CityFibre Start Legal Fight Over Ofcom Approval of Openreach FTTP Price Cut UPDATE2

CityFibre has this week carried out their earlier threats by launching an appeal via the Competition Appeal Tribunal (CAT) to challenge Ofcom’s recent approval of Openreach’s “Equinox” offer (here), which introduced a “major” price cut (details) to the incumbents Fibre-to-the-Premises (FTTP) broadband products for UK ISPs.

Our readers may recall that the “Equinox” discount, which was introduced on 1st October 2021, generated an angry response from alternative network (AltNet) providers, including Virgin Media (VMO2). Many of those providers are busy investing billions (collectively) to deploy rival FTTP networks (Summary of UK Full Fibre Builds) and some will build 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 carrying a lot of risk, have previously warned that the 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 (but initially it may 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.

CityFibre’s Notice of Appeal (NoA) to the CAT noted how Ofcom accepted in the statement that the associated Order Mix Targets (OMTs) for the offer would, in the short term, impact on some ISPs’ incentives to use altnets in areas where the altnets’ FTTP footprint overlaps with Openreach’s footprint. Nonetheless, Ofcom concluded that the OMTs do not create a potential barrier to using altnets.

In short, the operator states that Ofcom went no further than Question 1 (i.e. “do the terms of the Equinox Offer potentially create a barrier to using altnets?“) in its analysis, to conclude that the Equinox Offer did not raise competition concerns requiring ex ante intervention.

CityFibre’s Grounds for Appeal

1. Ground 1(a): Ofcom’s Overlap Conclusion had no sound evidential foundation and was not a conclusion Ofcom could reasonably draw from the evidence.

2. Ground 1(b): Further or alternatively, Ofcom’s Overlap Conclusion was never put to stakeholders in the ConDoc, in breach of Ofcom’s duties of fair consultation and reasonable enquiry.

3. Ground 2: Ofcom’s Overlap Conclusion does not in any event rationally support the conclusion that OMTs create no potential barrier to using altnets.

CityFibre are seeking to quash Ofcom’s conclusion to Question 1 and to direct the regulator to conduct a fuller analysis of the Equinox Offer. Naturally, the operator also wants relief from related costs and any “such relief as the Tribunal considers appropriate in order to give effect to its judgment.” In addition, CityFibre has invited the Tribunal to use its case management powers to ensure that its appeal is “conducted with appropriate expedition.”

The CAT has invited any other parties with sufficient interest in the outcome of the proceedings to make a request for permission to intervene in the case, which must be made within the next three weeks (Christmas could make that deadline particularly tedious). A number of other AltNets, such as Gigaclear, have previously expressed an interest in joining such action (here).

The other difficulty here, which may or may not end up being relevant to the case itself – given how the NoA focuses more on Ofcom’s procedure, is that we do exist in an aggressively competitive market, especially in urban areas. AltNets thus typically take a big risk in assuming that Openreach wouldn’t adapt or be allowed to adapt to their pricing strategies, particularly in urban areas.

In those competitive 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).

Typically, legal challenges against regulatory rulings can be long and costly affairs, albeit ones that do sometimes succeed. We’ll be watching this one closely.

UPDATE 4:17pm

We’ve requested a few comments and got the responses back.

An Ofcom spokesperson said:

“We carefully considered this offer and rivals’ views, and concluded that it does not raise concerns requiring intervention.”

Greg Mesch, CEO of CityFibre, said:

“CityFibre has filed a notice of appeal with the Competition Appeal Tribunal against Ofcom’s decision to take no action regarding Openreach’s Equinox offer.

We consider the decision to be wrong and inconsistent with Ofcom’s policy objective of promoting infrastructure competition by encouraging investment in alternative Full Fibre networks.

As the Equinox offer is already having an adverse impact on competition, we have asked the Tribunal to deal with our appeal quickly so as to remove any market uncertainty.”

UPDATE 9th December 2021

Openreach’s comment is below, which was initially placed in the wrong article due to a mistake.

An Openreach spokesperson said:

“We agree with Ofcom that our full fibre prices allow other networks to compete fairly with Openreach. Competition’s good for customers, it’s what Openreach exists to promote, and it’s something Government and Ofcom have rightly worked hard to encourage.”

UPDATE 14th Dec 2021

We’ve had a late comment from INCA too, which represents UK AltNets.

INCA Chief Executive, Malcolm Corbett, said:

“If we are to meet and go beyond the government’s target for gigabit capable networks we need more competition in the market not less. BT knows this and is using its market power to reinforce its monopoly position. It wants to deter the competitive investment that has done so much to accelerate the pace of new fibre deployment.

While BT’s ‘Project Equinox’ appears to be about reducing costs to encourage internet service providers to move customers to BT Openreach’s fibre networks, the actual impact is likely to be a reduction in wholesale competition and that in turn will set back plans, delaying fibre deployment, especially in rural and hard to reach locations.

Ofcom’s decision seems to run directly counter to its stated policy of promoting competitive investment, despite the wide ranging and well-argued case put forward by many industry players at the time. Equinox in its current form should not be accepted and we are pleased to see that one of the increasingly significant alt-nets has decided to challenge the regulator on this point.”