Virgin Media, Cityfibre and Zayo Oppose Ofcom’s Regulated BT Dark Fibre

Several major telecoms operators (Cityfibre, Virgin Media, euNetworks and Zayo) have joined forces to create the Infrastructure Investors Group (IIG) and they oppose the UK regulators move to open up access to BT’s Dark Fibre lines for rival providers. BT will be pleased.

Ofcom’s proposal (here) would effectively give major mobile operators (e.g. Vodafone) and broadband ISPs (e.g. Sky Broadband and TalkTalk) physical access to BT’s high-capacity fibre optic cables (major data supply services) and at a regulated price. This is not to be confused with domestic fibre based broadband services, which run to your home (i.e. Dark Fibre is more focused on the network that feeds those).

The regulator suggests that this approach could deliver more market competition and help to speed-up the roll-out of new broadband services (e.g. it’s easier to deploy into an area if you can make use of an existing network, rather than build your own). On top of that it might also help to mitigate some of the concerns that arose from BT’s decision to merge with mobile giant EE (BT’s extensive fixed line network would give them an advantage in mobile data costs / capacity).

However Ofcom’s decision surprised the market when it was first announced in May 2015, not least because only a couple of years or more earlier they had conducted a similar review and described the same Passive Remedy as carrying “significant risks of worse outcomes, both for consumers and for effective competition, including adding costs and encouraging inefficient entry.”

But BT has some unlikely supporters in this latest battle, with rival infrastructure developers like Cityfibre, Virgin Media, Zayo and euNetworks all warning that their own significant private investments (many of which are being built to combat BT’s services) would be put at risk by Ofcom’s proposal, which could create a market with artificially low prices. You can probably count KC (KCOM) among this group too as they took a similar position in March 2015 (here).

Mark Collins, Cityfibre’s Director of Strategy and Public Policy, said:

“We are delighted to be a founding member of the IIG, and to raise the awareness of the significant communications infrastructure investments taking place throughout the UK. The material benefits of healthy infrastructure competition are clear.

We must ensure a level playing field for pro-competitive fibre investment. This is essential if we are to provide a credible alternative national infrastructure and unleash the technological and economic benefits our investments bring to our towns and cities.”

David Howson, President of Zayo’s International Business, said:

“As a significant investor in fibre networks on a global basis Zayo Group is pleased to be a founding member of the IIG. It is an exciting time in the UK fibre market with a strong need and demand for new networks driven by the explosive growth of broadband, mobile and cloud-based services.

Along with the other members of the IIG, Zayo is investing significant amounts of capital to build out our network specifically to accommodate the needs of this new network demand dynamic. We share the IIG’s belief that a clear, open and competitive market is the best environment to continue to encourage this type of long-term investment in the UK, to the benefit of all.”

Brady Rafuse, CEO of euNetworks, added:

“As a leading European data centre and cloud connectivity provider, we continue to invest significantly in the telecommunications infrastructure in the UK, in order to support the high growth in demand from consumers and enterprises who require “24 x7” location independent access to content and applications.

As a founding member of the IIG we believe that an open and competitive market is essential to encourage this long-term investment, and to support the UK’s economic continued prosperity.”

Collectively, IIG says it has plans underway to deploy billions of pounds of capital in new infrastructure projects, which they claim will result in a “significant economic stimulus to the UK vastly exceeding the investments themselves“.

Indeed Virgin Media are currently investing £3bn to expand the reach of their fibre-fed cable (DOCSIS) network from around 45% to 60%+ of UK premises by 2020, while Cityfibre are building various high capacity fibre optic networks in a multitude of cities (e.g. York, Peterborough etc.) and Zayo also plan to expand their UK footprint.

The IIG says that sustaining these investments is “essential to maintaining the UK’s continued position as a leading digital nation” and that regulation plays a “vital role” in the sector and can significantly impact the appetite for investment.

The group says they’re seeking a “pro-competition approach to regulation that encourages sustainable long-term private investment,” although they don’t define precisely what they would want that to look like. However the impression we’re given is that the preliminary proposals for a regulated Dark Fibre price may be too low (this seems odd as BT is more likely to push for a higher price).

“Regulation cannot replace the genuine investment incentives that result from infrastructure competition. However, it can create a pro-investment framework that will support efficient investment in innovative and effective network infrastructure,” added the IIG.

Ofcom are about to start publishing the official responses to their earlier Business Connectivity Market Review 2016 proposals and if all goes well then a final decision could be confirmed during Q1 2016, with introduction happening from April 2016.

But the Dark Fibre aspect of this review will take significantly longer, due to the need for a very challenging agreement on pricing to be reached, and as such the related solution would not become available to telecoms providers until April 2017 (assuming it survives). BT will need to agree final terms with their rivals, but if no agreement is reached (very possible) then Ofcom would intervene to set a price.

BT has previously said that, “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 and it would also increase costs, divert resources and add more complexity just when we’re beginning to make progress on improving service.”

Ofcom is the acrobat in the middle of all this that has to find a balance and without stumbling into the pit of spikes below.