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Virgin Media, KC and BT Join Forces to Resist Opening their UK Dark Fibre

Tuesday, March 31st, 2015 (8:34 am) - Score 2,899

Three of the biggest UK telecoms and broadband giants, including BT, Virgin Media and KC (KCOM), have jointly written a new letter to the national communications regulator in an attempt to dissuade Ofcom from making any changes that might require them to provide access to their Dark Fibre Optic lines.

The regulator is currently conducting a major Business Connectivity Market Review 2016 (here) and on top of that they’ve just announced a huge new Strategic Review into the country’s digital communications market (here).

At the same time BT has moved to gobble the United Kingdom’s largest mobile network operator, EE, which has triggered a wave of concern from rivals like Vodafone, Cityfibre, TalkTalk and Sky Broadband etc. (examples here and here). In particular the rivals fear that BT might gain an unfair competitive advantage because they could leverage their vast fixed line network in order to lower the costs of mobile provision.

As a result of all this BT’s rivals have almost universally been calling upon Ofcom to balance the scales by forcing BT into offering Dark Fibre access at a regulated price (i.e. fibre optic cables that have been laid with provision for future capacity, but which are not yet fully utilised) and or making their cable ducts / poles available for business use.

The idea is something that Ofcom has always resisted and in their last 2012 business connectivity review they said that such an approach, which is described as being one of several so-called Passive Remedies, would “carry significant risks of worse outcomes, both for consumers and for effective competition, including adding costs and encouraging inefficient entry“. Instead the regulator has preferred to continue their approach of light touch regulation, but the 2016 review may change that.

Naturally BT has previously described such an approach as being “unnecessary, intrusive and bad for customers“. Meanwhile Virgin Media, which has recently announced plans to expand their cable broadband network to cover around 60% of the UK (here), are concerned that any change in strategy by Ofcom towards BT might also force them into making a similar change. It’s also a feeling shared by KC (KCOM), which is the incumbent operator for Hull in East Yorkshire.

The recent responses given by BT and Virgin Media to Ofcom’s on-going 2016 Business Connectivity Review can help to shed some additional light on their concerns.

Virgin Media’s Reply to the BCR2016

Virgin Media notes that Ofcom was concerned that introducing passive remedies would mean ignoring the costs already incurred by other CPs in building alternative infrastructure. The creation of widespread infrastructure access through passive remedies could, if structured in an inappropriate manner undermine genuine network investment. Virgin Media notes that during the Appeal before the CAT, Colt suggested that there was little scope for further network expansion; Virgin Media do not share this view.

Ofcom would also need to consider whether any passive remedy may only lead to the cherry picking of areas with the most commercial opportunity. These areas are the least in need of regulatory driven competition, often with existing infrastructure competition in place. The introduction of a passive remedy that only rolled out in these “competitive” areas would undermine investment in network infrastructure, and thus run entirely counter to the benefit that [Physical Infrastructure Access] is intended to bring.”

It’s worth pointing out that Virgin Media don’t entirely oppose Passive Remedies and indeed they also suggest that a more targeted approach could be taken, potentially applying a geographically differentiated approach to the implementation of the remedy (i.e. not deploying such rules in areas where infrastructure competition is already strong).

Obviously this works in Virgin’s favour since they only tend to cover urban areas and there’s usually more than one operator in those. By comparison BT would be more vulnerable because they’re also required to cover many rural and suburban areas, where infrastructure level competition is often either low to non-existent. On the other hand it’s not cheap to deploy in those locations, but then BT still only run copper to a lot of the most rural areas.

BT’s Reply to the BCR2016

We are concerned that Ofcom appears to take as a starting point for its analysis an assumption that passive remedies would be beneficial, leaping to questions about common cost recovery and the types of passive remedies that could be imposed, and the issues that could be encountered in implementing them. This is the wrong starting point: Ofcom should instead start by assessing whether there are issues of lack of effective competition or of lack of effective regulation, and only if there are, then consider the proportionate remedies, including whether the relevant issues would be best resolved by changing the existing active remedies before considering introducing new passive remedies.

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.

It is also unclear how passive remedies could be restricted to business connectivity markets where BT has SMP, and this casts doubt on their proportionality and justification under the legal framework: it would be perverse to introduce such an intrusive remedy in markets where, for example, Ofcom saw no need to impose charge controls in the last BCMR.”

In that sense it’s no surprise to read in the FT this week that BT, Virgin Media and KC have now joined forces by writing a letter to Ofcom that clearly campaigns against any attempt to open up their business broadband and Ethernet infrastructure for use by rivals.

The letter warns 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“. The letter concludes by saying that the operators are “very concerned by recent calls from some quarters for Ofcom to abandon” the current regulatory approach.

On top of all that there are also calls for Openreach to be completely separated from the BT group, although in our view this seems unlikely to happen (the pros must first out-way the cons much more decisively and Ofcom would need to prove that) and it would probably require some strong direction / agreement from the Government first, which is something that we haven’t seen yet. Breaking up BT would make returning Network Rail to public ownership look like child’s play, but that’s not to say it isn’t an option.

Ultimately much may depend upon what the Competition and Markets Authority (CMA) says about BT’s gobble of EE later this year. Meanwhile Ofcom’s Strategic Review isn’t likely to reach any preliminary findings until the end of 2015. We expect this debate to continue cropping up until Ofcom reaches a decision.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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19 Responses
  1. Avatar Steve Jones says:

    Network Rail is already recognised as publicly owned. It’s assets but, possibly more importantly, it’s huge debts (£33bn) sit on the state’s books and count against the national debt.

    http://www.telegraph.co.uk/finance/newsbysector/transport/11503134/Network-Rail-to-be-broken-up-or-sold-off-under-restructuring.html

    As far as the relationship between EE and Openreach would be, then it would surely only be able to buy the products and services from OpenReach (and BTW) at the same prices and terms available to other operators. Of course, the real issue is that EE purchasing strategy would no doubt be re-orientated towards buying network services from BTW and OpenReach, thereby denying a customer to other operators.

    Access to “dark fibre” is a completely different issue and doesn’t directly impact on the proposed EE turnover as they will surely not be allowed access to Openreach fibre on favourable terms. However, a useful bargaining chip for competitors.

    Incidentally, there is already access to BT’s passive network, but the issue is that it’s not a product like MPF or WLR. Costs can be highly unpredictable as it could involve streetworks, major uplifts, unexpected problems and all the sort of issues that afflict BDUK-style projects.

    1. Avatar MikeW says:

      My suspicion is that BT will have to make access to EE available as a regulated wholesale service. I think BT themselves foresee this in their response to DCIS with predictions for 2025.

    2. Avatar Steve Jones says:

      I thought all the major mobile operators were already obliged to offer wholesale services (possibly “voluntarily” on pain of regulation). EE certainly do, as as my (very cheap) ASDA PAYG mobile service uses them. I don’t see that changing.

      The concern appears to be that BT could optimise their cost and market through the combination of fixed line and mobile services.

    3. Avatar SSUK says:

      I think you are confusing National Rail with Network Rail.

  2. Avatar Tim says:

    If a dark fibre supplier can supply 100% fibre coverage with wholesale then they shouldn’t have to open up their dark fibre because other providers would be available by wholesale and that market is competitive. Until then Ofcom needs to push all dark fibre networks to allow others to use their assets to deliver services where they themselves don’t bother to.

    1. Avatar Steve Jones says:

      No network supplier is going to do that voluntarily. It means taking all the risks of having to make the investment yet be denied much of the added value of the sales. In particular, it would be a huge disincentive in the more expensive areas. Network operators would sit back until another company made the very large capital investment which could then be exploited by other operators at marginal rates.

      It’s a particular problem in asymmetric markets, such as the UK, where different regulatory conditions apply to different operators.

  3. Avatar tonyp says:

    In my opinion, County and Borough Councils have missed a trick by not building wayleaves and leasing them to utilities. I suspect such matters are not allowed in law though. If a council were to build multi-user wayleaves such that power, gas, water and telecoms had a (plastic colour coded) pipe each in the same trench, there would be fewer traffic hold-ups, councils would be able to charge utility companies for their wayleave use potentially reducing council tax for all (after the initial outlay had been recovered that is), siting of access points (FTTC cabs, stopcocks, transformers, etc) could be planned for by local authorities.

    A ‘pipe’ dream I know. I doubt if this had been the way of doing things in the past, today’s technology would have outstripped the means. 🙂 Not to mention politics getting in the way!

    1. Avatar DTMark says:

      That was my broad suggestion for ‘how to do BDUK’ about five years ago 😉

    2. Avatar Steve Jones says:

      There’s no point at all in duplicating the gas, electricity, water or sewerage networks. They already exist and (at least in the case of gas and electricity) are relatively simple networks, heavily regulated and provide wholesale access. Water and sewerage are different in that they are local monopolies. Given that water reservoirs and sewage plants tend to have to be placed in locations for geographical reasons, I don’t see that changing. That’s especially as water tends to be from common catchment areas. The alternatives for things like competing water supplies looks very limited.

      In the case of telecoms passive infrastructure provision, I suppose it might be possible in principle, but the capital cost would be tremendous (I think something like it happens in part of Sweden in urban areas). However, it would surely face enormous legal issues where it overbuilt commercial networks. I cannot imagine VM, BT or some of the other network owners accepting it.

      The stage was set in 1984 when BT was privatised with the express intention of promoting alternative infrastructure competition, chiefly through the setting up of local cable TV monopolies and opening up the rest of the country for commercial operators (which is why there are alternative networks for backhaul, business and so on in the more commercially important areas – like docklands).

      I really don’t think there was the appetite at the time for the bureaucracy and massive costs of establishing a publicly owned passive infrastructure network. I don’t see it happening now either as the costs will be in the tens of billions and it would take decades to do with immense disruption.

    3. Avatar DTMark says:

      God forbid we should take a tip from a modern, forward-thinking country with decent infrastructure, eh 😉

    4. Avatar SSUK says:

      Hehe yep why would we want to be like Sweeden far too much clean air, fast broadband and focus on its own affairs rather than trying to bully the world. Why would we want to be anything like that 😉

  4. Avatar dave says:

    Forcing virgin, bt and network rail to open up their dark fibre would be a great idea. Forcing KCOM however would be very harsh as they only have around 200,000 subscribers or so. Leave the smaller guys be, just go after the giants.

    1. Avatar FibreFred says:

      Not a great idea for them bearing in mind the costs to put it in their in the first place.

    2. Avatar TheFacts says:

      Virgin, bt and network rail also had costs.

    3. Avatar FibreFred says:

      That was my point although I guess you could read my reply either way

      I was saying BT and Virgin would not see it as a good idea based on the costs to put it in there

      Bt offer wholesale there is no need to open up dark fibre

  5. Avatar Tim says:

    Force the monopoly to open up in any given area. In Hull KCOM would have to open up as there is no choice!

    Where there is overlap competitive services should kick in.

  6. Avatar tonyp says:

    Off topic strictly speaking but what happened to Mercury Communication’s figure of eight network planted in (then publicly owned) British Rail’s lineside ducts? C&W’s purchase of the London Hydraulic Power co’s network to lay fibre under the streets of the capital?

    We speak of dark fibre but how many of the actual fibre bearing cables have all the ‘tubelets’ filled. If BT/Virgin/KC were to provide a wholesale lease of their tubelts, who would blow the new fibres? Who would maintain the infrastructure apart from the terminating nodes? There are some benefits to monopolistic practices but cost is not one of them.

    In response to SJ’s remarks, I would say that old infrastructure is often being replaced (especially cast iron water mains) so why not do the job properly and provide for the future. There is also a serious new build sector that would benefit from designed utility provision rather than the seemingly individual ad-hoc arrangements. Town Planners could help though that would seem too socialist for the UK’s tastes. How many times do we want Pat and Mick with their ‘stop/go’ boards holding us up when the job could be done once and for all. Lets muddle through as usual!

    But I live in cloud cuckoo land where I can’t get any sort of comms better than 3.5Mb/Sec ADSL+ despite a (non-BT) fibre trunk passing less than 10 metres away from my (and others) house.

  7. Avatar FibreFred says:

    They do right to resist.

    I mean.. what is dark fibre, its fibre that is spare. Either spare fibre pairs in a bundle or spare cables that the provider has run to use at a later date (might as well run 2 if your gonna run 1)

    It makes great business sense for the telco, and when required their deployment costs are lower as there is already fibre in the ground.

    Why on earth do other telco’s think they have a right to these cables?

    They are there for the provider to use themselves or when someone else requests a circuit via Wholesale end of story.

    1. Avatar DTMark says:

      On that, I agree.

      This isn’t really about ‘dark fibre’ though, or it shouldn’t be.

      It is about duct space.

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