CityFibre loses appeal over Ofcom’s approval of Openreach FTTP price drop

The Competition Appeal Tribunal until today “fired“CityFibre’s attempt to challenge Ofcom’s approval of Openreach (BT)”Equinoxoffers (here), which introduced a “Major” price reduction (details) to the wholesale price of their Fibre-to-the-Premises (FTTP) broadband products for UK ISPs. But the operator is far from giving up.

Just to recap. There “Equinox” discount was introduced last year and quickly generated a angry response alternative networks (AltNet), including Virgin Media and many others (Summary of British all-fiber constructions). These operators are collectively investing billions of pounds to roll out competing fiber networks and some will build in the same areas as Openreach, or be overbuilt by them in the future, and sell their own rival wholesale products to ISPs.

REMARK: Equinox could, for example, reduce the wholesale monthly rental of a 115Mbps or 1Gbps consumer FTTP level from £17.44 and £31.57, respectively, to just £15.50 and £22. This excludes any extras an ISP must add in order to get the retail price you pay (eg 20% ​​VAT, markup, service features, capacity, etc.).

Many of these AltNets are in the early stages of investing and carry a lot of risk. Needless to say, they are concerned that the Openreach rebates will eventually lead to reduced investment and deployment of competitive fiber infrastructure. Later, they say, it could also reduce choice and innovation, and potentially lead to higher prices for consumers (although for now it’s more likely to result in lower prices via competition).

This position reflects the fact that AltNets has benefited from a market where Openreach’s products have traditionally been much more expensive than their own options, making it easier for them to increase adoption, attract investment and support from third-party ISPs. to their equivalent wholesale options (if any). But Equinox makes it all harder.

On the other hand, the AltNets took a big risk assuming that Openreach would not adapt or be allowed to adapt to their pricing strategies, especially in highly competitive urban areas. As the market becomes more competitive, Ofcom’s regulation tends to get easier, not harder. This is partly reflected in Ofcom’s earlier decision (here) to give Openreach a “fair beton FTTP (i.e. looser regulation to drive roll-out), which was quickly followed by an accelerated £15bn plan to cover 25m premises by December 2026 (80 %+ of the UK).

The result of the call

CityFibre decided to launch an appeal against this in December 2021, which actually focused more on Ofcom’s process (i.e. how they arrived at their decision to approve the rebate), rather than on the price reductions themselves.

In early 2022, BT (on the Ofcom side), Sky Broadband (on the Ofcom side) and a group of AltNets (on the CityFibre side) – including County Broadband, Jurassic Fibre, Swish Fiber and Zzoomm – attempted to intervene in the case. But the court only cleared BT, while Sky and the AltNets were dismissed for various issues relating to costs, delays and fear that they were “unlikely to add materially to the information already available” etc.

Otherwise, the Notice of appeal (NoA) noted how Ofcom had accepted in the statement that the associate Order Mix Targets (OMT) for the offering would, in the short term, impact the incentives for some ISPs to use altnets in areas where their FTTP footprint overlaps with Openreach. The regulator had previously concluded that OMTs did NOT create a potential barrier to using altnets, but CityFibre feels their process did not do enough analysis.

CityFibre Appeal Grounds

1. Reason 1 (a): Ofcom’s overlap finding had no solid evidentiary basis and was not a conclusion that Ofcom could reasonably draw from the evidence.

2. Ground 1 (b): Additionally or alternatively, Ofcom’s overlap finding was never before the ConDoc stakeholders, in breach of Ofcom’s duties of fair consultation and reasonable investigation.

3. Land 2: Ofcom’s overlap finding in no way rationally supports the conclusion that OMTs do not create any potential barriers to the use of altnets.

The court today delivered its verdict and dismissed all of CityFibre’s grounds, which marks a victory for Ofcom and means no future roadblocks for Openreach’s discount scheme.

WCB Decision

We unanimously dismiss Grounds 1 and 2 of CityFibre’s appeal and dismiss the appeal in its entirety. In doing so, we note that Ofcom reserved the power to review its decision and intervene if it considers that Equinox’s offer affects competition in a way that Ofcom did not appreciate. previously. We encourage Ofcom to maintain close scrutiny of the market at this important time, to ensure that the judgments it made in the statement continue to be validated by emerging evidence of real competitive conditions.

An Openreach spokesperson said:

“This case concerned the process that Ofcom followed in approving our full fiber prices, not the prices themselves. We are happy with the result and have always maintained that Ofcom was right to find that our prices allowed other networks to compete fairly. Competition is good for customers, it’s what Openreach exists to promote, and it’s something the government and Ofcom have rightly worked hard to encourage.

CityFibre CEO Greg Mesch said:

“While the CAT rejected the appeal and we have always recognized that the threshold for successful judicial review of a regulator’s decision is a high hurdle, the CAT has made significant criticisms of Ofcom.

He said Ofcom’s consultation process could have been improved. Ofcom failed to understand that infrastructure competitors would have had information highly relevant to its assessment, although this information is important for the purposes of securing investment. The CAT also criticized Ofcom for its failure to provide clear and consistent guidance to those making very large investment commitments based on Ofcom’s policy decisions.

The CAT conclusion expressly encourages Ofcom to “maintain careful scrutiny of the market at this important time” to ensure that any decisions it makes provide genuine competition.

We are sure Ofcom will take note of CAT’s comments. Ofcom must now be proactive in reviewing any future Openreach offerings if it is to support and protect investments in infrastructure competition.

We’ve excerpted some of the main summary points of the CAT’s decision to reject each of the two main grounds below.

Summary of CAT key points

Floor 1

With respect to whether Ofcom had reasonable evidence on which to base the overlap finding, we decide that it did so because of:

(1) The expressed preference of altnets (including CityFibre) not to overload Openreach;

(2) The current limited overlap at the time of the Statement, as assessed by Ofcom with the benefit of information from Openreach and CityFibre;

(3) Published plans for the construction of the network, supplemented by information provided privately by CityFibre, which allowed extrapolation between the current position and the expected longer-term results; and

(4) The expectation that the business models of altnets other than CityFibre would remain retail-driven, not wholesale-driven. This conclusion was based on work done as part of the WFTMR and supplemented by discussions with ISPs and altnets as part of the Equinox consultation process.

While there may be some debate about the weight to be given to some of these points and the uncertainty attached to certain aspects of them, it cannot be said that there was a demonstrable flaw in the reasoning or that ‘there was no evidence to support a milestone, so the result was irrational.

Floor 2

We do not consider that Ofcom erred in taking into account the probability that certain events will or will not occur. It was appropriate for Ofcom to make evaluative judgments about whether there was a realistic possibility of certain outcomes, so it should be concerned about ISPs not using altnets.

In our view, it did so in a manner sufficiently consistent with the criteria set out in both the WFTMR and the statement (insofar as they are different), given the context and purpose of the criteria. as they appear in these documents. .

This decision will undoubtedly be a blow to CityFibre, but they do not see this as the end of their fight. As we understand, the operator sees this call as an opening salvo for what it might do if Openreach ever tries to launch even more aggressive discounts in the future (that’s a separate possibility – revisions of the Equinox offer would be a logical strategy).

Preparations are, we are told, already underway for such an eventuality and much stronger litigation could be launched. At the same time, CityFibre has continued to lobby Ofcom on the issue and there is a feeling among some at the operator that they may have made some progress on this front. Time will tell us. We are currently awaiting CityFibre’s comment and will add it as soon as it arrives.

UPDATE 12:56 PM

We’ve added a comment from CityFibre above, which draws some positives from the verdict.

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