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UPDATE Ofcom to Deregulate More of the UK Wholesale Broadband Market

Thursday, June 22nd, 2017 (12:28 pm) by Mark Jackson (Score 1,381)
united kingdom coloured counties map

The national telecoms regulator, Ofcom, has today updated their 2017 Wholesale Broadband Access (WBA) market review by proposing changes to improve competition around the UK, where BT (Openreach) continues to have Significant Market Power, and in Hull where KCOM is dominant.

At present Ofcom’s regulatory model tends to filter each part of the United Kingdom into three categories (markets), which helps to define which areas need more regulation to protect consumers (Market A) and which can benefit from softer regulation due to rising competition (Market B). This is important, not least because it can affect how much some of you pay for your broadband and phone services.

Current UK Market Definitions (2014)

Market A
Telephone exchanges where there are only one or two potential significant wholesale broadband providers present or forecast to be present (e.g. BT), 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 (Sky Broadband, TalkTalk, BT, Virgin Media etc.), 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.

Since the last review in 2013/14 we’ve seen unbundled providers (e.g. Sky Broadband and TalkTalk) continue to expand their network coverage into more of BT’s domain, although they’ve both now gone about as far as they can go. On top of that plenty of alternative network (AltNet) providers have also grown their presence.

BT is currently required to provide WBA services in Market A on reasonable request and on fair and reasonable terms and conditions. In addition, BT is subject to a charge control in relation to one of its WBA products and related services (IPStream) and is subject to a fair and reasonable requirement for all other WBA charges.

We note that broadband services in Market B often tend to be cheaper and some ISPs, such as Plusnet, even define their “low cost” pricing areas by Ofcom’s model. As such the expanding reach of rival networks means that Market B has grown and so more people should eventually benefit from lower prices.

Proposed UK Market Definitions (2017)

Market A (2.0% of premises)
Areas in the UK where there is limited or no network competition (exchange areas which are BT-only or BT + one other primary operator).

Market B (97.3% of premises)
Areas in the UK where there is reasonable network competition (exchange areas which are at least BT + two other primary operators).

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

The change in definition means that BT is still considered to have Significant Market Power (SMP), albeit only in around 2% of UK premises where their Openreach network has no competition or competition from only one other primary network operator (Market A).

Ofcom states that “the level of investment required by a third party to replicate BT’s broadband access network in Market A is a significant barrier to entry” and “an obligation requiring BT to provide WBA network access to third parties on reasonable request is necessary in our view to protect effective competition in retail broadband services” (limited to certain services – see below).

In keeping with that, Ofcom has proposed to update their regulation as follows.

Ofcom’s Proposal for Market A

We are proposing an SMP obligation requiring BT to provide network access on reasonable request and on fair and reasonable terms, conditions and charges. In considering what fair and reasonable means in relation to charges, we would expect to assess this on the basis that charges were not set at such a level so as to not constitute a price squeeze.

In addition, we propose that BT provide access in accordance with such terms, conditions and charges as Ofcom may from time to time direct and comply with any direction Ofcom might make under this condition. We consider that it is appropriate for this SMP condition to include the power for Ofcom to make directions in order that we can secure the supply of services and, where appropriate, fairness and reasonableness in the terms, conditions and, charges of network access. The proposed condition includes a requirement for the dominant provider to comply with any such direction(s), so any contravention of a direction would constitute a contravention of the condition itself and would therefore be subject to enforcement action under sections 94-104 of the Act.

We envisage that this obligation would apply to all WBA services in Market A whether supplied using ADSL/copper or VDSL/fibre [FTTC] services. In practice, however, these requirements will largely apply to copper WBA products as there are limited handover points for fibre services within Market A

The regulator has also published a separate consultation to cover the Hull area in East Yorkshire, which as above found no change to KCOM’s status as the provider with SMP. As such Ofcom are proposing a series of similar changes in Hull, which among other things will require KCOM to “provide fibre network access on reasonable request,” adopt “fair and reasonable prices” for their wholesale services and offer greater transparency and accountability.

Ofcom’s Summary of KCOM’s Position in Hull

Our proposals seek to achieve the following outcomes:

* Addressing the potential competition concerns we have identified, namely KCOM refusing to supply wholesale services, unduly discriminating in favour of its own retail operations or other selected telecoms providers and charging excessive wholesale charges;

* Ensuring that other telecoms providers can obtain the wholesale products they require at fair and reasonable prices from KCOM to compete effectively in retail broadband services, with a transparent process for telecoms providers to use if those products are not yet available;

* Greater transparency and accountability in relation to requests for new wholesale services and the functioning of the process by which such requests are submitted and considered by KCOM; and

* Greater transparency in relation to KCOM’s costs for supplying wholesale services, to ensure that it is complying with its regulatory obligations.

At the time of Ofcom’s previous review (2014), KCOM’s FTTP based ultrafast fibre optic broadband network had only passed a few thousand premises, although today they’re fast approaching their 150,000 premises goal and as such the regulator feels as if it’s time to add their fibre network to the wholesale requirements.

We imagine that KCOM won’t be too pleased about that, although Ofcom claims that their measures will still permit the operator to “benefit from sufficient upside potential from its investment to offset the downside risk of failure.” As such the regulator’s fair and reasonable charges obligation will consider “if charges in these markets are set on the basis of Long-Run Average Incremental Cost Plus (LRIC+) basis, including a reasonable rate of return and a reasonable contribution to common costs.”

Otherwise both consultations will run until 14th September 2017 and Ofcom will then aim to publish their final decisions by the end of March 2018. Related measures would then be imposed between 1st April 2018 to 31st March 2021 (the next review period).

Consultation: Wholesale Broadband Access Market Review
https://www.ofcom.org.uk/../wholesale-broadband-access-market-review

Consultation: WLA and WBA Market Reviews – Competition in the Hull Area
https://www.ofcom.org.uk/../wholesale-local-broadband-access-market-reviews-hull

UPDATE 23rd June 2017

The official response from KCOM is below.

Cathy Phillips, KCOM’s Chief Marketing Officer, said:

“Our position as the leading provider of broadband to households and businesses in the Hull area means Ofcom already requires us to have a process in place for other communications providers to request access to our network to serve their own customers.

This is an option that has been taken up by several providers in recent years who provide current generation broadband services to business. We will continue to work with partners to help them deliver services to their customers in this way and will meet all reasonable requests for access that will help them deliver next generation broadband services.

Our full fibre Lightstream service is available to more than 130,000 properties in Hull and East Yorkshire, making it the ultrafast capital of the UK. We welcome the plans of other broadband providers to develop their own fibre networks here, which make Hull unique in the UK in having the prospect of a choice of three independent suppliers of full fibre broadband. Households and businesses in the region are also served by a number of providers of 4G and fixed wireless broadband services.

Ofcom has recognised that the broadband market is changing as providers like KCOM develop new and better services to meet the digital needs of consumers and businesses. We look forward to sharing our views with Ofcom on how regulation can help us meet the needs of our customers today and in the future.”

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17 Responses
  1. George M

    And any news about the 2nd biggest infrastructure owner (Virgin) being made to open up its network to others?
    The lack of an open Virgin network is a major economic hindrance given the network’s penetration.

    • Ofcom have already said that it’s not on their radar and we don’t expect that to change, at least not until the next review period when Project Lightning should have just about finished. So it’s possible that in 2020/21 the regulator may take another look but for now there’s no change.

      Virgin and Ofcom have talked about this behind closed doors. I doubt they would have gone ahead without some assurance about the security of their investment from the regulator.

    • Steve Jones

      Forget it. VM’s network isn’t going to be opened to wholesale access in the foreseeable future. VM would not have gone ahead with project Lightning without some informal assurance from Ofcom about the status of their network. It would take some drastic market movement for that to happen.

    • Chris P

      @Mark so Virgin have a back hand deal with OFCOM, that BT & KCOM are barred from?

      If BT knew they’d get every penny from investing in Fibre, just like Virgin do, maybe they’d be rolling out Fibre too?

      I assume KCOM thought they’d have exclusive use of their investment and based their rollout on that basis, i suspect they’re backers would have been a lot more reserved or charged more if they knew they’d have to wholesale that investment.

      Surely this is OFCOM meddling in places it should not be meddling in for competition and investment reasons.

    • DTMark

      If I were in a senior position at VM, I’d be making sure that the ductwork has, shall I say, certain blockages in specific positions that only we know about, just in case we’re forced to allow others to push cables through them.

    • AndyH

      @ DTMark – That’s a silly comment. What then happens when VM need to push through cables for their own network? As the owner of the ductwork, VM would be responsible for unblocking them .

  2. NGA for all

    At least in theory, as GEA-FTTP is within the market definition, this is suggesting BT has an obligation to respond to requests to provide GEA-FTTP in market A.

    • Steve Jones

      Openreach are not required to offer GEA-FTTP as it is not a product that they must offer, unlike MPF and WLR, which Ofcom require OR to provide on demand subject only to issues of excess cost. What OR are required to do is offer GEA-FTTP on the same terms to all service providers where it is available.

      As usual, you have put your own rather unique spin on things.

    • NGA for all

      Steve, we will get there sooner than you think.

    • MikeW

      Isn’t WBA about requiring wholesale products to be offered equally, via an access layer that is already there.

      It isn’t about compelling any one access layer type to any one property. That would be in some of the business products, not the WBA “mass market”.

      If we’re going to get there sooner than we think, we’ll have some warning – probably at least one WBA period in advance at least, rather like we had advance warning in 2014 that Ofcom weren’t ready to include “fibre” products yet.

      Now there’s plenty of GEA in the analysis, but this particular WBA proposal doesn’t even mention SOGEA yet, and only mentions G.Fast in the glossary.

      I won’t be holding my breath.

    • NGA for all

      Except in Wales, where you will be able to order it in every exchange!

    • NGA for all

      @MikeW You have to make that assumption about the access layer, but the FOD notes say aggregation nodes are within 2km of 96% of properties, so why should we not seek to order a direct fibre connection.
      With a variable connection charge you could define ‘reasonable’ demand. It is also in the product definition for WLA, although the references are light.

    • MikeW

      Oh FFS. Not that again.

  3. MikeW

    The significant difference is the marked drop in the size of Market A. Down from 9.5% to 2%.

    Looking at the details, it seems that the figure would have only dropped to 6.5% if Ofcom used the same criteria as in 2014.

    However, the further drop to 2% has come about because Ofcom is now including exchanges where FTTC/FTTP coverage is 65% or higher, even if there aren’t 2 LLU providers.

  4. RuralBroadbandSucks

    Most of the other providers don’t touch a Market A site i.e. my exchange.
    There was PlusNet, but it is owned by BT, and they had an extra charge added when I tried to select one of their ‘new customer’ deals.
    Will this change fix that situation – I suspect not.
    Also, I assume the Market A exchanges are also those that have many customers (like myself) whom have slow broadband. Slow broadband means some providers will not sell you broadband packages such as sky requiring 2Mbit+
    OFCOM should first force BT/OpenReach to upgrade all the Market A customers that request it, to a line that meets the legally-binding 10Mbps USO compliance first.

    • MikeW

      How can Ofcom require anything until there is USO legally in place? Then once it is there, why should they make a distinction between slow Market A subscribers and slow Market B subscribers?

      It isn’t a surprise that “other providers” don’t touch market A … because that has been the definition of market A so far – somewhere that LLU providers won’t touch.

      Up to now, that means 50% of exchanges (around 2,700) are market A, affecting 9.5% of premises.

      The definition doesn’t include “slow” broadband, but there is probably a fair overlap with exchanges that haven’t yet been upgraded to 21CN and ADSL2+. BT are in the middle of a programme of swapping all the remaining 20CN exchanges (~1,600) to 21CN, due to complete by the end of 2018.

      However, the definition of “Market A” is changing – to now remove any exchanges that have a lot of FTTC coverage. All subscribers on those exchange will change to a “Market B” designation, even if they don’t benefit from the FTTC rollout. It reduces “Market A” to about 20% of exchanges, and less than 2% of premises.

      If Plusnet continue their pricing policy, then subscribers on affected exchanges will get the lower prices, even if they don’t have the option of FTTC.

  5. Darrell Sturmey

    BT Group is Plc, the product of having been sold by Gov UK in 1984 where there was no competition. The assets belong to the investors who should expect a ROI. The legacy Cable Companies e.g. Nynex, NTL, Telewest and the emergence of Virgin Group and the MNO’s are the only other Companies who endeavoured to compete across the Telecoms Industry. If robust competition never materialised then understandly BT retained SMP. BT kept it’s side of the privatisation contract/conditions, it’s up to Gov UK and prospective competitors to do theirs. Albeit it may not be viable to spend £30billion to overlay a network which effectively duplicates BT’s. It is scandalous to compromise BT investors because robust competition has not evolved. Ofcom should focus on Industry to create competition without leveraging or compromising BT assets. If BT ‘chooses’ to allow a competitor access to its assets at a price that is competitive and cheaper than a duplicate overlay then that should be a business matter.

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