aug-01 [PSTN only] Aug-01 [new basis] Feb-02 Aug-02 Feb-03 France Germany Sweden UK US - CA US - Ohio Price spread 2.38 The charts in Figure 2.6 show the price for the cheapest package offered by each service provider as a percentage of the cheapest price across all countries, for each basket (including PSTN and ISDN only). There are relatively few packages designed specifically for business in some countries, which limits the usefulness of the comparison.

27 27 Figure 2.6: Price Spread Charts for business baskets (dial-up only) Price Spread for France Price Spread for Germany 800% 800% 600% 600% 400% 400% 200% 200% 0% % Price Spread for Sweden Price Spread for UK 800% 800% 600% 600% 400% 400% 200% 200% 0% % Price Spread for USA 800% 600% 400% 200% 0% Baskets are shown in order of usage level

28 28 Sensitivity analysis 2.39 In order to ensure that the results are robust, a number of alternative assumptions have been examined. The following sensitivities have been considered: removing the fixed PSTN charges from the overall price; removing cable modem/dsl packages; and additionally removing packages with limited availability (cable only offers in the UK) Results showing the effects for residential users of each sensitivity are presented in Tables 2.9 and 2.10 for off-peak and peak usage respectively. The results consider the effect on the average index across all limited use baskets and on the index for unmetered use. Table 2.9: Results of sensitivity tests for residential off-peak baskets (UK=100) Headlin e Index Average limited use baskets Exclude Exclude fixed broadban PSTN d offers charges Exclude cable only offers Headline Index Unmetered basket only Exclude Exclude fixed broadban PSTN d offers charges Exclude cable only offers France Germany Sweden UK US, CA US, OH Table 2.10: Results of sensitivity tests for residential peak baskets (UK=100) Headlin e Index Average limited use baskets Exclude Exclude fixed broadban PSTN d offers charges Exclude cable only offers Headline Index Unmetered basket only Exclude Exclude fixed broadban PSTN d offers charges Exclude cable only offers France Germany Sweden UK US, CA US, OH For both peak and off-peak use the UK s position improves when fixed PSTN charges are ignored. This effect is much higher for the unmetered baskets. This is due to the higher fixed cost of PSTN services in the UK. Excluding broadband services increases prices in all countries, except Ohio and California, as broadband offers are included in the cheapest two services. This results in an deterioration in the relative position of the UK compared to all countries, except Sweden, as the UK has a relatively cheap, 128kbit/s cable modem offer available.

29 29 Excluding cable only offers (as well as excluding broadband services) has a further impact on the UK, due to low cost dial-up services from cable companies Table 2.11 presents the same sensitivity analysis for business customers: Table 2.11: Results of sensitivity tests for business baskets (UK=100) Headlin e Index Average limited use baskets Exclude Exclude fixed broadba PSTN nd offers charges Exclude cable only offers Headline Index Unmetered basket only Exclude Exclude fixed broadba PSTN nd offers charges Exclude cable only offers France Germany Sweden UK US, CA US, OH The exclusion of PSTN charges has a positive effect on the UK results, reflecting the fact that business fixed PSTN charges are relatively high in the UK. Excluding broadband improves the UK position against Sweden and Germany where broadband offers factor in as among the cheapest services. The results are also affected by excluding cable only offers, as these factor in as among the cheapest services for some baskets A business service has been defined as a service that is clearly targeted at the business market. Some businesses may be able to use services that are targeted at residential use. The existence of "home workers" also blurs the distinction between residential and business use. In the UK, there is generally a substantial gap between prices for the metered business dial-up packages and metered residential dial-up packages and small to medium businesses may use residential packages (that do not prohibit business use) to reduce costs. In other countries the differential is not as large and cost savings will not be as significant. Detailed results 2.45 More detailed charts showing results by service provider are shown in this section. Results for the top 30 service providers are shown. The total price paid by the end user is split into charges paid to the ISP and charges paid to the PSTN operator.

30 30 Residential Basket 1 This basket includes 2.7 hours of calls per month, 80% of which are off-peak, 20% peak. Germany, Arcor Sweden, Tiscali - Se Sweden, Utf ors Germany, NGI UK, Onet el Germany, Tiscali - de Sweden, Tele2 Sweden, Spray Germany, Claranet Sweden, Telia Sweden, Telenordia Germany, QSC France, Oreka UK, NTL UK, Virgin UK, Tiscali - UK ISP PSTN UK, Freeserve UK, BT Germany, T-online France, Free France, Wanadoo France, Tiscali.fr France, Club Internet UK, Telewest France, 9 Telecom US - CA, AOL - CA US - Ohio, AOL - Ohio Germany, AOL.de US - CA, M SN - CA US - CA, AT&T - CA UK per year Prices in UK as at February 2003

31 31 Residential Basket 2 This basket includes 10 hours of off-peak calls per month. Sweden, Tiscali - Se Germany, Arcor Sweden, Utfors Germany, Claranet Sweden, Tele2 Sweden, Spray Sweden, Telia Sweden, Telenordia Germany, NGI France, Oreka Germany, Tiscali - de UK, Virgin UK, Tiscali - UK UK, Freeserve UK, BT UK, Onet el ISP PSTN France, 9 Telecom France, Club Internet UK, NTL Germany, QSC Germany, AOL.de France, Tiscali.f r US - CA, M SN - CA France, Wanadoo US - Ohio, M SN - Ohio Germany, T-online US - CA, AT&T - CA US - Ohio, AT&T - Ohio US - CA, SBC - CA France, Free UK per year Prices in UK as at February 2003

32 32 Residential Basket 3 This basket includes 20 hours of off-peak calls per month. Germany, Primacom US - CA, M SN - CA Germany, Arcor UK, NTL France, Noos US - CA, SBC - CA France, Wanadoo Sweden, Tele2 Sweden, Tiscali - Se France, Oreka Sweden, Ut f ors US - Ohio, M SN - Ohio France, 9 Telecom Sweden, Spray Sweden, Telia Sweden, Telenordia ISP PSTN UK, Virgin UK, Tiscali - UK UK, Freeserve UK, BT France, Club Internet Germany, Claranet Germany, QSC US - CA, AT&T - CA US - CA, XO - CA France, Free Germany, Tiscali - de Germany, NGI Germany, T-online UK, Onetel UK per year Prices in UK as at February 2003

33 33 Residential Basket 4 This basket includes 30 hours of off-peak calls per month Germany, Primacom UK, NTL France, Noos US - CA, SBC - CA France, Wanadoo Sweden, Tele2 Germany, Arcor France, Oreka US - CA, AT&T - CA US - CA, XO - CA France, Free Germany, Tiscali - de Germany, T-online UK, Tiscali - UK UK, Freeserve Sweden, Tiscali - Se ISP PSTN Sweden, Telia Sweden, Ut f ors US - Ohio, SBC - Ohio US - CA, Earthlink - CA US - CA, Speak easy - CA US - CA, AOL - CA UK, Telewest Sweden, Spray France, AOL.f r UK, Onet el UK, BT France, Tiscali.f r US - Ohio, AT&T - Ohio France, Club Internet UK per year Prices in UK as at February 2003

34 34 Residential Basket 5 This basket includes 40 hours of off-peak calls per month Germany, Primacom UK, NTL France, Noos US - CA, SBC - CA France, Wanadoo Sweden, Tele2 France, Oreka US - CA, AT&T - CA US - CA, XO - CA France, Free Germany, Tiscali - de UK, Tiscali - UK UK, Freeserve Sweden, Telia US - Ohio, SBC - Ohio US - CA, Earthlink - CA ISP PSTN US - CA, Speak easy - CA US - CA, AOL - CA UK, Telewest France, AOL.f r UK, Onet el UK, BT Sweden, Spray France, Tiscali.f r US - Ohio, AT&T - Ohio UK, Virgin US - CA, M SN - CA US - Ohio, XO - Ohio UK, Pipex Germany, Arcor UK per year Prices in UK as at February 2003

35 35 Unmetered Residential Basket This basket includes unlimited off-peak calls. ( Unlimited is modelled as 150 hours). Germany, Primacom UK, NTL France, Noos US - CA, SBC - CA France, Wanadoo Sweden, Tele2 US - CA, AT&T - CA US - CA, XO - CA France, Free Germany, Tiscali - de UK, Tiscali - UK UK, Freeserve Sweden, Telia US - Ohio, SBC - Ohio US - CA, Earthlink - CA US - CA, Speak easy - CA ISP PSTN US - CA, AOL - CA UK, Telewest France, AOL.f r UK, Onet el UK, BT Sweden, Spray France, Tiscali.f r US - Ohio, AT&T - Ohio UK, Virgin US - CA, M SN - CA US - Ohio, XO - Ohio UK, Pipex Sweden, UPC France, Nerim UK per year Prices in UK as at February 2003

36 36 Residential Basket 2p This basket includes 10 hours of peak calls per month Germany, Arcor UK, Tiscali - UK France, Oreka Germany, Tiscali - de UK, Onetel Germany, NGI France, 9 Telecom France, Club Internet UK, NTL Germany, QSC Germany, AOL.de Sweden, Tiscali - Se France, Tiscali.fr US - CA, MSN - CA France, Wanadoo US - Ohio, M SN - Ohio Sweden, Utfors Germany, Claranet Germany, T-online US - CA, AT&T - CA US - Ohio, A T&T - Ohio US - CA, SBC - CA France, Free Sweden, Tele2 UK, Telewest Sweden, Spray Sweden, Telia Sweden, Telenordia US - Ohio, SBC - Ohio US - CA, XO - CA ISP PSTN UK per year Prices in UK as at February 2003

37 37 Residential Basket 3p This basket includes 20 hours of peak calls per month Germany, Primacom UK, Tiscali - UK US - CA, M SN - CA Germany, Arcor UK, NTL France, Noos US - CA, SBC - CA France, Wanadoo Sweden, Tele2 France, Oreka US - Ohio, M SN - Ohio France, 9 Telecom Sweden, Spray France, Club Internet Germany, QSC US - CA, AT&T - CA France, Tiscali.fr US - CA, XO - CA France, Free Germany, Tiscali - de Germany, T-online UK, Onetel Sweden, Telia Sweden, Utfors US - Ohio, SBC - Ohio US - CA, Earthlink - CA US - CA, Speak easy - CA US - CA, AOL - CA UK, Telewest France, AOL.fr ISP PSTN UK per year Prices in UK as at February 2003