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By Graeme Wearden, 4 December 2002 09:45

NEWS An influential government report has warned incoming super-regulator Ofcom that one of its biggest challenges will be ensuring fair play across the telecoms market. Electronic Networks: Challenges for the Next Decade, produced by the Cabinet Office Strategy Unit, told Ofcom it will have to ensure telcos such as BT do not abuse their powerful position in the UK's telecoms market. One of the report's key conclusions is that network operators who are dominant today are likely to enjoy similar muscle in 2012, as the Strategy Unit does not believe that any new nationwide networks will be built over the next decade. In its report, the Strategy Unit says: "Innovation is expected to result primarily from the evolution of existing networks rather than the creation of new networks." Given this, Ofcom - which will replace five existing regulators by 2004 - must be vigilant in preventing these companies from abusing their market power and in ensuring competition at both the wholesale and retail level, the Strategy Unit advises. The report also predicts that wireless networks such as Wi-Fi and 3G will merely complement, rather than replace wired networks. The Strategy Unit identified power-line broadband and ultrawideband as two technologies that could disrupt the current market set-up. However, it believes that most network innovations over the next 10 years will still be based on today's DSL and cable technologies. One reason for this is that it is now much harder to raise capital in order to roll out new networks. Despite the introduction of local-loop unbundling, there is little competition in the UK's wholesale telecoms market. BT enjoys a dominant position in the supply of wholesale ADSL, and also owns the only ubiquitous nationwide telephone network. BT competes with cable firms NTL and Telewest in the supply of telephony and broadband services in some parts of the UK, but there is no competition between the two cable firms as their networks do not overlap. The Strategy Unit believes there will be significant competition at the service and applications level over the coming years to loosen the regulator's grip. It predicts there will be enough genuine competition to make tight regulation unnecessary - freeing it up to keep a firm grip on the infrastructure level where it will have to use regulatory measures to keep companies with significant market powers in check. Electronic Networks: Challenges for the Next Decade was commissioned by Prime Minister Tony Blair and is one of the pieces of research that Ofcom will be expected to refer to when considering regulatory action. The report can be downloaded from the Strategy Unit website. Visit http://www.strategy.gov.uk