Conflict of Interest Over Gigaclear’s Wholesale Broadband Sees Two UK ISPs Exit
A new report has revealed that two UK broadband ISPs, Exascale and Squirrel Internet, have recently decided to stop selling access to Gigaclear’s alternative full fibre network. The move occurred due to what appears to be a conflict of interest over how the altnet treats their wholesale partners when compared with their own direct retail customers.
Quite a few developments occur behind the scenes of the UK’s broadband industry, some of which are well-known but rarely receive much attention or see the light of day. One of those reflects the complex and sometimes challenging relationships that vertically integrated broadband operators (i.e. those that have built their own physical network and also act as a retail provider) often have with their other retail ISP partners.
The classic market dilemma is that vertically integrated providers are often perceived as being naturally incentivised to give preference to their own retail brand over that of other third-party retail ISP partners, which is perhaps somewhat to be expected (you’ve built the network with your own cash, so you get to set the rules).
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However, the situation can become more complex when an operator, such as Gigaclear, has accepted significant amounts of public funding to help construct their network. In this case, the Government’s Building Digital UK (BDUK) agency typically attaches a requirement for network operators to provide wholesale access across their network “without limitation under fair and non-discriminatory conditions” (here).
The problem, as well illustrated by Thinkbroadband’s summary this morning, is that the wholesale provider doesn’t always appear to do precisely as the rules suggest they perhaps should. On the other hand, BDUK’s rules on this aren’t super descriptive (i.e. they’re not comparable to the strict and detailed regulatory requirements that Ofcom places on market incumbent Openreach), which perhaps leaves room for some flexibility of interpretation.
A spokesperson for Squirrel Internet said:
“Customers choosing to switch from Gigaclear over to Squirrel have been consistently retained by Gigaclear with retentions deals that are vastly below wholesale cost. This was generating significant work load for the team taking and cancelling orders from prospective customers. There have even been incidences of Gigaclear’s retention team telling customers to cancel [whose] switch was complete within the cooling off period, which then leads to an early termination charges from Gigaclear to us.
The issues have been discussed many times with Gigaclear over the years and there seems little interest or willingness to make any changes to allow wholesale partners to gain customers on the network.
As such unfortunately we have made the decision to focus working with network partners that have a genuine willingness to work together to drive uptake on their networks.”
In fairness to Gigaclear, plenty of other broadband providers, particularly the largest players, do often play the retentions game when existing customers decide to switch to a different ISP. The situation can sometimes result in the losing ISP making a last-ditch offer (discount) to try and retain that customer. But Gigaclear’s approach to this, particularly when it involves their own wholesale partners and allegedly offering deals that undercut the wholesale price that partner ISPs have to pay, is what creates the conflict of interest.
We should say that none of this is new within the industry and, as Squirrel points out, such issues have been going on for several years. As mentioned earlier, we’ve seen it happening with other vertically integrated providers too, but crucially most such operators do still manage to find a fair balance. In this case the relationship ended up breaking down, which in practice means that Squirrel will continue to support their existing customers on Gigaclear, but will not be taking on any new subscribers via that network.
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ISPreview understands that Exascale ran into similar frustrations and also called time on their relationship with Gigaclear. In the case of other vertically integrated network operators with BDUK contracts under their belt, the alternative strategy we’ve seen is for a network operator to offer wholesale products on terms that simply aren’t attractive enough for many partner ISPs to want to sell them (i.e. it ends up being used as a check-box exercise to satisfy BDUK).
The above helps to explain why wholesale-only network operators tend to be more attractive to retail ISPs, as this removes the inherent potential for such conflicts of interest. Still, quite a few altnets went the vertically integrated route as a means of protecting their investment and being able to grow their customer base, without first having to wait for the initial uncertainty of needing to build a pool of supporting retail ISPs.
For its part, Gigaclear continues to have a pool of supporting retail ISPs and did not provide a comment for TBB’s article (we’ve also asked). Overall, depending upon your perspective, it’s possible to understand both sides of the argument.
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 X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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Exascale is still listed as a partner on Gigaclear’s website.
I believe they exited their relationship at the start of this week or thereabouts, so that’s more a reflection of the usual delay between that and web teams needing to update the site.
Surprised that OfCom don’t insist on a complete separation between any wholesaler/network operator and any associated retailers like they do with EE and Openreach… But then I remembered it was OfCom and they only like picking on easy targets.
Gigaclear is a relative minnow next to Openreach, they do not have significant market. Regulation requires some balance and allowance for the usual market forces.
Why would Ofcom insist on that? It would likely just result in smaller players not wholesaling at all. There’s No SMP here and regulated wholesale products are available from Openreach to almost every location.
I’m not sure what you’d expect Ofcom to do, nor what you expect the results of that intervention to be.
The smaller altnets do wholesale because it is a subsidy requirement. They treat it as a paper exercise with no intent to see any real take up. They have also received other regulatory advantages such as cheap access to PIA and endless restrictions on what Openreach is allowed to do.
Therefore they absolutely can and should be treated the same as Openreach with harsh penalties if their retail divisions are getting an unfair advantage. This should apply to all altnets but particularly CityFibre and the VM/Nexfibre combo.
The consumer market isn’t as used to wholesale vs. the more fragmented B2B marketplace. While there have been wholesale options in the past in consumer, everything ended up back at Openreach’s door. BTWholesale, PXC really being the big wholesale operators providing access to that Openreach Infrastructure. The advent of many new infrastructures has created this problem.
Compared to B2B where the channel is established, and wholesale and resale are hugely common and there is a general behaviour of co-opetition, sharing asset where its uneconomical to build etc. The underpinning backhaul fabric of everyone’s networks is residing on somebody elses infrastructure, somewhere.
That said there have been examples of the same behaviour from the likes of Vorboss, G.Network and Community Fibre who are trying to offer both retail and wholesale options into the B2B market. Taking wholesale orders and flipping them to direct, a big no-no in the etiquette which underpins the channel.
“There have even been incidences of Gigaclear’s retention team telling customers to cancel [whose] switch was complete within the cooling off period, which then leads to an early termination charges from Gigaclear to us.”
Wow. I hope they’re claiming those back, if the relationship ends I feel like in their position I’d be looking at legal advice. Gigaclear here have basically made themselves a money maker, milking so called “partners”. Doesn’t look particularly ethical when you look at that statement directly.
I switched from gigaclear to squirrel when my renewal with gigaclear was £89 (1gbps), squirrel was I think £45 for exactly the same so switched, the next day gigaclear rang me, they offered the same for £25 plus new router and a node. This was a few months ago.
This problem is widespread. The problem is that BDUK make Altnets winning gigabit Britain lots go through an elaborate process of creating ‘separate’ wholesale businesses, but then they let the operator undercut their own wholesale prices with their retail offering. This therefore blocks any retail ISP competing with them. BDUK say that isn’t against their rules so lots of Altnets have a total monopoly. Look at companies like Fibrus – 150k retail customers but no wholesale customers in England because their wholesale pricing is higher than their retail services. Staggering market failures created by BDUK incompetence.
I can’t see this ever being a big enough problem for Ofcom or CMA to have a look at other than for a small number of operators. And starting any claim is going to be too costly and risky for companies potentially impacted.
Any reported problems (even if inaccurate) could have a big impact on future wholesale customer acquisition though…..it would be like fighting with one hand behind your back vs the network provider.