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.

Orange goes submarine with Google cable partnership

Orange has been announced as the latest partner to join Google on its monstrous mission to bulk out its connectivity infrastructure maze.

The telco will act as the French ‘landing partner’ for Google’s Dunant transatlantic submarine cable, which is set to come into operation in 2020. As part of the partnership, Orange will provide backhaul services to Paris, while also benefiting from fibre-pairs with a capacity of more than 30 Tbps per pair.

“I am extremely proud to announce this collaboration with Google to build a new, cutting-edge cable between the USA and France,” said Stéphane Richard, CEO of Orange. “The role of submarine cables is often overlooked, despite their central role at the heart of our digital world. I am proud that Orange continues to be a global leader in investing, deploying, maintaining and managing such key infrastructure. Google is a major partner for Orange and this project reflects the spirit of our relationship.”

Announced back in July, Dunant (named after Nobel Peace Prize winner Henri Dunant) is Google’s first private investment across the Atlantic and supplements one of the busiest routes on the internet. The cable will be 6,600km long, connecting the west coast of France to North Virginia in the US. The cable is set to be the first to connect the two countries in 15 years.

While many organizations are investing in infrastructure through consortiums, Orange has invested in more than 40 submarine cables, few have taken Google’s approach in being the sole investor. It might be a more expensive approach, though Google will have more control over capacity and the route of the cable, perhaps giving it a bit of an edge over competitors. The weight of such investments have been putting some dents in the spreadsheets, the CAPEX column doubled during the latest quarterly earnings call, though it does put Google in a solid position.

From Orange’s perspective, the partnership will strengthen the telcos position to support the development of new uses for its consumer and enterprise customers in Europe and America. It will also be in a stronger position to provide services to wholesale market such as content-providers and third-party operators.

Telarix and Starhome Mach merge to offer global wholesale telecoms portfolio

A couple of companies involved in the areas of operator interconnectivity, roaming and general wholesale action have decided to merge.

The combination of Telarix and Starhome Mach inevitably claims to offer a full end-to-end set of wholesale solutions for operators, covering voice, SMS, clearing, settlement and fraud prevention. The new company has 450 customers in 130 countries. All this mucking about with telecoms plumbing also creates business opportunities in BSS, subscriber analytics and that sort of thing.

“CSPs must manage their complex partner ecosystem from negotiation to traffic management, to billing and settlement, while at the same time, providing differentiated services to consumers, businesses and IoT.,” said Telarix CEO Marco Limena. “This merger will enable the development of new  innovative solutions overcoming the complex challenges of today’s digital transformation era to drive desired business performance.”

“Our success in launching SaaS versions of our leading roaming and clearing platforms introduced a variety of other innovative solutions in real-time anti-fraud, Network Function Virtualization and the Internet of Things,” said Starhome Mach CEO, Itai Margalit. “Bringing our offerings together with Telarix’s solutions will bring new solutions to the market and we see a huge opportunity to accelerate company growth.”

“Telarix and Starhome Mach have been very successful in their respective markets,” said Steve Pusey, former Group CTO and Senior Board Advisor to Telarix. “The joining together of this expertise creates a unique opportunity to address the market demand for full spectrum solutions.”

While positioned as a merger this looks more like the acquisition of Starhome Mach by Telarix. Private equity is involved one both sides but only Vista Equity Partners, which is behand Telarix, will remain involved, it will be based in Telarix’s home of Vienna, Virginia, and Limena will be the CEO of the new company, with Margalit becoming President of the roaming silo. You can read further analysis of this move at Light Reading here.

3 + BT + SSE = 5G, FYI

UK MNO Three has announced a new deal that gives it access to a bunch of BT local exchanges to augment its backhaul. This will be handy for 5G, we’re told.

This move was made possible by a new project undertaken by SSE Enterprise telecoms to unbundle 177 BT exchanges over the next two years, thus enabling it to offer wholesale fibre services itself. Three is the first customer to seize this opportunity, which SSE is virtue-signalling as being a significant contribution to UK fibre access or something like that and Three seems to be adopting a similar position on 5G.

“By significantly increasing our access to fibre, we are putting our network on the best footing possible to take advantage of the benefits of 5G technology,” said Bryn Jones, CTO at Three UK. “Our customers use 3.5 times more data per month than the average UK consumer and this deal will help us maintain our leadership in providing a fantastic data service. Fibre is essential to the UK’s digital future and more needs to be done to improve its availability to ensure that the UK benefits from 5G at the earliest opportunity.”

“5G will allow Three UK to grow capacity on its network more than twenty-fold,” said Colin Sempill, MD at SSE Enterprise Telecoms. “But for 5G to live up to its potential, the right infrastructure must be in place. High capacity fibre connectivity is absolutely critical. We’re fully invested in supporting the UK’s digital ambitions, demonstrated in our recent investments in expanding our network, and it’s exciting for us to be playing such an important role in Three UK’s journey towards a 5G future for consumers and businesses.”

Three says this deal will allow it to increase its network capacity 20 times, which is pretty significant and necessary since it anticipates UK punters hoovering up 90GB per month by 2025. Oh, and in case you missed it, this will make it really good at 5G too. SSE, meanwhile, seems to be positioning itself as a major fibre backhaul provider thanks to this project.

BICS and Fastweb combine to link Europe and MEA

Connectivity vendor BICS has joined forces with Italian operator Fastweb to augment communications links between Europe, the Middle East and Africa.

The strategic partnership aims to combine BICS’ pan-European network with Fastweb’s fibre backbone in Italy and its access to submarine cable systems originating in Sicily. The point of this joint effort is to offer intercontinental connectivity services wholesale to other operators.

“We are highly satisfied with this partnership agreement with such a major international player as BICS, which highlights the strength of our network and the solid nature of our strategy,” said Fabrizio Casati, Chief Wholesale Officer at Fastweb. “The partnership with BICS adds further value to our investments, following on from our participation in the Open Hub Med consortium in Sicily and the development of an innovative and future-proof Flexible Optical Network all along Italy.”

“BICS has always been committed to providing its customers with first-class connectivity, and this partnership confirms our position as a bridging partner for operators expanding their capacity provision throughout Europe,” said Daniel Kurgan, CEO at BICS.

In case you’re wondering where else BICS connects here are a couple of maps for you. We couldn’t find any for Fastweb, sorry.

BICS Europe

BICS global

BT consolidates its B2B business units under Gerry McQuade

UK telco BT is merging a bunch of B2B business units into one – called BT Enterprise – that will be run by the current head of BT’s Wholesale and Ventures unit.

Gerry McQuade has run the wholesale unit, which offers services mainly to UK communication providers and broadcaster, for a couple of years. He will effectively swallow up BT’s Business and Public Sector unit to create one big part of the company that focuses on business all the way from SMBs to the public sector. The former head of the latter unit – Graham Sutherland – has decided this is a good time to call it a day at BT.

“Having brought together our Consumer and EE businesses, this is the next step in the simplification of BT’s operating model,” said BT Chief Exec Gavin Patterson. “Combining our enterprise businesses will allow us to strengthen the services and products we offer to businesses and sharpen our focus on customer service, through clear accountabilities and by introducing efficiencies. Gerry McQuade has successfully led the Wholesale and Ventures business since its inception in 2016 and is the right person to drive the new organisation forward.

“I’d like to thank Graham for all he has done for BT over the past 12 years. During his time as CEO of the businesses in Ireland and MD of BT Business, he materially improved the profitability and performance of those divisions. Most recently as CEO of BT Business and Public Sector he has successfully led the integration of EE business into BT and the turnaround of our Public Sector division. I wish him all the very best for the future.”

McQuade came into BT from the EE acquisition and, with EE boss Mac Allera now heading up the consolidated consumer business unit, it’s interesting to note the increasing prominence of EE people at the BT top table. The two companies have very different business cultures and trying to combine a former state monopoly with a relatively fast moving MNO will inevitably have created friction. Patterson seems to be saying the whole company needs to modernise its attitudes with these appointments.

Wholesale and pricing strategy in mobile markets

In this commissioned report by The MVNOs Series, we cover a number of topics, such as the changes in the mobile wholesale market, Wholesale-as-a-Service and the impact on digitalisation, network innovation and the impact of virtualisation, what to expect from a future with 5G and the new opportunities it brings.

The mobile market is well-established as one of the most strategically important sectors of the global economy. The wider mobile ecosystem is estimated to deliver $3.6 trillion in value added, accounting for 4.5 per cent of global GDP.

There are now more than five billion people connected to mobile services worldwide, likely to rise to close to six billion – three quarters of the world’s population – by 2025.

With its central role in communications infrastructure and the predicted development of IoT, mobile will become one of the key enabling technologies driving growth and innovation across all sectors, from healthcare to education, manufacturing to financial services.

Yet even an industry with such strong credentials for success is not without its challenges. Mobile network operators (MNOs), the gatekeepers to mobile connectivity for all end users, have not found the transition from an industry built around voice and SMS services to internet and data entirely straightforward.

In purely economic terms, MNOs have seen revenues drop by 12 per cent from their peak in 2012. The recalibration of the market around data has been a major trend since the start of the decade and beyond, yet telcos have still not found a way to generate the same ARPUs they could generate from voice and SMS.

Buffered by regulation on roaming and mobile call termination (MTC) rates, and finding themselves at the centre of a much more complicated web of customers jostling for mobile data services, many mobile operators are looking at wholesale operations and pricing strategy with a fresh pair of eyes in a bid to generate new revenue streams.

In this report, we analyse how the switch to data-first mobile services is changing the relationship between operators, resellers and MVNOs. We will look at how new use cases for mobile services, such as IoT connectivity and multiplay content bundling, are creating new market opportunities while also attracting new players into the space.

Looking forward, we will then focus on the impact of new technology on the mobile wholesale market, zooming in on two areas in particular – the emergence of a ‘wholesale-as-a-service’ cloud-based B2B services market, and the impact of network virtualisation which will accelerate with the arrival of 5G.

For an in-depth analysis, download a copy of the report.

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The Openreach virtual dark fibre service finally sees the light of day

Six months after proposing a compromise between full dark fibre access and full managed service, Openreach has formally launched ‘virtual dark fibre’.

The proper name for this fibre wholesale service is Optical Spectrum Access Filter Connect and the thinking behind it was explained to us by Openreach General Manager of High Bandwidth and Passive Services, Darren Wallington, in October of last year. In essence it aims to combine the service assurance and response times of a managed service with the scalability and flexibility sought from dark fibre access.

“We’ve re-engineered our high-bandwidth optical services to give our wholesale customers far greater flexibility at a fantastic price,” said Wallington. “OSA Filter Connect allows providers to grow their needs affordably, at their own pace and using their choice of innovative equipment.

“By innovating a virtual dark fibre service, we can give customers that extra flexibility whilst still being able to monitor our network and respond to faults and issues proactively. With a regulated dark fibre access product, we would’ve literally been left in the dark with no monitoring capabilities and significantly longer service interruptions due to the reactive nature of fault reporting, but this means we can commit to a national five-hour response time.”

Pricing seems to be one of the things Openreach has worked on a fair bit on the last six months, much of which have been spent in what Openreach characterizes as ‘proper, constructive engagement’ with UK stakeholders. Additionally it has received a significantly increased level of direct lobbying from MNOs, keen to get ahead of the game on 5G fronthaul and backhaul.

“We’ve listened closely to our customers,” said Wallington. “They wanted something that would address the perceived failings of a ‘one size fits all’ regulated product and they’ve helped us to shape the product we’re launching”

“Both large and small customers told us they wanted a service that offered more competitive high bandwidth pricing with low incremental scaling costs. They also wanted more flexible and configurable services that give them more control, the ability to support fast evolving technology – like synchronization, and more efficient use of space and power.”

It’s not for us to say whether or not this is the right solution to the dark fibre access issue, but it does seem like a good-faith attempt by Openreach to balance a number of different factors and needs. We’ve copied the new pricing tables below to help you make up your own mind.

 

*Pricing – OSA filter connect prices below, note the 5 year term variant is less than our original consultation range

This provides CPs with a 10GB managed service with spare filter ports that they can use to scale to higher bandwidth by themselves with no additional costs from Openreach. We will continue to offer additional Managed Wavelengths for those CP’s who prefer a managed service at very competitive price points.

Product Minimum Period Connection £ Exc VAT Rental per annum £ Exc VAT
OSA Filter Connect FSP3000 – 12 month 12 month £15,550 £7,845
OSA Filter Connect FSP3000 – 36 month 36 month £12,233 £6,276
OSA Filter Connect FSP3000 – 60 month 60 month £12,233 £5,775

* Can be upgraded to 20Gb without a site visit

 

EAD 10Gb will see connection prices reduced by up to 32% and rentals by up to 53%

At the same time the 5 year term variant will now in effect make be a 3 year term product, as we’ve set the early termination charges for Year 4 and 5 to zero.

Product Charge type Current Price New price for 3 April 2018 Price reduction
EAD 10000 Connection £5,990 £5,590 -6%
EAD 10000 Rental £10,500 £4,980 -53%
EAD 10000 (60 month minimum period) Connection £5,990 £4,090 -32%
EAD 10000 (60 month minimum period) Rental £8,400 £4,380 -48%
EAD Local Access 10000 Connection £5,990 £5,590 -6%
EAD Local Access 10000 Rental £7,500 £4,146 -45%
EAD Local Access 10000 (60 month minimum period) Connection £5,990 £4,090 -32%
EAD Local Access 10000 (60 month minimum period) Rental £6,000 £3,648 -39%

 

Dual Fibre mainlink, the headline rate will be reduced from 37.2p to 24p

OSA Main Link charge feature Current price (pence per meter) Price on 3 April 2018 (pence per meter)
Main link per metre or part thereof  37.2 24.0
Main link + Standby link per metre or part thereof  82.8 57.6
Diverse main link per metre or part thereof 42.0 28.8

 

Ofcom slaps cap on Openreach broadband packages

After receiving no criticisms from the European Commission, Ofcom is moving forward with measures to regulate the broadband wholesale market in a bid to drive competition and network upgrades.

This project has been ongoing for months, but the final statement from Ofcom puts forward three measures which will apparently improve the broadband market for the consumer. Firstly, BT must make its telegraph poles and underground tunnels open for competitors to build their own full-fibre networks. Secondly, Ofcom will impose a cap on how much Openreach can charge for entry-level superfast broadband service (download speeds up to 40 Mbps). Finally, there will be no regulation placed on Openreach’s fastest wholesale superfast broadband products.

“Today’s statements cover the period from 1 April 2018,” Ofcom said in a statement. “They confirm a package of measures Ofcom set out last month to further increase investment in ‘full-fibre’ broadband networks, and drive improvements in the quality of Openreach’s service.”

The first point, the ducts and poles, actually dates back to late 2016. During the latter months, Ofcom presented the idea of allowing telcos greater access to BT’s ducts and poles to encourage rivals to lay their own ‘full-fibre’ networks, perhaps as a reaction to the industry’s moaners.

Several competitors had complained Openreach was not upgrading its network at a fast enough pace, though this initiative essentially suggests the moaners put their money where their mouths are. Instead of being the victim, coerced into insufficient services because there are no alternatives, rivals can now lay their own fibre. Preaching about the need for upgrades to the network has been long and self-righteous, let’s see if there is any substance to the claims.

In terms of the pricing, perhaps a lack of regulation on the superfast broadband services will encourage rivals to actually invest themselves. Openreach can charge what it likes right now, and should there be complaints from rivals, the option to do it themselves is there. Maybe Ofcom is playing an expert game of chess; give Openreach the opportunity to overcharge and when they do, rivals are forced to spend on fibre themselves.

While Openreach is ‘independent’ following the split from BT, we still imagine the puppet strings are still attached, just in a more subtle manner. The caps on the slower broadband products, £12.06 a month by 2020/21, will apparently cost £80-120 million in profits during the 2018/19 financial year, so there is incentive to recapture these profits elsewhere. The profit-hungry management team might not be able to resist the tempter which is a cap-free pricing structure on the superfast broadband products.

By encouraging Ofcom to abuse rivals on pricing in the full-fibre segment, the watchdog might have played a blinder in the long-game category. Could this red-tape intervention actually inspire increased full-fibre investments?

This announcement seems to be one of the highlights of Ofcom’s broader cunning plan for 2018/19, which it also published today. Among the regulators other priorities for the next year or so are:

  • working with industry to support investment in ultrafast fibre broadband networks;
  • monitoring and reporting on progress around the legal separation of Openreach from BT;
  • undertaking the first annual report on the BBC’s compliance with our requirements;
  • preparing for future releases of airwaves to help increase the capacity and quality of UK mobile networks; and
  • extending availability of broadband by starting implementation of a universal service obligation.

Ofcom lays more rules on Openreach to stimulate fibre investment

UK telecoms regulator Ofcom has had another go at tweaking the system with the stated intention of getting more fibre laid around the country.

As we discussed on our recent podcast fibre infrastructure is as important as any other utility for any country that has serious ambitions to participate in the global digital economy. There is a great deal of variation between countries, even just in Western Europe, in their approach to fibre and those that get ahead of the game stand to be at a significant competitive advantage.

Ofcom seems mindful of this and has proposed a fresh set of regulations, largely aimed at BT’s fixed-line wholesale arm Openreach, which are designed to both encourage fresh fibre to be laid, but at the same time keep ‘superfast’ broadband affordable for everyone by lowering what Openreach can charge other providers for its 40 Mbps service.

The main initiatives consist firstly of a further call for BT to make its ducts and poles available to anyone who fancies whacking a bit of their own fibre into them, including a commitment to clear them out or add capacity if need be and the provision of a digital map. Ofcom reckons this could halve the cost of laying fibre cables to £250 per home.

But Ofcom is also concerned about BT undermining any new fibre investment by selectively dropping its pants on price to undercut its new competitor, so it’s banning that, and then it’s knocking 25% off the annual wholesale rental price for the 40 mbps service, as shown in the table below.

Ofcom 40mbps table

“Full fibre meets the country’s future broadband needs, as demand for data soars,” said Jonathan Oxley, Ofcom’s Competition Group Director. “Ultrafast speeds will allow people to download entire films, or businesses to share huge files, almost instantly. Full fibre will also underpin exciting technology like remote healthcare diagnostics, 5G mobile and connected devices.

“The measures we’ve set out today will support the growing number of companies who have already announced plans to build full-fibre networks, and open the way for even more ambitious investment around the UK.”

Openreach also had plenty to say on the matter. “Ofcom’s statement gives us certainty on their approach to key products and we welcome Ofcom’s intention to support investment in full fibre networks,” said an Openreach spokesperson. “But to incentivise further FTTP investment, infrastructure builders – including Openreach as the largest FTTP builder in the UK – need to be certain they can secure a return on their investment and a fair bet. In particular, we will need to look carefully at geographic pricing restrictions and need to define future fair bet conditions in more detail.

“In the meantime Openreach is getting on with the job of making Fibre-to-the-Premises broadband available to three million premises by the end of 2020. That puts us on the right trajectory to cover ten million premises with FTTP by the mid-2020s if the conditions are right. We want to go significantly beyond that – to the majority of the UK – but the pace and extent of our investment will depend on how quickly other key enablers can be realised. We welcome Ofcom’s comments around support for a future digital switchover.”

One of the things that jumps out of that pricing table is how much margin broadband suppliers seem to get on consumer broadband packages. The wholesale price of 40 mbps broadband is currently around £14 per month and even special, time-limited deals in the UK at this level tend to start at around £25 per month, plus a bunch of extras. So 100% margin on broadband doesn’t seem to be an uncommon occurrence here.

This is at the ‘draft statement’ stage right now but, assuming it all goes through, it will be interesting to see if ISPs pass on the 25% reduction to consumers and also to see how much ongoing aggro the cap on selective price-cutting by BT will cause. But ultimately all that matters is that the level of FTTH is significantly increased from the feeble 3% level it’s at today. Here’s a handy infographic from Ofcom designed to illustrate its central point.

Ofcom fibre investment