BT Fights Back – Calls for Ofcom Regulatory Changes to Boost Broadband

Telecoms giant BT has today set out the regulatory changes that it believes would help consumers and businesses in the United Kingdom to enjoy the “best possible” outcomes, such as faster broadband services, while also attempting to fend off rivals that would rather Ofcom broken the operator up.

The timing of BT’s latest intervention, which comes just as Ofcom’s Strategic Review consultation draws to a close, is of course intentional. Over the past few months the incumbent has been battered by their opponents (TalkTalk, Sky Broadband and Vodafone etc.), many of which want to see them being completely split from control of their national telecoms network, but now BT is attempting to respond.

So far BT has admitted that it still has work to do on the customer service front (no kidding), although they claim to have met the vast majority of Ofcom’s regulatory requirements and warn that separating them from Openreach would result in “huge uncertainty” and “fundamentally undermine the case for future investment.”

At the same time they’ve recently promised to make various changes, such as with the prospect of a 5-10Mbps Universal Service Obligation and deploying 500Mbps capable G.fast broadband to 10 million premises within a decade (details), although they’ve also said that those plans would be “subject to regulatory support” (a signal to Ofcom that splitting out Openreach may not produce the desired result).

Today sees BT’s publicity campaign take the next step by very roughly setting out how they think Ofcom should adjust current regulation in order to best benefit their plans, which broadly amounts to a call for less regulation of their services and more regulation of Sky’s Pay TV dominance.

* Long term commitments from Ofcom to provide certainty and clarity

BT said, “Ofcom should make long term commitments in regulation to secure the long-term investments needed to meet future customers’ needs. All communications providers need policy certainty to invest with confidence.”

* Regulatory policies to encourage large scale investment

BT said, “Ofcom should not price regulate services that depend on new investment before payback has been achieved. Ofcom itself recognises that vertical integration may provide vital investment coordination incentives, avoid the problem of investment hold-up and so facilitate major infrastructure projects. Britain has gained, and will continue to gain, from Openreach as a part of BT – benefiting from more investment, coverage and speed. Ofcom should reject calls for the structural separation of BT at the earliest opportunity.”

* Support for consolidation when it benefits competition and brings investment

BT said, “To meet the challenges of declining revenues and rising investment demands, firms will look to consolidate to support investments and reduce costs. We believe Ofcom should support consolidation that promotes investment and competition.”

* A better regulatory balance between service quality and price

BT said, “Customers don’t simply want ever cheaper broadband: they want faster, better broadband, with high service standards. We believe Ofcom should take customer service needs into account when setting price controls.”

* A level playing field particularly with regard to Pay TV

BT said, “In a world where customers increasingly buy bundles of fixed, mobile and Pay TV services, we believe Ofcom needs to ensure a level playing field of competition across the whole industry and not to allow disparities in regulation to distort market outcomes. Market power and customer problems should be addressed with vigour wherever they arise. Ofcom should focus its efforts on the problems in Pay TV, where competition has failed.”

“One of the most effective things Ofcom could do to drive standards is to ensure frictionless, gaining-provider led switching processes, covering TV, fixed telecoms and mobile. Consumers would benefit from the certainty and simplicity of a harmonised switching process across the bundle, which in turn will support competition in bundles. In particular Ofcom should act now to remove the save opportunity currently available to cable and pay TV operators. Ofcom’s competition policy must as a minimum provide for a level-playing field in the retail market, or consumers will suffer from inferior outcomes.”

* Regulate only where necessary and avoid rule duplication

BT said, “Ofcom should apply the minimum regulation necessary to ensure markets work for customers without distortion. We believe regulation should only be imposed at one level in any market, legacy products should be deregulated to encourage migration to modern alternatives; and regulatory duplication should be removed.”

BT also called for Openreach to remain as a “functionally separate” business under their wing, while also pointing to the models success by virtue of how Sky Broadband and TalkTalk now account for around 40% of the retail broadband market.

The operator also said that Openreach benefits in a number of ways from being part of BT, not least due to having “ready access to capital” as well as the c.£500m a year that BT claims to spend on its “world class research and development“.

The submission to Ofcom also boasts about all the broadband speed and related improvements that have happened over the past decade, although not all of those are BT’s sole doing (e.g. Virgin Media) and rivals might well argue that they could have done a better job if only they held the same position.

Gavin Patterson, BT Group CEO, said:

“We are now at a critical point in the development of the UK as a digital nation. Broadband has become central to our economic and social life today and the industry must therefore invest to meet this growth in customer expectations and demand.

BT is driving the transformation of Britain’s digital infrastructure but we need the right regulatory regime that supports fair competition for all and large scale investment. With this in place, there is no doubt that we can meet the challenges of the next decade, fulfilling the needs of consumers and businesses, driving the growth of the UK economy and supporting social progress for the whole country.

Ofcom has the opportunity to level the playing field by tackling Sky’s dominance of Pay TV. That dominance has led to poor outcomes for UK consumers and it is about time that converged regulation was introduced to deal with a converged market. The current lop sided approach isn’t serving customers well.”

Meanwhile BT has hinted that any attempt to separate them from Openreach is likely to attract the interest of their lawyers, which could tie the process up in hoops for years. Big questions also remain over how BT’s debt / pension pile might be apportioned in the event of a split, as well as the impact on consumer prices and whether enough investment could be found outside of BT to properly develop the infrastructure.

At this point TalkTalk, Vodafone and Sky often seem adamant that they could do a better job, although it’s difficult to judge while there’s an on-going absence of any hard figures for the kind of investments they’d be willing to make and then precisely what they’d all agree to do. The grass may not necessarily be greener.

On the other hand it seems clear that improvements, beyond what Ofcom and BT have already committed to do, are needed. We continue to see reports of homes and sometimes whole communities being left for weeks or even months without working connections, while the issue of consumers receiving considerably less than the speed their line has been predicted to achieve is still frustratingly common. You can of course make excuses about copper line distance and home wiring, but wouldn’t it be nice to finally move beyond that?

At the same time ISPs have little choice but to use Openreach’s services for their engineering / fault repair tasks, with many feeling as though they could do a better job if only more access to the wider network was possible. You only need to ask providers about SFI (fault investigation) visits and related charges to get a flavour for the animosity that exists over this issue.

In the end Ofcom currently intends to publish a statement, which will set out their draft proposals for Openreach’s future direction, before the end of this year. However, no matter what happens, there is no magic pill for solving all of the industry’s problems and those issues won’t be solved overnight. Lest we not forget that regulatory changes can also create new problems too.

It’s our suspicion that Ofcom will not separate Openreach from BT, at least not completely, particularly with the Government cautioning them not to take that path (here). But we do hope that they can find a reasonable solution and keep consumers foremost in their minds while doing so. Easier said than done.

At least it should all be over soon, the endless and quite repetitive bickering between rivals has become very galling to report on.