{"id":28617,"date":"2021-09-30T10:35:44","date_gmt":"2021-09-30T09:35:44","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=28617"},"modified":"2021-09-30T17:04:21","modified_gmt":"2021-09-30T16:04:21","slug":"rivals-sigh-as-ofcom-clear-openreach-fttp-broadband-price-cut","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2021\/09\/rivals-sigh-as-ofcom-clear-openreach-fttp-broadband-price-cut.html","title":{"rendered":"Rivals Sigh as Ofcom Clear Openreach FTTP Broadband Price Cut UPDATE3"},"content":{"rendered":"

Ofcom<\/a> looks set to stoke anger among alternative UK network (AltNets) builders after the regulator today flatly rejected their concerns over Openreach<\/a>’s “Equinox<\/em>” offer, which will introduce a “major<\/em>” price cut (details<\/a>) to the incumbents wholesale Fibre-to-the-Premises (FTTP<\/a>) broadband products for ISPs.<\/p>\n

The offer itself could make Openreach<\/a>’s full fibre products cheaper for retail ISPs to take (i.e. cheaper services for consumers, if they pass the savings on), while also giving those same providers long-term pricing certainty – lasting for 10 years. Naturally, ISPs that are much more reliant on these products, and which have only limited interest in building their own fibre (e.g. TalkTalk<\/a>, Sky Broadband<\/a> and Vodafone<\/a>), have been generally supportive.<\/p>\n

NOTE:<\/strong> The offer could, for example, drop the monthly wholesale rental of a 115Mbps or 1000Mbps consumer FTTP<\/a> tier from \u00a317.44 and \u00a331.57, respectively, to just \u00a315.50 and just \u00a322. 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.).<\/div>\n

In essence, the Equinox Offer gives ISPs cheaper prices for Openreach<\/a> FTTP<\/a> products, so long as they largely stop making new sales of legacy broadband products where Openreach FTTP is available, and switch to selling mainly FTTP products instead. To qualify for rental discounts ISPs must achieve at least 80% of new sales orders on FTTP after the first year.<\/p>\n

However, the “Equinox<\/em>” offer generated a furious response<\/a><\/strong> from AltNets and Virgin Media<\/a> (VMO2), many of which are currently busy investing billions (collectively) to deploy rival FTTP networks (e.g. CityFibre<\/a>, Zzoomm<\/a>, KCOM<\/a>, Truespeed<\/a>, Fern Trading and many more). Some of those networks will deploy in the same areas as Openreach, or be overbuilt by them in the future, and sell their own rival wholesale products to ISPs.<\/p>\n

Such AltNets, many of which are in the early stages of their investment and carrying a lot of risk, have previously warned that Openreach’s new discount 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.<\/p>\n

Part of this concern stemmed from Openreach’s FTTP products becoming more price competitive – previously they’ve tended to be more expensive and so AltNets could grow take-up by being aggressive on price. 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 on to their networks, since they’d have less reason to choose them over Openreach.<\/p>\n

The Equinox Decision<\/strong><\/span><\/h3>\n

Ofcom<\/a>, which has once again found itself conducting a very difficult balancing act between the vested interests of opposing sides, had previously given Openreach’s offer provisional approval (here<\/a>). As part of that they recognised that “altnets are likely to face stronger competition<\/em>” as a result of the offer, yet they did not believe that this would “create a potential barrier to using altnets<\/em>” and predicted “better consumer outcomes<\/em>.”<\/p>\n

The regulator has also previously highlighted how their “analytical framework is concerned with the promotion of competition rather than the protection of competition as under competition law.<\/em>” But the bad news for AltNets is that, despite some very public protests, Ofcom<\/a>’s thinking hasn’t changed.<\/p>\n

Ofcom’s Statement on the Equinox Offer<\/strong><\/a><\/p>\n

Our view is that we should take no action at this time.<\/p>\n

In reaching our view, we have considered the impact on competition. For the reasons set out above, we do not consider that the Equinox Offer will have a material adverse impact on competition. We have also considered the impact on different stakeholders:<\/p>\n

a) Citizens and consumers: Our conclusion is that the Equinox Offer is consistent with promoting investment in gigabit-capable networks by Openreach and other operators and promoting network-based competition, ultimately delivering better consumer outcomes.<\/p>\n

b) Altnets: As a result of the Equinox Offer, altnets are likely to face stronger competition from Openreach. However, we conclude that the Order Mix Targets and forecasting requirements do not create a potential barrier to using altnets and that the New-to-network Discounts do not raise concerns in terms of targeting or their impact on altnet build. As a result, our conclusion is that the Equinox Offer is consistent with network-based competition.<\/p>\n

c) ISPs: We consider that ISPs are likely to benefit from network-based competition. As explained above, we conclude that ISPs will continue to be free to use altnets where they wish to do so.<\/p>\n

d) Openreach: We consider that not preventing Openreach from introducing the Equinox Offer allows it to engage in network-based competition, without compromising our objective of promoting investment in gigabit-capable networks.<\/p>\n

In reaching our view, we have had regard to our duties under sections 3 and 4 of the Communications Act 2003. As discussed in more detail above, we have also had regard to the UK Government\u2019s SSP.<\/p><\/blockquote>\n

Mark Shurmer, MD for Regulation at Openreach, said:<\/strong><\/p>\n

“This is a positive step as we continue to invest in upgrading the UK\u2019s digital infrastructure. Our new pricing gives ISPs more long term certainty, enables them to compete in a highly competitive market, and makes ultrafast Full Fibre technology the default choice wherever it\u2019s available \u2013 it’s great news for homes and businesses all over the UK.”<\/p><\/blockquote>\n

Initially, we suspect that consumers will be happy to see FTTP getting cheaper from Openreach, which will in turn boost the take-up of related products and help to move away from the legacy of copper lines. But on the flip side, AltNets will face greater pressure on their investment models and may need to build even faster, not least because growing market share among consumers will now become more of a challenge.<\/p>\n

Ofcom will also be mindful that this partly reflects their decision earlier this year (here<\/a>) to give Openreach a “fair bet<\/em>” on FTTP (i.e. softer regulation to help foster deployment), which was promptly followed by an accelerated \u00a315bn commitment to cover 25 million premises by December 2026 (c.80% of the UK) – including c.6.2 million premises in rural and semi-rural areas. So far they’ve already built to 5.2 million premises and rising, fast.<\/p>\n

However, today’s decision does leave a sizeable question mark over the impact this will have on AltNet projects, particularly whether Openreach’s soon-to-be-cheaper FTTP products will put too much pressure on their economic models, investment and related take-up forecasts. Ofcom says not to worry, but only time will truly tell.<\/p>\n

The operators that have already been able to establish some scale should be able to weather this, albeit while potentially needing to further cut or subsidise their existing pricing. But smaller AltNets, particularly those that are attempting to overbuild Openreach’s FTTP (whether intentionally or not), may struggle the most and could end up seeking consolidation sooner than expected.<\/p>\n

Equally, where discounts are applied by Openreach in already aggressively competitive urban areas (Ofcom Area 1), then AltNets take a big risk in assuming that the incumbent wouldn’t adapt or be allowed to adapt. In those areas, Ofcom’s market review had already decided that Openreach shouldn’t face much regulation.<\/p>\n

UPDATE 11:42am<\/strong><\/p>\n

Added a comment from Openreach above.<\/p>\n

UPDATE 12:21pm<\/strong><\/p>\n

The first AltNet reactions are coming in.<\/p>\n

Gareth Williams, CEO Gigaclear<\/a>, said:<\/strong><\/p>\n

“We at Gigaclear<\/a> are extremely disappointed by Ofcom\u2019s decision. Whilst we will need time to review the detail, Ofcom\u2019s statement appears to contradict both its obligations to support competition and its duties under the Statement of Strategic Priorities. We are now digesting the statement in full and will consider further action.”<\/p><\/blockquote>\n

UPDATE 1:55pm<\/strong><\/p>\n

Now a comment from CityFibre<\/a>.<\/p>\n

Greg Mesch, CEO at CityFibre<\/a>, said:<\/strong><\/p>\n

“Ofcom\u2019s decision to approve the Equinox offer is contrary to its own policy of promoting competition to BT<\/a> Openreach by encouraging alternative network investment in the interest of consumers.<\/p>\n

Infrastructure competition from CityFibre and other builders will ensure consumers benefit from better products at better prices – for the long term. The Equinox offer is an attempt by BT<\/a> Openreach to limit that competition, ultimately denying consumers these real benefits.<\/p>\n

We are now examining Ofcom\u2019s decision and considering appropriate next steps.”<\/p><\/blockquote>\n

INCA Statement<\/strong><\/p>\n

INCA is not surprised but is still disappointed with Ofcom\u2019s decision today. Our members are committed to meeting and surpassing the government\u2019s targets for gigabit capable networks – so much so that \u00a314bn of new investment has been brought into the sector to support this aim. Ofcom\u2019s decision today puts that at risk and operators will now be seriously considering what steps to take next.<\/p>\n

Superficially, BT<\/a>\u2019s \u2018Project Equinox\u2019 is all about reducing costs to encourage ISPs to move customers to BT Openreach\u2019s fibre networks. Yet the impact will actually be a reduction in wholesale competition which will inevitably result in higher prices and lower standards of service in the long run for consumers.<\/p>\n

BT is using its market power to reinforce its dominant position. It wants to deter the competitive investment that has done so much to accelerate the pace of new fibre deployment. To meet the government\u2019s gigabit targets – and more importantly to reach those beyond the 85% stated in Boris Johnson\u2019s ambition \u2013 we need to bring to the table all the investment available. The altnets are doing that and this competitive investment is spurring more investment from BT. Players like CityFibre are becoming increasingly significant alongside the growing range of regional and specialist providers that have entered the market based on supportive Government policy and a fair regulatory landscape.<\/p>\n

Ofcom\u2019s decision is in direct contradiction to its stated policy of promoting competitive investment and maintaining that regulatory certainty.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Ofcom looks set to stoke anger among alternative UK network (AltNets) builders after the regulator today flatly rejected their concerns over Openreach’s “Equinox” offer, which will introduce a “major” price cut (details) to the incumbents wholesale Fibre-to-the-Premises (FTTP) broadband products for ISPs.<\/p>\n","protected":false},"author":1,"featured_media":28620,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[1,1645],"tags":[474,418,56,414,32,36,69,38,89,66,74,475,96,71],"class_list":["post-28617","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uk_isp_news","category-key_uk_isp_industry_developments","tag-bt","tag-cityfibre","tag-fttp","tag-northern-ireland","tag-o2","tag-ofcom-regulation","tag-bt-openreach","tag-politics","tag-scotland","tag-sky-broadband","tag-talktalk","tag-virgin-media","tag-vodafone","tag-wales"],"share_on_mastodon":{"url":"","error":""},"yoast_head":"\nRivals Sigh as Ofcom Clear Openreach FTTP Broadband Price Cut UPDATE3 - 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