Ofcom appears poised to anger UK alternative network builders (AltNets) after regulator categorically dismissed concerns over ‘Openreach’ todayEquinoxâOffer, which will introduce aâMajorâPrice reduction (details) for incumbent wholesale operators of Fiber-to-the-Premises (FTTP) broadband products for ISPs.
The offering itself could make Openreach’s all-fiber products cheaper for retail ISPs (i.e. cheaper services for consumers, if they pass on the savings), while still offering to these same suppliers long-term price certainty – for 10 years. Naturally, ISPs who are much more dependent on these products, and who have only a limited interest in building their own fiber (eg TalkTalk, Sky Broadband and Vodafone), have generally been in favor.
Essentially, the Equinox offering provides ISPs with lower prices for Openreach FTTP products, provided that they largely stop making new sales of legacy broadband products where Openreach FTTP is available, and switch to selling primarily of FTTP products. To qualify for rental discounts, ISPs must complete at least 80% of new FTTP orders after the first year.
However, the “EquinoxâOffer generated a furious response from AltNets and Virgin Media (VMO2), many of which are currently busy investing billions (collectively) to deploy competing FTTP networks (e.g. CityFibre, Zzoomm, KCOM, Truespeed, Fern Trading and many more). Some of these networks will deploy in the same areas as Openreach, or be oversized by them in the future, and sell their own products from large competitors to ISPs.
These AltNets, many of which are in the early stages of their investment and carry a lot of risk, have previously warned that Openreach’s new discount could ultimately result in reduced investment and deployment of competitive fiber-optic infrastructure. Later, they fear, this could also reduce choice and innovation, and potentially lead to higher prices for consumers.
Part of this concern stemmed from the fact that Openreach’s FTTP products have become more price competitive – previously they tended to be more expensive and therefore AltNets could increase adoption by being price aggressive. The other aspect focuses on how the new pricing might make it more difficult for AltNets with their own wholesale solutions to attract third-party ISPs to their networks, as they would have less reason to choose them over Openreach.
The equinox decision
Ofcom, which once again found itself in a very difficult balancing act between the vested interests of opposing parties, had previously given its provisional approval to Openreach’s offer (here). As part of this, they recognized that âaltnets are likely to face stronger competition“As a result of the offer, but they didn’t think it would”create a potential barrier to using altnets“and predicted”better outcomes for consumers. “
The regulator has also previously highlighted how their âanalytical framework concerns the promotion of competition rather than the protection of competition as provided for in competition law.But the bad news for AltNets is that, despite some very public protests, Ofcom’s thinking has not changed.
Our point of view is that we should not be taking any action at this time.
In arriving at our point of view, we took into account the impact on competition. For the reasons set out above, we believe that Equinox’s offer will not have a material adverse effect on competition. We also took into account the impact on the various stakeholders:
a) Citizens and consumers: our conclusion is that the Equinox offering is consistent with the promotion of investments in gigabit compatible networks by Openreach and other operators and the promotion of network-based competition, ultimately providing better results for consumers.
b) Altnets: Following the Equinox offer, altnets are likely to face stronger competition from Openreach. However, we conclude that order mix goals and forecasting requirements do not create a potential barrier to using altnets and that discounts for new to the network do not raise concerns in terms of targeting or of their impact on the construction of altnet. Therefore, our conclusion is that the Equinox offering is compatible with network-based competition.
c) ISPs: We believe that ISPs are likely to benefit from network-based competition. As explained above, we conclude that ISPs will continue to be free to use alternative networks wherever they wish.
d) Openreach: We believe that not preventing Openreach from presenting the Equinox offering allows it to engage in network-based competition, without compromising our goal of promoting investment in gigabit compatible networks.
In arriving at our opinion, we have taken into account our obligations under Sections 3 and 4 of the Communications Act 2003. As discussed in more detail above, we have also taken into account the UK Government’s SSP.
Mark Shurmer, MD for regulation at Openreach, said:
âThis is a positive step as we continue to invest in upgrading the UK’s digital infrastructure. Our new pricing gives ISPs more certainty in the long run, allows them to compete in a highly competitive marketplace, and makes superfast Full Fiber technology the default choice wherever it’s available – that’s great news for ISPs. homes and businesses throughout the UK.
Initially, we believe consumers will be happy to see FTTP become cheaper through Openreach, which in turn will drive adoption of related products and help move away from the legacy of copper lines. But on the other hand, AltNets will face increased pressure on their investment models and may need to grow even faster, not least because growing market share among consumers will now become more difficult.
Ofcom will also be aware that this partly reflects its decision earlier this year (here) to give Openreach a “fair betOn FTTP (i.e. looser regulation to encourage deployment), which was quickly followed by an accelerated commitment of Â£ 15bn to cover 25m premises by December 2026 ( around 80% of the UK) – including around 6.2 million locals in rural and semi-rural areas. So far, they have already built 5.2 million premises and are growing rapidly.
However, today’s decision leaves a significant question mark over the impact this will have on AltNet projects, particularly if Openreach’s soon-to-be-cheaper FTTP products will put too much pressure on their business models, their businesses. investments and associated participation forecasts. Ofcom says not to worry, but only time will tell.
Operators who have already been able to establish a certain scale should be able to overcome this, although they potentially need to reduce or further subsidize their existing prices. But smaller AltNets, especially those attempting to overbuild Openreach’s FTTP (intentionally or unintentionally), may have the most difficulty and might end up looking for consolidation sooner than expected.
Likewise, when discounts are applied by Openreach in already highly competitive urban areas (Ofcom Area 1), then AltNets takes a great risk in assuming that the incumbent would not adapt or would not be allowed to adapt. . In these areas, Ofcom’s market research had already decided that Openreach should not face a lot of regulation.
UPDATE 11:42 am
Added a comment from Openreach above.