Cityfibre Calls on Ofcom to Rethink its Approach for Full Fibre

The Head of Regulatory Affairs at Cityfibre, Alex Blowers, has criticised Ofcom’s focus on regulating wholesale access to Openreach’s (BT) legacy UK copper network down to cost and called on them to rethink their strategy in order to better support the new generation of “full fibre” (FTTH/P) ultrafast broadband.

At present the regulator states that one of its primary duties is to “further the interests of consumers in relevant markets, where appropriate by promoting competition.” In many ways Ofcom has done a good job on this front, not least by encouraging a highly competitive market with lots of affordable broadband packages, most of which are based off Openreach’s old copper network.

On top of that the recent Strategic Review has helped to weaken BT’s grip by adopting an approach of “legal separation, for Openreach, while at the same time making it easier for rival ISPs to access their existing cables ducts and poles (details). Some of this could take a few years to produce the intended improvements and indeed since the review we’ve seen a raft of major “full fibre” announcements.

For example, Hyperoptic aim to cover 2 million urban premises with FTTH/P by 2022 (aspiration for 5 million by 2025), while Vodafone with Cityfibre will reach 1 million by 2021 (aspiration for up to 5 million by 2025) and Virgin Media plan 2 million by around 2019/20. Not to mention all of the work by smaller operators and Openreach’s own plan for 3 million by 2020 (aspiration for 10 million by c.2025). TalkTalk has also proposed a similar deployment.

Nevertheless Alex suggests that Ofcom is still too stubbornly focused on maintaining low prices and “will not contemplate any course of action that drives short-term price increases for consumers, even if the long-term benefit would be a healthy competitive marketplace with much lower prices.”

Alex Blowers, Cityfibre’s Regulatory Boss, said:

“Increasingly, I’m coming around to the view that the problem lies with that clunky primary duty and specifically, the vagueness of the duty when it comes to a clear focus on securing a first-class national digital infrastructure.

In short, Ofcom has been successful in delivering (relatively) low priced access for consumers via a mediocre legacy telecoms network, but the cost of this has been a failure to provide the right incentives to the industry to replace that network with something fit for purpose.

The best way to understand this is to reflect that high prices and crap customer service (the stock-in-trade of incumbent telcos the world over) can be rectified by two methods: you can regulate the hell out of them, specifically by forcing price cuts and imposing ‘quality of service’ obligations, or you can encourage someone else to enter the market to do the job better.”

Ofcom would perhaps argue that they’re already trying to use both of the aforementioned methods to improve the market, although Alex believes that they haven’t gone far enough. Meanwhile he suggests that BT’s rivals often appear to be too comfortable with the idea of maintaining their existing unbundled (LLU) copper assets, as opposed to replacing them with pure fibre. On this point Openreach and Cityfibre might actually agree.

Back in October 2017 Openreach claimed to have found “broad support” for their own FTTP aspiration for 10 million premises by 2025 and they spoke of a desire to start the work “sooner rather than later” (here). However they also warned that such a roll-out might only be possible with co-investment support from other ISPs, as well as softer regulation (e.g. flexibility over wholesale prices and the ability to switch-off copper as FTTP is deployed) and reduced logistical barriers (improved planning) etc. Easier said than done.

Like it or not full fibre is very expensive and Openreach, being as bogged down by regulation as a horse in deep mud, finds itself stuck between a rock and a hard place (here).

Alex continued:

“When I joined CityFibre, I took some comfort from the recently published Ofcom Digital Communications Review – essentially the Telecoms Strategic Review Mark II. It signalled at least some recognition that we couldn’t, as a country, go on like this and that investment in new full fibre infrastructure should now be encouraged.

Unfortunately, though, this strategic rethink is hardly visible in Ofcom’s actual decisions. In both its recent business connectivity and wholesale local access (i.e. residential broadband) market reviews, Ofcom has essentially maintained the same course, focused on regulating wholesale access to BT/Openreach’s legacy assets down to cost – even at the expense of blunting new market entry opportunities for competing full fibre operators.

When pressed, their explanations are revealing. They will not contemplate any course of action that drives short-term price increases for consumers, even if the long-term benefit would be a healthy competitive marketplace with much lower prices. In one memorable exchange, we were told “Today’s consumers cannot be asked to pay for tomorrow’s network”. This is a wrong-headed view on two levels.

* First, any infrastructure upgrade of any kind involves some foregone benefit today for a more substantial benefit in the future. Consider, for instance, the way that the push for renewables is leading to some short-term pressure on energy prices. Apart from a few marginal voices though, no-one questions the national benefit of this policy.

* Second, the timescale on which consumers would benefit from a mass market deployment of FTTP is not some time several decades hence, but in the next decade – provided Ofcom genuinely put its shoulder to the wheel to make this happen.

There is also an increasing recognition in broader public policy circles that the UK is experiencing a crisis of under-investment in critical national infrastructure. Whereas the focus of the Communications Act was on delivering private benefits to consumers, attention is now switching to the broader, public benefits of a switch to full fibre; not just in terms of faster and better access for consumers to movies and other content but in terms of increased productivity and closing the troubling regional disparities across the UK. These broader public benefits are hardly touched on in the Communications Act and therefore, unsurprisingly, don’t seem to loom large in Ofcom’s thinking.

I’m all for the interests of consumers. I’m one myself, who happens to be experiencing one of the mysterious periodic outages to which my copper connection is prone as I write this. But somewhere along the way, the idea that regulatory policies should involve a proper balance of short term and long term interests, both public and private, has gone missing. The problem is exacerbated by the lobbying power of the regulatory dependents [ISPr Editor: TalkTalk, Sky Broadband etc.] who entered the market to exploit what was only ever intended to be a temporary expedient of regulated access to the legacy copper network. These firms have consistently argued for lower priced copper, regardless of the effects of that on long-term investment incentives to deploy fibre.”

In the end Alex calls for a “course correction,” where the Government would amend Ofcom’s duties to end the focus on low priced copper access and instead encourage more fibre. Naturally Cityfibre has some vested interest in getting their own way here and Alex doesn’t specifically spell out what his solution would be, but he does make some fair and relevant points.

The missing aspect above is how all of this might impact Openreach, which is crucial because they already have the workforce necessary to make full fibre a national reality, but this also gives them the power to threaten an emerging market of alternative network (AltNet) ISPs – regulation allowing – and Cityfibre are one of those. In such a complicated market, balance can be a hard thing to find.

On top of all that there’s the big question mark over how today’s consumer market, which has become use to suckling from a selection of super cheap broadband services, would react to the idea of paying more for FTTH/P. At least on this front the AltNets have an advantage over Openreach because they don’t suffer from the same regulatory baggage, which is one of several reasons why they’re sometimes able to offer cheaper services.