BT Criticises Ofcom UK Regulation and Moot Higher Broadband Prices

The CEO of BTOpenreach, Joe Garner, has warned that Ofcom’s new 2015 Strategic Review of Digital Communications is allegedly at risk of being “hijacked by corporate rivalries” and that a better solution to the future telecoms landscape might come from less regulation and potentially higher prices to help boost investment. Well they would say that.

The arguments that surround the fate of Britain’s telecoms landscape have been well rehearsed and as such Garner’s comments, as well as those that frequently emanate from their arch rivals at Vodafone, Sky Broadband, TalkTalk and elsewhere, are by now somewhat par for the course.

One of the key questions in all this is whether or not BT’s network access division, Openreach, should be completely split off from their core retail business. The operators rivals suggest that this would be a golden solution to boost services, innovation and competition (see last week’s news), but Openreach warns that it might also have the opposite outcome.

Openreach’s boss has told The Telegraph that Ofcom should instead seek to breed an environment where they can make more investment into their infrastructure, which is perhaps corporate speak for less regulation on their services and thus the potential prospect of even higher pricing. Equally it doesn’t want to see more regulation being imposed on “fibre broadband” (FTTC), which might give rivals the opportunity to more aggressively undercut their offers.

Joe Garner said:

“In the internet era it has to be about much more than price because nobody wants a cheap, unreliable internet service. We need a regulatory environment that encourages the investment we need to make, the innovation to move to an always-on era.

While I’d be the first to admit we’ve got lots more to do, we are making progress on our service agenda [engineer repairs / new provides etc.]. I do think we’ve been able to do those things to a large degree precisely because we are part of the broader BT group. We’ve got access to the technical capabilities, the research and development as well as investment that has enabled us to make this progress.”

We’d perhaps correct the above comment to simply say that “nobody wants an unreliable Internet service“, since affordability is a key factor for consumers and actually many do perhaps knowingly sacrifice quality in order to secure the service they want at the lowest price; but we’ll all still moan when it goes wrong.

Equally you can already spend more to get a better quality service and yet most don’t take it. In any case broadband and phone services at the biggest providers are already rising in price quite rapidly, which is a trend that seems set to continue and as such BT’s point may be lost on those who are tired of seeing the annual inflation busting hikes.

Like it or not a sizeable proportion of this country is still mindful of the pennies in their pocket, let alone the pounds, and broadband only truly took off after the price slowly fell to a more mass market level that both rich and poor alike could afford.

But investment in new infrastructure does sometimes require a degree of protection in order to make the economics work, which is why in 2010 Ofcom effectively gave BT five years of regulatory grace to help them deploy their FTTC/P services around most of the United Kingdom.

Today this has also been joined by a huge investment of public money and BT have been the primary beneficiary, which some would say is unfair, although it’s often a bit more complicated than that. Indeed there’s a lack of rivals with truly national scale reach and funnily enough this is also a product of today’s regulatory environment.

Perhaps if BT hadn’t invested at all then their rivals (e.g. Hyperoptic, Virgin Media, Gigaclear etc.) might well have benefitted and today they could be even stronger for it. At this point we don’t envy Ofcom in having to navigate all of the many complicated arguments.

Ultimately there is no magic pill that will fix all of the perceived weaknesses and Ofcom are thus more likely to opt for a balance in the middle of extremes, which probably won’t completely satisfy everybody. But equally they may do something surprising and break up Openreach into its own animal, which even if they find a seemingly good fix would still face huge legal and future investment challenges.