VMO2 and Altnets risk hastening deregulation of Openreach’s UK broadband
Ofcom will shortly announce the outcome of their provisional proposal to block one of several discounts that Openreach (BT) had planned to help them stay competitive and attract new full fibre (FTTP) broadband ISP customers. But a new report from Enders Analysis warns that rival networks might, in supporting the regulator, ultimately end up hastening the incumbent’s deregulation to their detriment.
Network access provider Openreach notified their broadband ISP partners about a bunch of offer extensions and new discounts for their Fibre-to-the-Premises (FTTP) lines back in June 2026 (here). Several of these were targeted at New‑to‑Network (NTN) services, which usually means a property (house etc.) where there have been no Openreach products and services on the relevant line at any point in the last 90 consecutive days prior to the date of the FTTP order (excluding any premises on ‘New Sites’, like new build homes).
However, Ofcom later provisionally proposed to block one of those discounts (i.e. the Incremental New to Openreach Offer), which gave retail internet providers (ISPs) a monthly discount for bringing new full-fibre customers onto Openreach’s network. This offer applies only to new customers above an ISP’s normal number of new sign-ups. The discount could have been very substantial – up to £9.50 per customer for up to 30 months.
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The regulator’s view, after considering some complaints from Virgin Media (O2) and several alternative networks, was that this offer was “not fair and reasonable and could harm the development of network competition“. Ofcom said that Openreach was “targeting significant discounts at new customers that are key to altnets’ ability to grow their customer base, while leaving prices for other customers unchanged“, which they feared could “undermine sustainable competition“.
Naturally Openreach disagreed and countered that, in a competitive market like the UK, they “don’t believe that regulation should protect poor business models” (a snipe at the questionable financial stability of many altnets). In previous years Ofcom has tended to approve such discounts and viewed them as being of benefit to consumers, while helping Openreach’s partner ISPs to stay price competitive.
The Enders Analysis study
A new report from analyst firm Enders Analysis, which has been seen by ISPreview, warns that there may be a longer-term downside to supporting Ofcom’s provisional decision. “As full fibre roll-outs wind down and the market matures, Ofcom’s protections for the altnets will start to look increasingly anachronistic, with competition at the wholesale level existing in form only given Openreach’s lack of ability to respond,” said Enders.
The purpose of competition is to reduce prices (or increase quality) and insisting on a price floor could become increasingly tricky for the regulator to defend, given that the “price floor being set for Openreach is (by design) based off altnet build efficiencies rather than those of Openreach,” which they say effectively locks customers into “more expensive and less efficient networks“.
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However, Enders notes that Ofcom’s recent Telecoms Access Review 2026 (TAR) may give the regulator a route out of this conundrum.
Enders Analysis statement
Openreach had been lobbying for full de-regulation in areas with established altnet presence and high market share at least at some point before the next review (i.e. having an ‘Area 1’ of fully competitive postcodes). While it did not achieve this, Ofcom did give itself scope to give Openreach more freedom in specific areas via the approval of Openreach geographic offers, in other words a piece-by-piece progressive geographic deregulation, only available upon application by Openreach.
Ofcom stated in the TAR that in considering whether to allow geographic offers it would consider the “strength of competition and the extent to which it has developed”, in particular considering (among other factors) altnet take-up, market share, retail/wholesale pricing and financial positions, as well as considering where Openreach’s offer pricing is in relation to the REO [Reasonably Efficient Operator] range.
This clearly still gives Ofcom a lot of leeway in its judgement, but in our view it will be difficult for Ofcom to not allow Openreach more pricing flexibility (say, down to the bottom end of the REO range, or to an Openreach cost level, both of which would be at around £14 a month) should it propose an offer where altnets have strong market share (say 30%+, or clearly heading that way), and are pricing aggressively themselves (as nearly all are). We do not expect Openreach to imminently decide to propose this type of offer, but it could well do in 2027, especially if its revenue/EBITDA progression is strong in the interim.
While altnet financial positions remain weak, and Ofcom could use this as a reason to continue protecting them, we think this could prove a difficult argument to sustain; the cable industry took over 20 years to coalesce into Virgin Media, with numerous debt restructurings along the way, so waiting for financial stability could be a very long wait indeed
In short, Enders expresses the view that Ofcom cannot protect altnets from competition indefinitely and the current strategy may merely end up delaying the difficult decisions that have to be made as part of market consolidation and rationalisation, such as writing off over-costed investment and aggressively cutting costs.
Admittedly it could perhaps be said that most altnets have a fairly neutral to negative view of Ofcom and don’t view the regulator as having done much to protect them, which as above is open to debate and you could probably write a book on that one.
The real risk here, according to Enders, is that Ofcom’s restriction, if it is indeed imposed as most of us expect, is likely to be “time-limited, with VMO2-only areas and those with high altnet market share likely to be de-regulated first, and within the current regulatory cycle.”
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Put another way, Enders says VMO2 and altnets need need to be careful that they “do not hasten competition from Openreach that they will struggle to bear“, as well as prepare for its consequences. In particular, setting prices (whether retail or wholesale) at a much lower level than existing cost bases justify could end up both hastening competition (through appearing to have sustainable market share) and making low prices in their particular geographic areas a permanent local feature, “making any recovery to a sustainable model much less likely“.
Enders makes clear that, for VMO2 and altnets, the focus should instead switch from “market share grabs” and move to “building a sustainable business model” (i.e. gaining scale economics through consolidation, achieving a best-practice cost base and narrowing the ARPU gap to competitors, with prior capex overspend dealt with through write-offs and potentially debt restructuring). Easier said than done in today’s competitive environment with its many complex dynamics. “Pursuing subscriber growth without these other factors will simply hasten failure,” concluded the report.
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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The entire ‘Altnet’ debacle is an absolute scandal. One national, truly wholesale, open access network could have and should have been built. Think of how good it could have been for the billions down the drain on ‘Altnets’ and replica OR implementations that in many cases aren’t fit for purpose.
BT/OR remain a protected entity.
Not true, the only reason we see packages with 2300/2300 mbit is because of altnets, if BT was running the show we would be seeing pathetic upload speeds, and I believe even less download speeds we have now. BT has been slow to adopt technologies dating back to ADSL, when countries were rolling out VDSL2, we had the likes of BT rolling out RADSL. When ALTnets were rolling out FTTP/FTTH, BT was attempting to roll out G.FAST, they have delayed and delayed the upgrading their infrastructure for too long, and I’m happy it’s biting them where it hurts.
What you are proposing is a monopoly, which would lead to higher prices for everyone. There would also be less incentive to maintain a quality service or invest in the business. If you are suggesting nationalisation, investment would stop, there would be frequent outages due to strikes, and customer service would become non-existent.
I’m not sure what analysis shows BT getting hurt here. All the altnets put together make up a fraction of Openreach’s footprint and customers. Their takeup is twice what altnets anchieve and they’re not drowning in debt with tiny revenues not even covering the interest on the debt incurred to build.
People see absurd rail prices, endless NHS waiting lists, potholes everywhere, record high energy costs, etc and still want the government to be in charge of even more industries
India gov tried it and because of that their internet speeds were low for decades
During the time the telephone was taking off there was a government telephone network monopoly, and instead of the government investing in adding capacity for the growing demand, they decided to curb capacity by jacking up prices.
With the ever so “wonderful” people running the country (from both parties, in current and recent governments) recent polices on controlling the internet, you really think we would have a wonderful, open wholesale, national network?
Openreach, the closest we have to a regulated national open network are still deploying GPON today! A good government backed network isn’t impossible, take Switzerland for example where you can get 25Gbps if you want, but it requires a government willing to invest the money in the right people, but we would end up f’ing it up like Australia did when rolling out NBN
@jack
hence Openreach have been installing combi pon for 2 years or so, ready for xgs pon, with upto 8gb speeds in the trial. which has been in trial for 6 months and ( from memory) is being rolled out to the south starting in a few months. guessing Openreach have been more concentrating on actually rolling out full fibre ( to nearly 24million premises ) ie 1.6gb with EE rather than going quicker, hence the trial and roll out etc. prices are coming down bt/ee/plusnet 500mb ( last time i looked ) was 29.99 and 900mb was 31.99 ( even chaeper via comparison sites )
The fibre rollout was the chance to bring internet under public control. Have one fibre line to each home and sell access at cost to the end user.
The whole grant and altnet situation is indeed sad. With more deployments than is needed per home.
@Jack:
The UK cannot raise enough revenue to cover its current expenditure. The UK can not even afford to nationalise businesses. The UK does not have access to the level of financial resources that Switzerland has. People who call for nationalisation would, at the same time, be shouting if UK banks were allowed to operate the way Swiss banks do.
The UK is not messing up the roll-out; the major players simply had the good business judgement to hold back on the roll-out of fibre until there was both the demand and a way to make a profit from fibre deployments.
@Jack:
Openwave is rolling out the capabilities to support both GPON and XGS-PON because it knows its market and knows that GPON is still a suitable option for most retail customers within a balanced mix of offerings. That is what separates BT Group from the overly nerdish who cannot make a penny from their efforts.
The market sector is dysfunctional and saturated with players, yet consolidation will continue to be hindered by the level of losses investment funds would have to take in order to facilitate the mergers/acqusitions essential for building sustainable businesses.
Some investment funds will be able to bear such write-offs by setting off losses against the profits they are making from the A.I. valuations. The alternative is for the UK government to regulate the market players by requiring businesses to quickly adopt sustainable business models or risk losing their operating rights in the sector.
The alternative is to risk an uncontrollable deluge of business failures, leaving the provider of last resort overloaded and areas of the UK without broadband coverage.
So the solution is consolidation…who would have guessed.
What selling out to the devil you mean. If anyone was interested in competition Netomnia should have gone to Cityfibre. At least potentially 3 major players, rather than the two dinasaurs who caused most of the underinvestment in fibre in the first place. Nobody knows long term any company, and BT had a major issue with pensions not long ago, VM with its inherit huge pile of debt that grows daily.
Yes, I agree there should
be a National Broadband provider
to take on BT Openreach
Some areas the Alternets ditched
the BDUK Funding and got swallowed up
by BT Openreach
And we have seen something like this before, in similar commercial circumstances, approximately 100 years ago.
The (government organised) Railway grouping, creating the “Big 4” (which lasted about 25 years up to post war nationalisation of the railways). And then a little later Beeching (at which point the analogy becomes over strained).
The grouping was a way for the government to improve the financial viability of an essential service short of nationalisation or detailed intervention.
The major difference is that with railways there were natural regional monopolies (with some overlaps), there isn’t quite the same clear cut grouping possible to moderate competition and create viable customer pools that are overall profitable, given the existence of 2 big countrywide players (Openreach and VMo2).
@Josh – why not make Openreach the national broadband provider?
@FANNY ADAMS:
CityFibre could not have afforded to buy Netomnia – it would have been a step too far for the business.
@FANNY ADAMS:
There is still the potential for four major players to form up in the market sector, but the UK cost base will only support three – and that only if the three majors cut their operational and financial costs sharply.
National utility need opened up to a bunch of pirahnas after government, er no taxpayers money, and ‘investors’, well who ever thought that was a sensible approach for customer centric utility.. way to go BDUK
Did someone say say do it right and first time, nope never heard that in the uuk for a few decades.
Sic.
With Openreach having the lions share of FTTP connections (3X the altnets combined if I remember rightly) I can imagine a new to Openreach discount would have had a pretty marginal effect anyway. So they have the lions share of connections, a regulator that forces them to maintain their own margins while the competition cuts their own throats for new connections. Doesn’t sound too bad to me.
“Openreach disagreed and countered that, in a competitive market like the UK, they “don’t believe that regulation should protect poor business models” (a snipe at the questionable financial stability of many altnets)”.
“Financially unstable” is an extremely polite description. The entire altnets “business model” is largely based on taxpayer money given to these “altnets” to build their fibre networks.
Can’t get my head around why this fact is not mentioned more.
This is incorrect. Most altnets are largely funded by private investment. A handful or so do hold limited public investments under the Project Gigabit scheme, but that is dwarfed by their private funding. A lot of altnets chose not to engage with public subsidy schemes due to either having a more urban focus or the complexity, costs and rules BDUK tend to impose.
it costs more to follow most bduk contracts than what little benefit it provides. many companies chose to do bduk at the cost of build efficiency: they ended up with less homes passed and with a network harder to maintain
it is wacky how people miss the simple concept of private investment and just think the government is responsible for eveything. it is not. Community Fibre covering more than 1m homes in London came at zero cost to the taxpayer
If there was no private investment then the UK would not have gig broadbands