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Rivals Prep Legal Challenge Over Ofcom Approval of Openreach FTTP Price Cut

Sunday, November 21st, 2021 (7:12 am) - Score 5,112
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Several alternative UK network (AltNets) builders, including Gigaclear and CityFibre, among others, are reportedly set to launch a legal challenge against Ofcom’s recent approval of Openreach’s “Equinox” offer (here), which introduces a “major” price cut (details) to the incumbents Fibre-to-the-Premises (FTTP) broadband products.

Naturally, ISPs that were much more reliant on Openreach’s wholesale products, and which have only limited interest in building their own full fibre networks (e.g. TalkTalk, Sky Broadband and Vodafone), have been generally supportive of the new discount scheme.

NOTE: The offer could, for example, drop the monthly wholesale rental of a 115Mbps or 1000Mbps consumer FTTP tier from £17.44 and £31.57, respectively, to just £15.50 and just £22. This excludes all the extras that an ISP must add in order to make the retail price you pay (e.g. 20% VAT, profit margin, service features, capacity etc.).

However, the “Equinox” discount generated an angry response from AltNets and Virgin Media (VMO2), many of which are currently busy investing billions (collectively) to deploy rival FTTP networks (Summary of UK Full Fibre Builds). Some of those networks will deploy in the same areas as Openreach, or be overbuilt by them in the future, and sell their own rival wholesale products to ISPs.

Such AltNets, many of which are in the early stages of their investment and thus carrying a lot of risk, have previously warned that Openreach’s new discounts might ultimately result in a reduction in competitive fibre infrastructure investment and deployment. Further down the road, they fear, this could also reduce choice and innovation, and potentially result in higher prices for consumers (although initially it should result in lower prices via competition).

Previously, Openreach’s FTTP products have tended to be more expensive, which made it easier for AltNets to grow their take-up by being more aggressive on price, but that will now become harder. The other aspect centres around how the new pricing could make it harder for AltNets with wholesale solutions of their own to attract third-party ISPs to their networks, since they’d have less reason to pick them over Openreach.

According to The Times (paywall), the deadline to challenge Ofcom’s decision through the Competition Appeal Tribunal (CAT) expires at the end of November 2021 and several altnets, including at least CityFibre and Gigaclear, now plan to launch a legal challenge against the regulator.

Officially, the CEO of CityFibre, Greg Mesch, merely said they were “considering appropriate next steps“, while Gigaclear’s CEO, Gareth Williams, confirmed that they intended to join proposed legal action by a rival in the alternative network space. Meanwhile, Virgin Media said they were keeping all options open, although their own tentative plans for launching a future wholesale product could complicate their position on such action.

On the flip side, we do exist in an aggressively competitive market, especially in urban areas, and thus AltNets typically take a big risk in assuming that the incumbent wouldn’t adapt or be allowed to adapt. In those areas, Ofcom’s market review had already decided that Openreach shouldn’t face much regulation. This partly also reflected Ofcom’s earlier decision (here) to give Openreach a “fair bet” on FTTP (i.e. softer regulation to help foster deployment), which was promptly followed by an accelerated £15bn commitment to cover 25 million premises by December 2026 (c.80% of the UK).

At the end of the day, Ofcom, which once again found itself conducting a very difficult balancing act between the vested interests of opposing sides, ultimately brushed all these concerns aside and ruled that Openreach’s price cut would “[not] have a material adverse impact on competition.” By the looks of it, this decision will now be tested in the courts.

Typically, legal challenges against regulatory rulings can be long and costly affairs, albeit ones that do sometimes succeed. One big question will be whether or not the AltsNets will push for a break in the discount scheme until the case is settled, but that may be difficult as it has already begun.

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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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31 Responses
  1. Ex Telecom Engineer says:

    My impression is that Equinox is aimed at encouraging wholesale CP’s to move their customers off FTTC, and onto FTTP asap as the Fibre rollout progresses. What Altnet objectors don’t seem to acknowledge is that BT/Openreach need speedy transition away from FTTC onto FTTP, to justify their £15 Billion investment.
    In some respects BT are in the same boat as the Altnets, as BT are effectively scrapping their entire access network and replacing it with a whole new architecture. BT also have to contend with the cost and complexity of the PSTN switch off, as well as investing in new VOIP products, so encouraging their wholesale CP customers onto Fibre is a financial necessity.
    If you’re going to invest in Infrastructure, whether it be a Communications Network, Bridge, Motorway, or something like the Channel Tunnel, you have to take a long term view on the returns; All Ofcom are doing is ensuring that BT/Openreach get a fair return on their investment, the Altnets will now have suck it up and learn to compete on pricing, rather than relying on Ofcom sitting on BT’s chest and expecting an easy ride.

  2. Peach says:

    It seems like these AltNets such as Gigaclear and Cityfibre are more interested in their own profits than allowing the public more choice and cheaper products

    1. Ben says:

      In fairness they are for profit companies — their purpose is to generate profits for their shareholders, not to “allow[…] the public more choice and cheaper products”.

    2. Mexican DFS says:

      To be fair to Cityfibre, their wholesale pricing is much cheaper than Openreach non-equinox FTTP pricing, eg Zen sell Cityfibre 900/900 for £47.99/m (used to be £40/m) while their similar Openreach product 900/155 is £60+/m

  3. NE555 says:

    “What do we want? Higher price fibre! When do we want it? For ever!”

    Said nobody.

    The altnets should be applauded for finally kicking OR (and even Virgin) into starting a fibre rollout. But this doesn’t give any of them the rights to a monopoly.

    1. REGIS says:

      check your history, BT (when they where one company) wanted to do full fibre BEFORE the cable companies even existed in the uk but the gov stopped them because they wanted “competition”.

      In other words if this obsession with competition was not a factor in our day to day life the WHOLE uk would already have a full fibre connection as back then it would have cost pennies compared to now.

      Also as the incumbent provider bt WILL over build (buyout?) every one of these alt nets at some point if they like it or not.

    2. Alex A says:

      @REGIS check your history, that isn’t true. To encourage some competition BT we banned from doing TV for a set amount of time. BT said they would only deploy fibre if they would be allowed to do TV over it, they were told no and BT stuck with what they said.

    3. Jonathan says:

      Yes because Murdoch lobbied hard because it would be competition to Sky. The price we have paid for the government being in the pocket of Murdoch is that we don’t have full fibre everywhere today.

  4. Martin says:

    I wonder how many Altnets will be bothered about supplying service to customers who have little or no broadband interest and only want a basic telephone service?

    1. Shane says:

      Such users will be in a very tiny minority since most people who want a phone only service will be using a mobile phone anyway, assuming they have a decent enough cellular signal.

  5. Just a thought says:

    Provided the incumbent is not selling at a loss, reductions in cost to help uptake and balance the investment seems quite fair.

    Petrol has a wholesale price, plus a fixed government duty. The independent garages may not like it when the supermarkets drop their prices to the bone, but there’s little they can do. The shareholders stop it being sold below cost price. It is known as market forces.

    1. Ben says:

      But in fairness, if the incumbent were to sell their products below cost price for a few years, it would starve off all the competition. Once this has happened, they can gradually increase their prices again, until they reach a point just below where it’s viable for competitors to (re)attempt to disrupt the market. As others have already pointed out, infrastructure investments need to be viewed with long term returns in mind — I’m sure a few years of lossmaking won’t be too cumbersome in exchange for many years of almost-unlimited ability to set prices.

  6. Broadband Bob says:

    I think it would be a universal response from the consumer that they think FTTP prices are too high. Let’s face it not a huge difference in cost between 100Mb FTTC and 900Mb either.
    So this is all about the get rich quick greedy altnets moaning because they don’t have their own monopolies.
    If your product/service is that much better it will sell at pretty much any cost. Otherwise compete and stop relying on regulators artificially maintaining high prices.
    I would save my legal money for when Labour get in and try and offer free broadband

    1. Doug says:

      I pay the same for 80Mbps FTTP as my ISP charges for up-to 80Mbps FTTC. Consumers connected via Openreach FTTP don’t have to pay extra for higher speeds.

    2. Fastman says:

      You mean the free (sorry I meant 200m and stop building period for x years

  7. TelcoRevolution says:

    Worth also highlighting that depending on the product mix that the CP offers, the pricing of that 1Gbps service can drop even lower than £22/mth due to the ARPU share mechanism.

    This is designed to encourage CP’s to promote higher speeds and basically gives them an increased discount the higher the average bandwidth services they consume…..massively helping both economics for the CP and pushing average broadband speeds up significantly.

    As an example of the money on the table, for a an ISP that ONLY sells 1Gbps services, the net price (after ARPU share rebate) would be £19.50/mth which will certainly create opportunity for new entrant CP’s with Gigabit ambitions as they would be able to acquire customers at a much lower cost base with no volume commitments.

    It will take a long time for the larger CP’s with existing bases to achieve such a discount however (due to the lower availability of FTTP across their FTTC (and MPF) bases). I suspect this will therefore massively change the competitive landscape over the coming years.

    This particular lever is a perfect example of BT/Openreach satisfying the Government ‘Levelling Up’ initiative in order to grease the wheels for approval of Equinox.

  8. Ray Woodward says:

    Choice would be a fine thing ….

  9. Buggerlugz says:

    The bigger question that needs answering here is who’s prepared to pay £60+ a month for 1Gig? If that number is very low (which I suspect it is!) why bother?

    1. Stephen says:

      I am paying 50 a month for the 330 down and 50 up I be happy to pay 60 a month to get the 1gig but can’t get it yet even though my adress is showing 1000 down and 220 up when I checked the dsl checker and for tlsome reason the bt site says I can get 900 but only showing 150 even though I have 330 I think there system is messed up

  10. fibrewatching says:

    It would be my guess that if the Equinox offer was simply about price, which this article and others focus on – incorrectly in my view, the majority of the Altnets would probably be fine with it. After all they have entered a market in which BT/Openreach remains a very dominant force, they have a lot of money behind them (collectively about as much as Openreach has announced for fibre investment), so they are clearly up for the competitionn. In contrast, and until goaded into it by the rise of the Altnets, BT/Openreach has spent decades doing the bare minimum, preferring where possible to sweat its copper network.
    Where the Equinox offer puts the screws on is that the price discounts are tied to often pretty lengthy lock-in periods and quotas, meaning that retail ISPs who want to benefit from the discounts effectively need to commit to putting the vast majority of their business with Openreach for many years. What this means is that it doesn’t really matter what level of price reductions the alternative providers might choose to offer to retailers, because they’ll already have locked themselves in to an effectively exclusive arrangement with Openreach. I may be wrong, but I think it’s this pre-emptive attempt to capture the market that the AltNets believe goes against the grain of the WFTMR and Ofcom’s role to promote fair competition.

  11. Alex says:

    My heart bleeds for Goldman Sachs and co. If they’ve got a solid legal case, they should stop bleating about it and just appeal.

  12. Anthony Goodman says:

    I was against this completely. Until I seen the job Openreach are actually doing. Newcastle was one of the main phase 1 cities for CityFibre. And yet they are terrible at bringing their service. They’ve been building all over the East and Central of Newcastle all year and not a single new property coming out. Openreach a month or so back finally hit Newcastle and they are racing through here. They take 2-3 days to lay the cables to a street and then in 2 weeks its live. This is how FTTP should be done and not CityFibres method. My cables were laid 6 months ago with CF and still no start date in sight (according to their phone service its generally 12 months to go live after the cables being laid).

  13. FibreBubble says:

    Massive investment banks and sovereign wealth fund altnets use legal spoiler to delay, undermine and raise prices of competitor shocker.

  14. Clangers says:

    I currently get 60MB FTTC for £20/month. For 90% of the population this is sufficient for the average family needs. Why pay double for 100MB FTTP if the user experience will be pretty much the same albeit a little bit faster which no-one will notice. The only way FTTP will be adopted by the masses is when it is cheaper than FTTC.

    1. Rhys Jones says:

      What you are forgetting is that some areas have FTTP only, so there shouldn’t be a price premium if this is all you get, also remember that eventually FTTC will be replaced with full fibre as the copper network is retired.

    2. Steve says:

      I don’t agree, if I am working on a teams call, one kid is watching a 4k film stream and the other is downloading xbox live then straight away you are making compromises at that speed. I do agree that for the majority of the time you won’t need it.

  15. Karen says:

    This is a no win for Openreach. They get into trouble for increasing costs (line rental) … now they get into trouble for trying to lower costs.

  16. Martin says:

    Sad thing is that this is wasting money on lawyers fees. Possibly over £1000 an hour.

    This money should be spent on rolling out fibre, not lawyers fees.

    1. Buggerlugz says:

      Still less than the “thousands” of consultants still “all over” track and trace at £1400 a day then……

  17. rodger more says:

    We run a small ISP that connects to both Openreach and CityFibre, the second cityFibre comes available in an area we would ditch OpenReach in a heartbeat in favour of CityFibere every day

  18. GordonS says:

    Even with the new Openreach price cuts, alt-ISPs are *still* going to be cheaper.

    This action feels like sour grapes, and if successful will be detrimental for the consumer.

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