Feature

Ofcom Reveals its Plans For Broadband – BT Keeps Openreach

Ofcom finally published its strategic review for the approach to regulating UK communications markets over the next decade. Reliance on Openreach is to be reduced says the regulator and while BT gets to keep Openreach Ofcom cautions that separation ‘remains an option’.

This strategic review sets out Ofcom’s approach to regulating communications markets for the next decade. It explains how they will ‘promote investment and competition to ensure that people and businesses get the phone, broadband and mobile services they need in coming years, wherever they live and work’.

Ofcom CEO Sharon White says the key proposals in the report are: “A strategic shift to large-scale investment in more fibre: We will help create more choice for people and businesses, while reducing the country’s reliance on Openreach. A major strategic shift will encourage the roll-out of new ‘fibre to the premise’ networks to homes and businesses, as an alternative to BT’s planned innovation in copper-based technologies. As part of this, BT will be required to open up its network, allowing easier access for rivals to lay their own fibre cables along BT’s telegraph poles and in its underground cable ‘ducts’.Screen Shot 2016-04-14 at 15.21.27

A step change in quality of service: We will publish service quality performance data on all operators, and look to introduce automatic compensation for consumers and small businesses when things go wrong. We intend later this year to introduce tougher minimum standards for Openreach with rigorous enforcement and fines for underperformance.

Reforming Openreach: We intend to reform Openreach’s governance and strengthen its independence from BT. In future, Openreach should be governed at arm’s length from BT Group, with greater independence in taking its own decisions on budget, investment and strategy. Openreach management will be required to serve all wholesale customers equally, and consult them on its investment plans. Greater independence could be achieved by ‘ring-fencing’ Openreach (for example, Openreach becoming a wholly owned subsidiary with its own purpose and board members). Full ‘structural’ separation remains an option.

The right to broadband: We will work with the UK Government to make decent, affordable broadband a universal right for every home and small business in the UK. The universal right should start off at 10Mbit/s for everyone, and then rise in line with customer demand over time. We will work with the Government to deliver it. We will also look to improve mobile coverage by including new obligations on operators seeking new licences for spectrum (the radio airwaves which transmit mobile signals).Screen Shot 2016-04-14 at 15.22.00

Empowering consumers to make informed choices: We will give consumers real power to exercise choice through much more accessible and engaging information on the services available to them. We will continue to make switching easier for more services so customers really can exercise choice.

Deregulate and simplify whilst protecting consumers: We will step back from regulation where people and businesses no longer need it, including when there is a real prospect of competition. Our ultimate goal is to improve communications services for everyone, not to increase regulation.”

So, as forecast by Comms Business Magazine, BT gets to keep Openreach however we note that Ofcom says “Full ‘structural’ separation remains an option.”

Commenting on the announcement from Ofcom BT Chief Executive, Gavin Patterson said:

“The UK is ahead of its European peers when it comes to superfast broadband and we want it to maintain that position. That is why BT is keen to make significant additional investments over the next five years and beyond.

“We want to build an even faster network and we also plan to address slow speeds in the final five per cent of the country. It is also important that we give small businesses further options aside from dedicated lines, which suit many but not all. Customer expectations have increased dramatically in recent years and we are keen to work with Ofcom and industry to meet those expectations. We all want to improve service. Openreach is already subject to regulated service standards and we are happy to work with Ofcom to improve them.

“Our plans would help ensure the UK remains the leading digital nation in the G20 and we are keen to get on with the job. They involve large scale investment however and that requires a high degree of regulatory clarity and certainty, something that is missing at present.

“Ofcom have today explained why breaking up BT would not lead to better service or more investment and that structural separation would be a last resort. We welcome those comments. The focus now needs to be on a strengthened but proportionate form of the current model and we have put forward a positive proposal that we believe can form the basis for further discussions with both Ofcom and the wider industry.

“We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done. Our ducts and poles have been open to competitors since 2009 but there has been little very interest to date. We will see if that now changes.”

Reaction:

Comms Business Magazine Deputy Editor David Dungay reported from Mobile World Congress in Barcelona that his inbox has been groaning under the pressure of responses from various industry players.

Dido Harding, CEO of TalkTalk Group commented, “Ofcom has done well in identifying many of the worst problems, including recognising, finally, that BT’s control of Openreach creates a fundamental conflict of interest which hurts customers.

But having accepted all this, Ofcom has produced 100 pages of consultation with little concrete action behind it. The risk is that we end up with 10 more years of debate and delays, rather than facing into the problems and delivering improvements for frustrated customers now.”

Matthew Howett, Practice Leader, Regulation at Ovum, said “Ofcom is also suggesting that there could be greater choice for businesses and consumers in the form of competing network infrastructure.

Screen Shot 2016-04-14 at 15.23.43This would be achieved by alternative operators deploying their own fibre using BT’s network of ducts and poles. Since 2010 BT has been obligated to share this infrastructure, but so far there has been very little interest in it actually doing so. Ofcom maintains that this is because of “operational process issues” and is calling on BT to engage with its rivals to see what needs to be done to make greater use of these ducts a reality. In some ways this puts the ball firmly in the court of those calling for more fibre investment, who have so far found the process unworkable.”

Dungay commented, “For now, the threat of separation still looms over Openreach if the outcomes of the report don’t lead to the appropriate solutions. Whether Ofcom will hold BT to all of this is another question up for debate. Fingers crossed!”

Low Impact Measures

Alastair Masson, Client Partner at NTT Data UK says, “Ofcom’s digital communications review is little more than a list of low impact measures to stimulate high-cost competition, rather than tackling the issue of Openreach and BT’s influence on the wider market.

Not only does it neglect to address the imminent competition decision on Three’s takeover of O2, it also misses a huge opportunity to move away from the stovepiped view of communications too often used in the UK. When it comes to analysing market movements, context is everything.

The industry is in a state of flux. BT has been urged to open up its cable network and telegraph poles despite already doing this through its Duct and Pole sharing initiative. All while remaining tied to Openreach. Meanwhile competitors wait in the wings for clarity on whether BT’s market dominance will actually be restricted, holding back potential investment and market competition as a result.

If the UK is to continue offering some of the lowest prices for broadband in the world, this leaves little room for improvement unless a minimum degree of investment is mandated. We must address some of the ‘elephants in the room’ plaguing the communications ecosystem. High speed broadband should not just be offered by industry giants, BT and Virgin Media, smaller operators should provide it too. They should also be able to do it without having to commit to unnecessary physical infrastructure rollouts. The whole point of unbundling was to avoid the need for competing infrastructure.”

Andrew Ferguson, editor of thinkbroadband.com, says, “The Ofcom report does not use the full nuclear option of creating Openreach PLC but does call for Openreach to consult more with industry on strategy and investment. Whether this will be enough to assuage Sky, TalkTalk and others only time will tell.

The big change for the public is that compensation due to faults is to be made automatic, thus increasing the incentive for Openreach to avoid having faults occur in the first place, but there will remain questions over how this trickles down to consumers, particularly since there can be several companies between an end-user and Openreach.

For broadband providers looking to create their own network there is good news and while duct sharing via previous PIA schemes has been possible, making it work in practice has always been difficult so hopefully this new push for duct and pole sharing will remove the barriers that PIA did not resolve.”

Commenting on Ofcom’s Digital Communications Strategy report, Lewis Shand Smith, Chief Ombudsman at Ombudsman Services, said, “According to our latest Consumer Action Monitor, more people than ever are having issues with their telecoms provider, with the sector responsible for the second highest number of consumer grumbles (after retail) - at the moment, we’re only seeing a small proportion of these complaints being actioned. Ofcom has suggested that this is down to poor signposting by companies.”

Next Steps - Openreach Announces FTTP Plans

Shortly after the Ofcom report landed on our desks Openreach announced plans to connect more consumers and small businesses in the UK to ultrafast fibre using its open access network.

The company will conduct two new trials of Business Fibre-to-the-Premises (FTTP) technology in Bradford – providing ultrafast speeds of up to 1Gbps in the city’s Kirkgate High Street and Listerhills Science Park. Openreach will also build on trials of ultrafast ‘G.fast’ technology with new pilot sites in Cambridgeshire and Kent.

It is also committing to build FTTP infrastructure into new housing developments in the UK that have more than 250 premises, free of charge.

Clive Selley, recently appointed new CEO of Openreach, said: “The UK is a leader when it comes to superfast broadband. Nine out of ten premises have access to fibre today and this will grow to 95 per cent by the end of next year – but I want to get high speeds to everyone, so we’re also developing solutions for the final five per cent of the country. I’m determined to roll out ultrafast broadband, and G.fast technology is the best way to deliver that to the majority of the UK as quickly as possible. We also plan to roll out significantly more fibre-to-the-premises, and we’re trialling a range of options in Bradford to use that technology increasingly in future – wherever it makes sense.

On 22 March Ofcom published their next steps on its Business Connectivity Market Review (BCMR) in a draft statement.

This draft statement puts forward strict new rules to improve BT’s performance in installing high-speed business lines, and significant reductions to the wholesale prices BT charges for these lines.

The BCMR considers the £2bn market for ‘leased lines’ – dedicated, high-speed data links used by large businesses and mobile and broadband operators to transfer data on their networks. Most of these lines are owned and maintained on behalf of competing providers by BT.

The Ofcom statement also addressed faster installations and ‘dark fibre’ access.

Since 2011, the average time between a customer’s order and the line being ready has increased from 40 to 48 working days. Ofcom’s proposals would require BT to reduce this to 46 working days by the end of March 2017, and return it to 40 working days the following year.

Ofcom is also proposing that, by the end of March 2017, Openreach must complete 80% of leased line orders by the date it promises customers, rising to 90% from April 2018.

The statement also confirms plans to require BT to provide access to its optical fibre network for providers of high-speed leased lines for businesses, using a process known as ‘dark fibre’.

With regards to lower wholesale charges for leased lines Ofcom confirms plans to reduce the wholesale prices BT charges for leased lines services, which the regulator expects to result in lower prices for businesses.

The main ‘charge controls’ relate to two groups of services provided by BT. These are: newer lines based on the ‘Ethernet’ standards for sending data at very high speeds over networks; and older leased lines using ‘traditional interface’ technology.

For BT’s Ethernet services with bandwidths up to and including 1Gbit/s, Ofcom has concluded an initial reduction in prices of 12%, with an overall cap of CPI -13.25%, for each year of the charge control.

For BT’s traditional interface services with bandwidths up to and including 8Mbit/s, Ofcom has concluded an initial reduction in prices of 9%, with an overall cap of CPI -3.5%, for each year of the charge control.

Ed Says… In the run up to the Ofcom announcement we commented that the outcome of the strategy review would most likely be covered in the fingerprints of politics and news management. With the post review publications from BT and Openreach themselves we can see the news management in action but to be honest most managers placed in their positions would undertake similar actions to demonstrate they are getting on with the job. Rest assured that whilst Ofcom says that separation of BT and Openreach remains an option it will never happen and for those who called for this split it is now time to put those wishes finally to bed and determine a new agenda for their respective companies. For our part Comms Business Magazine will continue to report on how the Ofcom strategy plays out across the UK consumer and channel sectors in the future.