Last month we experienced something of a watershed moment for our industry as regulator Ofcom delivered its final decision on the Wholesale Fixed Telecoms Market Review (WFTMR). This regulatory review is hugely important as it defines the markets we all operate in for the next five years.
The big news for Openreach is that it gives us the regulatory enablers to crack on with building Full Fibre to 20m homes and businesses. We’re now looking to ramp up our build rate to 3 million premises per year and we’ve already passed our first significant milestone with 4.5 million premises with next generation connectivity in March.
But what does it all mean for the channel and plans for upgrading the UK from our old copper-based landline services to smart new digital ones?
The migration from copper to all IP is starting to gather momentum but the truth is its not moving anywhere near fast enough if we’re to upgrade some 14 million lines – including the now ageing traditional landline telephone service – to digital All-Internet Protocol (All-IP) in five year’s time. Put bluntly, it will mean migrating around 240k lines every month from now. But staying at the current pace means we’ll only get there in 2048!
The right direction
We’ve been doing all we can to nudge industry in the right direction – announcing 220 exchanges across the country where – where we intend to move away from our old copper based analogue phone (PSTN, WLR, etc) services and onto a new digital all-IP network, and there’s more in the pipeline. We’re also adapting our existing copper network to cope with IP based voice traffic – which helps to start the transition even before FTTP networks have become fully available - with a number of products including SoGEA (Single Order Generic Ethernet Access) and its Gfast equivalent SoGfast.
Since launching these products at the beginning of last year, our order volumes have accelerated rapidly and we now have more than 1.5m customer on future All IP products. We believe it’s a sign that the channel players are slowly gaining confidence in our products but despite the encouraging signs – we’re not yet seeing the necessary scale.
This is for a variety of reasons, including their own capex prioritisation and issues with system developments. However, there are also commercial challenges: one of the issues fed back by CPs is that there is no business case to invest in IP. WLR and SoGEA currently have similar rental charges, while IP voice brings additional costs on top, meaning the CP has had a commercial incentive to delay migration from legacy copper services until as late as possible.
The WFTMR has taken the gloves off – or rather the pricing caps off, to help drive momentum to IP products, and create a commercial case to migrate. Following Ofcom’s review, WLR products are no longer subject to price regulation and rental prices are increasing by 4.6 per cent for Basic, and by 3.8 per cent for Premium products. The cost of supplying a new line on WLR is increasing by 35 per cent to £42.15. Again, the rise is designed to encourage CPs to move to an IP product instead (such as SoGEA), as it will mean that the cost of a SOGEA New Line Provide will now be comparable to the price of WLR new Line plus FTTC Self install.
Some WLR resellers have said they can’t move to SoGEA until wholesalers develop an alternative product over IP. However, wholesalers are already selling products underpinned by SoGEA and FTTP and the number of providers and product offerings continues to grow.
For WLR customers looking to migrate to these products who are also looking for a WLR lookalike voice solution then, admittedly, options currently appear limited to bundled deals with access from wholesalers. We hope that the increase in WLR pricing will encourage wholesalers to consider these options. Additionally, there are a number of over the top IP voice providers offering wholesale solutions that can be used to provide voice services and we expect the market for this to grow and develop over the coming years.
The eagle eyed among you will have noticed a modest rise of 0.7 per cent on charges for rental and connection on SoGEA. This is in line with the Consumer Price Index but we’ll continue to review SoGEA prices as we obviously want to encourage people to migrate over.
A steady pace
During discussions with our CP customers – some have asked why we want to increase WLR prices and nudge people to move to SoGEA when they might need to migrate again to Full Fibre when that is deployed. Although waiting and moving in a single step to Full Fibre (FTTP) makes perfect sense – the sheer volume of legacy analogue lines that need to be migrated over means it may not be physically possible to complete them all ahead of the switch off in 2025. It is also challenging to plan this, as it requires predicting - at a premises level - the FTTP coverage several years ahead with accuracy. This price increase is designed to encourage migrations at a steady pace over the remaining WLR lifespan.
The general view with all of this is that Ofcom have done a pretty good job of finding a balance between pushing us all gently towards a Full Fibre all digital future but doing it in a managed and controlled way. For example, the regulator will protect customers during this transition, by transferring their regulation – including price protections – from copper to new fibre services.
There are, of course, detractors and we’ve seen some of our customers come out against the move away from cost-based charge controls on legacy copper broadband and phone services. Some have suggested that consumers won’t see the benefit of full fibre for years to come – leaving them ‘stranded on a lower quality product while paying more.’
Their argument is that the move away from cost-based charge controls in some areas, when combined with our new found ability to spread the cost of investment in fibre across a wider group of products (e.g. allowing us to recover some investment costs from both copper and fibre products), may result in bigger price increases at the wholesale level and that could ultimately get passed on to consumers. It’s a difficult balancing act but Ofcom has been clear that Openreach should be given a chance to make a ‘fair return’ – given the £12bn we’re investing in FTTP rollout.
A huge task ahead
Ultimately however, like it or not, copper is on its way out and if Openreach were forced to retain all of our legacy infrastructure then prices would probably still have to increase in order to cover the continued operation of both networks side-by-side.
We know, that in terms of migration to this brave new digital world, we all face a huge task ahead of us, and as the popular saying goes, you can’t make an omelette without breaking a few eggs. But now is the time to take advantage of new products and service that are coming online. SoGEA and FTTP will bring far greater reliability, game changing speeds and a gateway to software services that will drive channel innovation for the next 20 years.
As Ofcom Chief Executive, Dame Melanie Dawes, stated – this is a "once-in-a-century chance to help make the UK a world-leading digital economy".