UPDATE2 Ofcom Propose to Open BT Dark Fibre Optic Network to UK Rivals

In a surprise move Ofcom’s Business Connectivity Market Review (BCMR2016) has done a U-turn on its 2012 policy by proposing that rival ISPs, specifically those that provide Leased Lines, should be granted access to BT’s national Dark Fibre network (i.e. un-lit fibre optic lines that have spare capacity for coping with future demand).

The last Ofcom review of business connectivity was conducted in 2012 (here and here), which similarly investigated the provision of leased lines across the United Kingdom’s £2bn market for business telecoms and flatly rejected the idea of using so-called Passive Remedies, such as Dark Fibre access.

At the time the regulator said that such an approach would “carry significant risks of worse outcomes, both for consumers and for effective competition, including adding costs and encouraging inefficient entry.” But this position now appears to be changing.

Jonathan Oxley, Ofcom’s Competition Group Director, said:

“High-speed, fibre optic leased lines are invisible to most people. But they form a critical building block in the UK’s infrastructure that underpins people’s personal and working lives.

Today’s proposals should help businesses across the UK who rely on high-speed data lines. We want to see more innovation, faster installations and more competition, by providing operators with the opportunity to deploy the technologies of their choice.”

The signs were all there in March 2015 when BT, Virgin Media and KC clubbed together for an open letter to Ofcom (here), which warned the regulator that such a change could result in higher prices and “significant regulatory uncertainty, undermining the return on sunk investments and therefore disincentivising future infrastructure investments“. It also states that “allowing multiple operators to tamper with the physical network will cause service faults for customers“.

BT’s 2014 Response to the BCMR 2016 Call for Input

“Our analysis shows that far from delivering significant incremental benefits, passive remedies would have a number of serious drawbacks. In particular, cherry picking by CPs using passive remedies would force BT to recover common costs elsewhere, to the detriment of end-users of the affected products, and CPs’ incentives to invest in their own networks would be reduced.

Further, the use of currently unallocated passive capacity by other CPs would negatively impact on BT’s ability to use this capacity for future growth. This would violate the principle of allowing BT a “fair bet” on its investments.”

But today’s announcement tables a number of big proposals, including a new minimum Quality of Service performance requirement for BTOpenreach that would force the operator to speed up its installations of high-speed Ethernet services (leased lines), which is similar to their earlier consumer focused telecoms review (here).

On top of that Ofcom plans to deregulate in some areas of the Leased Lines market, including lifting supply and pricing requirements on all but the oldest services in central London, where competition is now deemed “sufficient to make this unnecessary“.

Similarly BT will no longer face Ofcom’s requirements on their very low-bandwidth (sub-2Mbps) leased lines (these are due to be withdrawn by 2020 anyway). Finally there’s the Dark Fibre change, which is easily the biggest one and will apply to areas outside central London (Hull is also excluded as KC is the incumbent).

Ofcom’s Dark Fibre Statement

Ofcom is proposing that BT should give competitors physical access to its fibre-optic cables, allowing competing operators to take direct control of the connection. This service is often referred to as dark fibre, because the fibre-optic cables would not be ‘lit’ using BT’s electronic equipment. Instead, they would be ‘lit’ by the competitor installing its own equipment at either end of the cable.

BT is already required to offer wholesale leased line products, which bundle the fibre-optic cable and BT’s own network equipment, at regulated prices to competitors. BT would still be required to provide these services, but the new proposal would go further, allowing operators to use BT’s fibre-optic cables with their own equipment, rather than rely on BT’s.

This should increase the opportunity for competitors to create tailored, high-capacity data links at cost-effective prices for their customers.

The move is likely to please quite a few operators, not least Vodafone, which fears that BT might gain an unfair competitive advantage when they take full control of EE because it would allow them to leverage their vast fixed line network in order to lower the costs of mobile provision. Other rivals also see Dark Fibre as a way to cost effectively speed up the deployment of their own alternative networks.

As usual Ofcom’s proposals will be subject to another consultation, which is set to run until 31st July 2015 and if all goes well then a final decision could be confirmed during Q1 2016. The measures would then be introduced from April 2016.

However the Dark Fibre solution would not become available to telecoms providers until April 2017 because an agreement on pricing would have to be reached first and this would require a difficult engagement between BT and its rivals. In the event that BT and their rivals could not agree terms for dark fibre access then Ofcom could intervene to finalise these terms (we wouldn’t be surprised if that happens).

Ofcom BCMR 2016 Consultation
http://stakeholders.ofcom.org.uk/consultations/bcmr-2015/

UPDATE 9:07am:

BT has kindly furnished us with a statement.

A BT Spokesperson told ISPreview.co.uk:

“Openreach’s current offer creates a level playing field and a vibrant, competitive market with hundreds of competing companies, large and small.

Mandating dark fibre risks favouring a few companies that have the greatest capability to deploy it, to the disadvantage of all other firms.

It will undermine investment – as a number of service providers have warned – and it would also increase costs, divert resources and add more complexity just when we’re beginning to make progress on improving service.”

UPDATE 9:39am:

Now a reaction from Cityfibre, which is installing fibre optic networks around several UK cities.

Greg Mesch, CEO of CityFibre, said:

“CityFibre welcomes Ofcom’s proposal that BT is compelled to make dark fibre available by April 2017 as part of its Business Connectivity Market Review (BCMR)

Dark fibre has been validated worldwide as the only infrastructure platform to deliver cost-effective, future-proof digital connectivity fit for purpose in the decades to come. As one of the UK’s largest independent suppliers of fibre infrastructure, CityFibre has long championed making dark fibre widely available in the UK, placing it at the core of our Gigabit City projects in York, Peterborough, Coventry, Aberdeen and Edinburgh over the last three years.

Ofcom has made clear the need to balance investment, innovation and competition in the UK telecoms infrastructure and services space. CityFibre has a proven track record of investing, innovating and competing in the provision of state of the art fibre communications infrastructure. In the last year alone, we have delivered the UK’s first dark fibre solution to a Public Services Network (PSN) project, the first dark fibre solution to mobile operators, EE and Three and the first trial of a dark fibre Fibre-to-the-Home through a joint project with Sky and TalkTalk. In the process we’ve seen demand grow, which is evident in our plans to commit investment to dozens of new cities in the coming years

While CityFibre welcomes Ofcom’s decision as a clear validation of our business model, we urge it in the strongest possible terms to ensure that any future approach to pricing in no way distorts the market or discourages investment by independent infrastructure builders.

The task of redressing the legacy of decades of underinvestment in the UK for fibre infrastructure is too large and important to be left to solely one monopoly provider, and the role of smaller, entrepreneurial players must not be underestimated or undervalued. It is essential that a pro-investment environment, which preserves supplier diversity and encourages network competition, be established and safeguarded for decades to come.”