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UPDATE BT to Improve Quality of Service and FTTC Broadband Competition

Tuesday, May 20th, 2014 (8:25 am) - Score 2,046

The telecoms regulator has today pushed BTOpenreach, which maintains BT’s national phone and broadband network across the United Kingdom, to adopt new targets that aim to improve its quality of service by fostering faster installs, quicker repairs and making available more information about their performance to the public. Superfast broadband (FTTC) lines will also benefit from cheaper migrations and shorter contracts.

Ofcom’s draft decisions, which have been presented to the European Commission (EC) for final approval (expected by June 2014), form part of their wider Fixed Access Market Reviews (FAMR) and Wholesale Broadband Access Review (WBAR) process that propose a number of changes for the country’s key telecommunications and Internet providers.

Today marks the start of that process as the regulator moves to impose stricter quality of service requirements upon BTOpenreach, with the key changes being highlighted below.

Openreach must in future:

* Complete around 80% of fault repairs within one to two working days of being notified;
* Provide an appointment for around 80% of new line installations within 12 working days of being notified (around 25-30% of new line orders typically require an engineer visit and the new target of 12 working days would broadly apply to these);
* Report publicly on its performance, which will allow Ofcom to monitor and intervene further if required; and
* Make clear the timeframe in which it is currently completing any remaining jobs, to provide reassurance to consumers about how long the work is likely to take.

It’s worth pointing out that both of the two 80% targets above will have some limited flexibility to be adjusted during situations that are beyond Openreach’s ability to control, such as damage caused by “extreme weather“. However only around 3% of repairs and 1% of new line installations in a typical year are expected to be affected by such factors.

Similarly the changes above only apply to BT’s own Wholesale Line Rental (WLR) product and its fully unbundled (LLU MPF) broadband and phone lines, which are used by the majority of ISPs except cable operator Virgin Media and a few smaller providers with their own fibre optic infrastructure (e.g. Hyperoptic, Gigaclear, B4RN etc.). Ofcom states that its targets will begin to be introduced during summer 2014 and should then escalate over the next 3 years before reaching their full aim in April 2016.

A failure to meet Ofcom’s new targets could result in BTOpenreach facing new sanctions, such as additional fines that go beyond existing arrangements for a failure to meet contractual targets. Ofcom will in the future also review the standards of redress (e.g. compensation) that landline and broadband ISPs offer to consumers when things go wrong. Meanwhile BT has already announced plans to recruit another 1,600 engineers in order to meet Ofcom’s new requirements (here).

Superfast Broadband Competition

In addition to the above, Ofcom has also confirmed that it expects Openreach to cut this wholesale migration fee for superfast broadband (FTTC) lines from £50 to £11 +vat, which would make it cheaper to switch ISPs. On top of that the minimum contract period for FTTC lines would be cut from 12 months to 1 month, although this would only apply to existing FTTC subscribers that migrate to another FTTC ISP (i.e. not first-time customers). We wouldn’t be surprised to see this causing some confusion for consumers, depending upon how ISPs market the change.

Crucially Ofcom has also confirmed that they’re “not intending to set the level of wholesale prices for Openreach’s fibre service” [FTTC] because it believes that “the price of fibre broadband is currently constrained by the availability of standard broadband services” and competition from Virgin Media.

However the regulator did confirm that it would soon propose new guidance on its future approach to the ‘margin’ that BT sets between its wholesale and retail fibre prices, which one recent report suggested could result in a price drop (here). Last month a spokesperson for BT told ISPreview.co.uk, “Any suggestion that BT is margin squeezing in the provision of fibre is nonsense. BT Consumer makes a profit from selling fibre based on Openreach’s wholesale prices and Sky and Talk Talk have publicly stated that they do too. This clearly undermines the basis of the original complaint.

Changes to Standard Broadband Charges

Finally, Ofcom has also confirmed its draft controls on the prices that Openreach can charge other telecoms providers for their standard broadband and wholesale line services, which are intended to come into effect from 1st July 2014 and run until 31st March 2017.

Broadly speaking this move will see the price of fully unbundled (MPF) lines, such as those that dominate TalkTalk’s and Sky Broadband’s network, increase and BT’s own Wholesale Line Rental (WLR) prices fall until the two are practically level.

Shared Unbundled (SMPF) Lines

This allows telecoms providers to provide broadband services to their customers by installing their own equipment in Openreach’s telephone exchanges, while BT provides the voice connection. In March 2014, the wholesale cost for this service was £9.89 per year. Ofcom intends to set a cap on this charge, reducing it to £5.54 from 1st July and then in real terms by CPI (Inflation Measure – Consumer Price Index) -33.4% each year from March 2015 to 2017.

Fully Unbundled (MPF) Lines

The telecoms provider uses its own equipment in the exchange, but this time it takes full control of the line to offer both broadband and voice. In March 2014, the wholesale cost for this service was £83.92 per year. Ofcom intends to allow this to increase slightly in real terms to £86.10 from 1st July, and then by CPI +0.3% each year from March 2015 to 2017.

BT Wholesale Line Rental (WLR)

This is used by communications providers to offer voice telephone services to consumers using lines rented from Openreach. In March 2014, this cost £93.32 per year. Ofcom intends for this to fall to £91.04 from 1st July, and then in real terms by CPI -3.0% each year from March 2015 to 2017.

Note: ISPs that still have a strong base of SMPF lines, such as Sky Broadband (23% of their broadband base or 1,161,000), might lose out on the MPF rise but they’ll clearly benefit from SMPF becoming more economically viable vs MPF. As a result of all this it’s likely that most ISPs will simply leave their prices unchanged, although those at the budget level like TalkTalk (where MPF lines are more dominant) might feel more pressure to increase their prices by more than the usual amount during annual changes.

A BT spokesperson told ISPreview.co.uk:

BT welcomes the conclusion of this review which recognises the link between improved customer service levels and the price of Openreach’s wholesale copper products for the first time.

Openreach is committed to improving its customer service levels so we support the new targets outlined by Ofcom today. The creation of a further 1600 engineering jobs over the course of this year will ensure it continues to meet or exceeds these standards. We have also stated that we will publish regular performance data on the Openreach website from this summer to increase transparency.

Regulation needs to reflect the level of competition in the market so it’s only right that Ofcom is levelling the playing field by largely removing the artificial price difference between the wholesale products consumed by the LLU operators and those bought by other companies. We feel Ofcom could have gone further however by addressing this imbalance immediately rather than over a three year period.

We are pleased that Ofcom has acknowledged the success of the current regulatory framework by maintaining pricing freedom for Openreach’s fibre products. The UK boasts one of the most competitive markets in the world with around 140 CPs selling fibre via our open wholesale network, whilst more than 3.2 million households also take superfast broadband from Virgin Media.”

The full draft statement on Ofcom’s FAMR and WBAR process can be read below and the regulator has also confirmed that their next step will be to investigation the effectiveness of BT’s regulatory undertakings in order to assess their effectiveness after 10 years of operation (the original process brought about the creation of Openreach as a semi-separate organisation and fostered the launch of unbundled lines to create greater competition).

It should be noted that these documents are huge and we’ve yet to even scratch the surface.

Draft Statement – 2014 Fixed Access Market Review
http://stakeholders.ofcom.org.uk/binaries/telecoms/ga/fixed-access-market-reviews-2014/draftstatement/volume1.pdf

Draft Statement – 2014 Wholesale Broadband Access Review
http://stakeholders.ofcom.org.uk/binaries/consultations/review-wba-markets/statement/WBA-draft-statement.pdf

UPDATE 8:41am

After reading some more we note that Ofcom has also proposed a final change to its market definitions. At present the regulator classifies different areas of the country based upon the amount of competition from primary ISPs (e.g. BT, TalkTalk, Sky Broadband, Virgin Media etc.) in any given area (i.e. Market 1, Market 2, Market 3 and Hull).

In short, under the current system Market 3 areas are home to several ISPs and thus have the lowest prices due to de-regulation and better competition, while Market 1 is the opposite and services are often only available from BT (i.e. Market 1 currently equates to the last 11.7% of premises).

But these markets have changed since the original review (2010), which is largely due to the expansion of unbundled (LLU) copper broadband services from BT’s rivals. As a result the regulator has instead changed its definitions to the following (as above – pending final EU approval). Note: the percentages are slightly revised from last year’s first proposal.

Market A
Telephone exchanges where there are only one or two potential significant wholesale broadband providers present or forecast to be present, which accounts for 9.5% of UK premises in mostly rural areas.

Market B
Telephone exchanges where there are three or more primary operators (ISPs) present or forecast to be present, accounting for 89.8% of premises (exchange areas where there are three or more primary ISPs present or forecast to be present).

Hull Area
Covers 0.7% of UK premises, where KCOM (KC) is the only significant provider.

In practical terms what this means is that some ISPs, such as PlusNet which charges customers more if they live in a Market 1 area (now Market A), will now be able to offer their cheaper prices to more consumers as Market A has shrunk with a good proportion instead being shifted into the cheaper Market B (formerly Market 3).

UPDATE 9:01am

It’s no surprise to find that Ofcom has also rejected calls for the introduction of unbundled fibre (dark fibre), wavelength unbundling for FTTP/H lines (WLU) and FTTC unbundling (SLU Bitstream). Broadly speaking, FTTP/H lines aren’t very common in the UK and so the regulator believes that it would be premature to do WLU.

As for FTTC unbundling, Ofcom rejected that too but only because Sky Broadband had already submitted a formal request (SoR) to BT for such a product. BT are currently still consider this and Ofcom has said they’d wait to see the outcome of that (BT might reject it) before making a decision on whether or not to assess and introduce the specific access product as an SMP condition or Direction on BT.

Ofcoms Statement on FTTC Unbundling

In these circumstances it may be appropriate for Ofcom to make an assessment and introduce the specific access product as an SMP condition or Direction on BT. In order to do so we would need to be satisfied that the benefits (e.g. dynamic benefits arising from greater control or more efficient utilisation of shared assets) outweighed the increase in total costs to industry (e.g. development costs of the product, potential duplication of investment, lower utilisation of the BT network etc) and that the remedy is likely to support sustainable competition

However, we recognise that there are potential benefits from introducing such a product and note that Sky has provided us a note outlining some of the benefits of FTTC at a high level, relating to lower costs and greater innovation and product development.

UPDATE 9:16am

Added a comment from BT above.

Leave a Comment
6 Responses
  1. Avatar Anonymouse says:

    I am furious!

    1. Avatar Ignitionnet says:

      With which bits?

    2. Avatar Phil says:

      furious about what?

    3. Avatar JNeuhoff says:

      Somebody is misusing my name here, I never posted this, not furious at anything.

      I’ll not post on the ISPReview comments section anymore till Mark Jackson can sort it out (if that is possible at all on an open comments section).

  2. Avatar JamieR says:

    Do we have an ETA for when the one month FTTC contract will be introduced?

  3. Avatar MikeW says:

    Disappointed that there is no SLA covering missed appointments, or even a KPI to measure them. Everything focusses on the number of days that an order/fault takes, but nothing lets you see how much customers get badly inconvenienced by no-shows.

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