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

Wednesday, December 8th, 2021 (2:36 pm) - Score 6,168
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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.

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.).

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.”

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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.
Leave a Comment
22 Responses
  1. New_Londoner says:

    Headlines like “Alt-net opposes price cuts for consumers” will not go down well! If your business case is dependent on someone else maintaining high prices then you have no business case.

  2. GMorris says:

    Cannot see the point. OR have a monopoly of copper but hardly have a monopoly of full fibre. The altnets may portray themselves as minnows but most of them are backed by mega investment funds that are on a wild west goldrush to cream off the profitable cities and towns.

    1. Peter says:

      “OR have a monopoly of copper but hardly have a monopoly of full fibre”

      I think you’ll find Openreach do have a monopoly on full fibre. Maybe not on the same level as copper but a monopoly nevertheless.

    2. Ex Telecom Engineer says:

      “I think you’ll find Openreach do have a monopoly on full fibre.”

      BT are doing a full access-network rebuild, to provide FTTP,with new OLT’s/ONT’s/Fibres, etc, so I don’t know how they could be viewed as having a monopoly on Fibre. BT also have the costs associated with the PSTN switch off, which the ALTNET’s are free from.
      BT do have a monopoly on infrastructure, through ownership of Ducts, Poles, and Wayleaves, but OFCOM have levelled the playing field in that respect with the PIA product.
      In summary, BT don’t have a monopoly on Fibre.

    3. Jonny says:

      “I think you’ll find Openreach do have a monopoly on full fibre.”

      Pretty impressive of them to go from having next to no FTTP five years ago to having a monopoly now – what were all their competitors doing?

    4. Peter says:

      “Openreach remains the largest FTTP network by a factor of six”

      https://www.thinkbroadband.com/news/9124-uk-blasts-past-29-full-fibre-coverage-figure

      Sounds like a monopoly to me.

    5. 125us says:

      No, it’s only a monopoly if there are no other players. Words and their meanings are important.

  3. Ex Telecom Engineer says:

    “Sounds like a monopoly to me.”

    I believe Openreach has recently passed 6 Million Premises, but that’s because they’re rolling out faster than anyone else. I’ve read that CityFibre have recently passed 1 Million premises,but INCA state that the coverage of all the ALTNET’s combined adds up to:

    “Fixed symmetric gigabit infrastructure supplied by independent operators is expected to reach over 6.6 million premises at the end of 2021 with an estimated 1.1 million live connections
    • By end-2025 these operators aspire to cover nearly 30 million homes and businesses, with around 6.2 million live connections. These footprints include some double counting, as networks will overlap in some of the most desirable locations.”

    https://www.inca.coop/sites/default/files/inca-point-topic-report-2021.pdf

    The combined coverage at least equals Openreach currently, and they’re saying they’ll cover more premises than Openreach by the end of 2025.

    Clearly Openreach don’t have a monopoly on FTTP.

    1. anonymous says:

      Quute as aspiration claiming you’ll cover >90% of the country by 2025.

    2. New_Londoner says:

      @Anonymous
      Or, as it says in the story, around 80% by the end of 2026.

    3. anonymous says:

      Was referring to the INCA statement mentioned by the post I was responding to only. Fair amount more challenging for altnets to dig and PIA their way to that level of coverage that quickly.

    4. NE555 says:

      “Fixed symmetric gigabit infrastructure supplied by independent operators is expected to reach over 6.6 million premises at the end of 2021 with an estimated 1.1 million live connections”

      They *must* be including Openreach within their definition of “independent operators” to reach that total.

    5. Winston Smith says:

      I think the 6.6 million premises passed by end of 2021 is a pie-in-the-sky prediction based on their estimated 2.5 million passed at the end of 2020 and the previous year-on-year growth rates. The paper is dated May 2021.

      They explicitly exclude BT and VM from independent operators.

    6. TC says:

      Openreach are substantially behind on there fibre roleout.

      They and virgin/O2 have had there hands forced by Cityfibre and other alt nets.

      They were happy to sit on there hands for years and not invest because they had no competition.

      They now have competition and are capping themselves.

      As for an earlier post saying they have reached 6 million homes already what are other companies doing. Openreach has a vast network already with nearly everything in place to upgrade pretty easily. PIA helps but not when core infrastructure cannot use it.

      I’ve worked for OR on the fibre rollout and they have it easy.

  4. Meadmodj says:

    So CityFibre thinks its unfair to offer ISPs long term confidence and reduce the margin on higher tiers that from a network perspective don’t cost that much more to provide?

    ISPs like Vodafone, Talktalk and ZEN have an increasing choice and it will not be just cost. Their offering should be symmetrical FTTP, efficient processes, quality and price. If they can’t provide that against OR with their historic overheads, national/category pricing, legacy IT systems then they can only blame themselves.

    I think CityFibre should take a wider view. In the South East they have chosen areas already covered by VM that are currently aggressive on offer prices, have completed 3.1 and there is still the threat of them going wholesale with specific ISPs. They also appear to have chosen areas already on the existing Openreach announcements who are now implementing at pace. Even Altnet FW/Hey appear confident to directly compete with them and OR/VM, offering symmetrical and achieving sizeable take-up in their areas (using PIA, installing to demand and then offering it to neighbours). Perhaps they should have chosen areas where they would have had time to build, cease sufficient market share and increase the net coverage of FTTP (to attract ISPs).

    The biggest threat may be themselves. There appears to be a lot of CityFibre investment sitting idle and not turned into revenue. So is this a diversion to appease investors asking questions regarding progress?

    In my view it could result in bad publicity and it may backfire as more OR revenue could turn into increased OR FTTP areas or earlier implementation of their XGS-PON overlay.

    1. Meadmodj says:

      Sorry “seize market share”

    2. Jerry says:

      CityFibre are over-promising and under-delivering.

      This false promise nonsense is seriously upsetting potential customers. Even worse is CityFibre will omit 20% of the streets they cover, whereas Openreach will deliver 99.9%

      Why do CityFibre need 5 full years to complete even the miniscule parts of the UK as denoted on their rollout pages?

      What CityFibre have announced is 5 years work for them; or 3 months work for Openreach.

      Why can CityFibre not rollout to all these areas concurrently? This company is now rapidly becoming a joke, they should be able to complete what’s been announced within 2022.

      CityFibre will be going bust from mismanagement unless they get a move on and stop delaying things in the courts.

    3. anonymous says:

      If you’ve ways they and others could do it better, faster, cheaper you could make a lot of money out of it, Jerry.

      Want me to hook you up with a CityFibre planner so that you can share your expertise?

    4. TC says:

      Openreach don’t offer symmetrical FTTP and neither do Virgin/O2.

      No clue why as there network is capable of doing so

    5. anonymous says:

      ‘more OR revenue could turn into increased OR FTTP areas or earlier implementation of their XGS-PON overlay.’

      Revenue wouldn’t impact speed of XGSPON deployment at all. Quite the opposite actually – if it’s bringing in the revenue why invest in other things?

      XGSPON would be brought on by loss of market share.

  5. Lee C says:

    I expect they don’t offer symmetrical to keep the appeal of Ethernet products.

  6. Lee C says:

    I don’t agree with some of the comments from the Altnets such as harming government targets.

    They almost exclusively target areas where other providers already have superfast or ultrafast presence. Or greenfield sites that get it regardless.

    Targets are to cover everyone with fast broadband rather than to have multiple overlaid networks.

    competition doesn’t really help with it when it comes to competing infrastructure and this proves it.

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