Ofcom’s competitiveness quest continues with another ducts and poles assault

Ofcom has unveiled its latest edition of its business connectivity market review with an all too familiar feel; how can it force Openreach and BT to play nicer with competitors.

As with any former state-owned monopoly, BT/Openreach is in the enviable position of having the groundwork already laid for future-proof infrastructure. Of course it has not done enough across the years to meet the demands of tomorrow’s fibre-based diet, though one factor behind this is a lack of external pressure on the business. Without competition, the enforced need to invest and innovate is not there. This is ultimately Ofcom’s objective; create an environment which encourages other ISPs to lay their own connectivity foundations, decrease the reliance on Openreach and improve connectivity options for the consumer.

“We want to give companies greater flexibility to lay fibre networks that serve residential or business customers,” Ofcom said in a statement. “So today, we are consulting on proposals to allow access to Openreach’s ducts and poles to companies offering any type of telecoms services including high-speed lines for large businesses, networks carrying data for mobile operators and high capacity lines supporting broadband services. We intend to implement this unrestricted duct access from spring 2019.”

This review focuses on the areas where there is minimised or no competition for BT. Ofcom believes BT currently has almost 5,600 local exchanges, though at roughly 5,000 of these sites there is competition from fewer than two competitors. BT’s position has been deemed unacceptable in these areas.

Starting with the areas where there is evidence of potential competition, but BT still maintains ‘significant market position’, Ofcom will no longer impose a cost-based charge control or quality of service standards on BT’s wholesale services, which combined with access to BT’s ducts and poles, the theory is competitors will have a stronger incentive to build their networks.

In areas where network competition is unlikely to be a reality, Ofcom has proposed a price cap for services at 1 Gbps and below to protect customers and provide certainty and stability over the course of the review. What is worth noting is that this is a relatively short-review, as while the proposals could come into play next spring, 2021 would see a new review and therefore new proposals.

The final proposal comes at the 4,300 exchanges where BT faces no competition from rival operators for inter-exchange connectivity, and Ofcom has deemed opening up the ducts and poles will have little impact. Rival networks are too far from these exchanges to make it economically viable to serve these exchanges, therefore BT is the only choice as a supplier for backhaul. Ofcom is proposing a requirement for dark fibre at cost for inter-exchange circuits that connect to these locations.

This is of course not the first time the dark fibre suggestion has emerged from Ofcom. In April, Openreach officially launched a compromise between full dark fibre access and full managed service after months of bickering and reviews with BT attempting to resist the Ofcom intervention. Ofcom seemingly lost that battle, with fingers being pointed at suspect market definitions, though now it appears ready to restart the assault.

This is of course only the consultation stage of the process, though the plans are to get the new rules in place by next spring. Whether this timetable is realistic with the almost guaranteed legal challenge from BT remains to be seen, but this is just another step in the never ending Ofcom quest to improve connectivity and competition across the UK.

Has the Secretary of State been swayed by Openreach lobbying?

Openreach and Ofcom are not friends at the moment. As part of the wholesale local access (WLA) market review, the watchdog has suggested a cap on Openreach’s rental charges which clearly has rubbed up some the wrong way.

One of those who Ofcom has offended seems to be Secretary of State for Digital, Culture, Media and Sport Karen Bradley who has written a letter (yes, it’s got that serious) to Ofcom CEO outlining her concerns over the move.

“It is important that unreasonable profits within the sector are addressed,” said Bradley. “However, I am concerned that price suppression could reduce demand for better services, such as fibre, and so will disincentivise investment in the network.

“Transformation of our existing networks to full fibre or other, more future proof, technologies will take many years. So, decisions made now have significant consequences for the future digital infrastructure of the UK and the economy that will depend on it.”

This is not exactly a new battle. Ofcom wants to create a fairer environment which ultimately works better for the consumer, while Openreach seems to be saying leave us alone or we’ll stop investing in the network. This seesaw of regulatory balance is a bouncing tale which we have seen before, the topic of disagreement is different though. Bradley seems to be sitting on the side of Openreach.

There are two ways you could look at this intervention. Firstly, Bradley is concerned any changes to the status quo might be detrimental to the consumer. Or secondly, she has capitulated to BT/Openreach lobbying. Your presumption of driver might depend on how much sleep you had the night before, or how much faith you have that politicians are in it for the greater good. We know which way we are leaning.

The concern here is that if the charges are capped, less money will be made by Openreach, and therefore less will be allocated to network investment. This is a very real concern. Openreach is after all a commercial operation which needs to make money. And it is also a British organization harbouring the traditional investment mind set, which makes us so passive.

Openreach does not seem to have the long-term ambition of investment to facilitate the connected economy, instead focusing on short-term profits. You could argue this will be to the detriment of the UK’s digital ambitions, but you could also argue Openreach has a responsibility to make as much money as possible; it is not a charity.

Of course, Ofcom gave a perfectly placid response, which is just what you would expect in such a PC-driven landscape:

“We have had a number of responses so far to our consultation, expressing a range of views,” said Ofcom CEO, Sharon White in her own letter.

“Some stakeholders have argued for wholesale prices to be more aggressively constrained. Other stakeholders have taken the opposite position and suggested that BT should have greater pricing flexibility for superfast broadband as well as for higher speed services.”

The WLA is still going through the consultation period, so the final position will not be known until early 2018, but we have one prediction for you. Considering the growing practice of taking Ofcom to court we have been seeing over the last couple of weeks, we predict Ofcom lawyers will get another run out as the operators continue to lead the UK down the path of digital irrelevance. We’re not too sure who will take Ofcom to court, but you can almost guarantee someone will.