Ofcom Propose NOT to Block Openreach’s UK FTTP Price Cuts UPDATE

Ofcom has today opened an expected consultation into Openreach’s ‘Equinox 2‘ discount scheme, which will further reduce the wholesale prices of their Fibre-to-the-Premises (FTTP) based broadband products for ISPs and thus consumers. But their “provisional” view is “not intervene“, which is likely to anger alternative networks (AltNets).

As we reported at the end of last year (here), Openreach are preparing to introduce another round of wholesale discounts on their FTTP products from April 2023. The move will help their ISPs to stay competitive with newer AltNets (Summary of UK Full Fibre Builds) and further reduce the price of related packages, which will in turn boost take-up by consumers and aid the move away from copper lines.

The discounts themselves are not as dramatic as the Equinox 1 offer, with smaller changes to rentals and some reductions in connection charges. Nevertheless, more than a few AltNets view the move as being anticompetitive (here), with CityFibre even going so far as to lodge a Competition Act complaint with the Competition and Markets Authority (CMA) and Ofcom (here).

According to CityFibre, Openreach are “undertaking an aggressive strategy to foreclose infrastructure competition in the UK fibre broadband market.” Such AltNets, which carry a lot of risk due to being in the earliest stages of investment and competitive infrastructure build, have previously enjoyed a market where Openreach was traditionally much more expensive. This made it easier for them to grow take-up, attract investment and gain support from third-party ISPs to their equivalent wholesale options.

The flip side of this is that ISPs on Openreach’s network often feel as if they’re being left at a competitive disadvantage versus often significantly cheaper AltNets. Such providers have thus put pressure on Openreach to adapt and stay competitive, hence the discounts, which in-turn also helps to boost take-up by consumers and aid the move away from older copper lines. Consumers are generally pleased to see fibre prices fall, especially in this climate.

As per usual, Openreach are required to notify new pricing to Ofcom 90 days before it launches, which gives the regulator time to prepare and launch a short consultation on the changes. The latest consultation on all this has now been launched, and they’ve provisionally decided that the discounts are not likely to be considered anticompetitive. But there is an olive branch of sorts for AltNets.

Ofcom’s Statement

We have carefully assessed Openreach’s offer – taking into account the interests of consumers, as well as the impact on competitors and retail broadband providers.

Our provisional view is that we should not intervene to prevent Openreach from introducing Equinox 2. We consider the offer is not anti-competitive and is consistent with the rules we consulted on before introducing them under our market review in 2021. Maintaining these rules for the period of the review is also important to achieving certainty for all companies looking to invest in broadband networks.

In our provisional view, the proposed offer is consistent with our primary strategic goal of promoting investment in high-speed networks to deliver fast, affordable broadband to people and business across the UK.

We are now inviting responses to our consultation by 5pm on 4th March 2023, before deciding how to proceed. We intend to publish our final decision before the end of March 2023.

We are also alive to the concerns of some market participants that Openreach’s practice of amending its full-fibre prices could act as a barrier to competitors’ entry and expansion in the market. As this could potentially affect the level playing field we want to see, we are gathering evidence to decide whether we should investigate this matter in more detail.

As ever, the challenge in all this is with figuring out where to draw the line when trying to balance the vested interest of both sides. Ofcom has allowed Openreach plenty of flexibility to stay competitive, as may seem only fair in such an aggressively competitive market – this is part of the reason why the dominant player opted to invest so much money into FTTP in the first place. On the other hand, choosing not to invest might have been suicide.

However, as the market becomes more competitive, then Ofcom’s regulation actually tends to soften, not harden, and indeed their analytical framework remains more “concerned with the promotion of competition rather than the protection of competition as under competition law” (Ofcom quote).

Suffice to say, Ofcom’s provisional view shouldn’t shock anybody and is consistent with their past rulings, but AltNets will still challenge this as much as possible over the next few weeks. Ultimately, we suspect Ofcom will hold to their provisional view, and indeed blocking Openreach from being able to reduce their prices, in the current climate, would not go down well with consumers.

The more interesting development to watch may be CityFibre’s legal challenge, which could go to the very heart of how a competitive market is supposed to function, particularly in urban areas. On the other hand, the operator’s chances of outright victory in this approach seem questionable, although the devil is always in the detail. CityFibre is perhaps more concerned with setting precedent or rules for a possible Equinox 3, 4 etc. than blocking 2.

UPDATE 10:23am

The comments have started to come in.

Malcolm Corbett, INCA CEO (representing AltNets), said:

“INCA is frustrated by the preliminary view Ofcom has outlined in its consultation on BT Openreach’s Equinox 2 proposals. INCA is clear in its analysis of Equinox 2 that the scheme deliberately threatens competitiveness and makes it harder for new entrants to compete in the full fibre market.

INCA believes that, should Ofcom fail to block Equinox 2, £20bn of investment will be at risk, significantly slowing progress towards the roll out of full fibre connectivity broadband to all parts of the UK. In effect, a decision not to block Equinox 2 runs contrary to the Government’s policy of creating and maintaining a competitive market for broadband services in the UK.

Despite the combative comments made by the BT Chief Executive this week, which make the company’s monopolistic desires perfectly clear, Ofcom seems not to realise that through this proposal, BT is attempting to re-establish the monopoly it enjoyed in the copper market over the country’s full fibre future, which left the UK languishing at the bottom of international full fibre league tables. If the company is doing as well as Philip Jansen wants the markets to believe it is, price cutting can only be aimed at killing the competition.

It is abundantly clear that the best way to get networks built quickly and to ensure low prices for consumers in the long-term is to maintain a competitive wholesale broadband market. Should Ofcom fail to block the Equinox 2 proposal, it will be acting against that objective. INCA will engage with Ofcom’s consultation process and hopes that Ofcom will think carefully about the serious damage which will be inflicted on the UK’s proposed full fibre broadband roll out before making a final decision on whether to approve or decline BT Openreach’s self-interested and anti-competitive proposals.”

Mark Shurmer, MD of Regulatory Affairs at Openreach, said:

“We share Ofcom’s initial view that our new Full Fibre offer isn’t anti-competitive. Our customers wanted sharper pricing to help them upgrade their customers to faster, more reliable broadband connections, so this is good news for UK consumers and businesses. It also supports our continued multi-billion pound investment to upgrade the UK’s broadband infrastructure.”