{"id":31495,"date":"2022-07-15T10:54:01","date_gmt":"2022-07-15T09:54:01","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=31495"},"modified":"2022-07-15T12:57:50","modified_gmt":"2022-07-15T11:57:50","slug":"cityfibre-lose-appeal-vs-ofcoms-approval-of-openreach-fttp-price-cut","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2022\/07\/cityfibre-lose-appeal-vs-ofcoms-approval-of-openreach-fttp-price-cut.html","title":{"rendered":"CityFibre Lose Appeal vs Ofcom’s Approval of Openreach FTTP Price Cut UPDATE"},"content":{"rendered":"

The Competition Appeal Tribunal<\/a> has today “dismissed<\/em>” CityFibre<\/a>’s attempt to challenge Ofcom<\/a>’s approval of Openreach<\/a>’s (BT<\/a>) “Equinox<\/em>” offer (here<\/a>), which introduced a “major<\/em>” price cut (details<\/a>) at wholesale to their Fibre-to-the-Premises (FTTP<\/a>) broadband products for UK ISPs. But the operator is far from giving up.<\/p>\n

Just to recap. The “Equinox<\/em>” discount was introduced last year and promptly generated an angry response<\/a><\/strong> from alternative networks (AltNet), including Virgin Media<\/a> and many others (Summary of UK Full Fibre Builds<\/strong><\/a>). Such operators are collectively investing billions of pounds to deploy rival fibre networks and some will build in the same areas as Openreach<\/a>, or be overbuilt by them in the future, and sell their own rival wholesale products to ISPs.<\/p>\n

NOTE:<\/strong> Equinox could, for example, cut the monthly wholesale rental of a 115Mbps or 1Gbps consumer FTTP<\/a> tier from \u00a317.44 and \u00a331.57, respectively, to just \u00a315.50 and \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

Many of these AltNets are in the early stages of investment and carry a lot of risk. Suffice to say, they fear that Openreach<\/a>’s discounts might eventually result in a reduction in competitive fibre infrastructure investment and deployment. Further down the road, they claim, this could also reduce choice and innovation, and potentially result in higher prices for consumers (though for now it’s more likely to result in lower prices via competition).<\/p>\n

The position reflects the fact that AltNets have enjoyed a market where Openreach’s products were, in the past, traditionally much more expensive than their own options, which made it easier for them to grow take-up, attract investment and support from third-party ISPs to their equivalent wholesale options (where offered). But Equinox makes all of this more difficult.<\/p>\n

On the flip side, AltNets have taken a big risk in assuming that Openreach wouldn\u2019t adapt or be allowed to adapt to their pricing strategies, particularly in aggressively competitive urban areas. As the market becomes more competitive, then Ofcom<\/a>’s regulation tends to soften, not harden. This is partly reflected by Ofcom<\/a>’s earlier decision (here<\/a>) to give Openreach a “fair bet<\/em>” on FTTP<\/a> (i.e. softer regulation to help foster deployment), which was promptly followed by an accelerated \u00a315bn plan to cover 25 million premises by December 2026 (80%+ of the UK).<\/p>\n

The Appeal Outcome<\/strong><\/span><\/h3>\n

CityFibre<\/a> decided to launch an appeal against this in December 2021, which actually focused more on Ofcom’s process (i.e. how they arrived at their decision to approve the discount), rather than the price reductions themselves.<\/p>\n

During early 2022 BT<\/a> (on the side of Ofcom), Sky Broadband<\/a> (on the side of Ofcom) and a group of AltNets (on the side of CityFibre<\/a>) – including County Broadband, Jurassic Fibre, Swish Fibre and Zzoomm<\/a> – attempted to intervene in the case. But the court only allowed BT<\/a>, while Sky and the AltNets were rejected over various issues related to costs, delays and a concern that they’d be “unlikely to add<\/span> <\/em>materially to information already available<\/em>” etc.<\/span><\/span><\/p>\n

Otherwise, the Notice of Appeal<\/strong> (NoA) noted how Ofcom had accepted in the statement that the associated Order Mix Targets<\/strong> (OMTs) for the offer would, in the short term, impact on some ISPs\u2019 incentives to use altnets in areas where their FTTP footprint overlaps with Openreach’s. The regulator had previously concluded that the OMTs did NOT create a potential barrier to using altnets, but CityFibre feels as if their process did not do enough analysis.<\/p>\n

CityFibre\u2019s Grounds for Appeal<\/strong><\/span><\/p>\n

1. Ground 1 (a):<\/strong> Ofcom\u2019s Overlap Conclusion had no sound evidential foundation and was not a conclusion Ofcom could reasonably draw from the evidence.<\/p>\n

2. Ground 1 (b):<\/strong> Further or alternatively, Ofcom\u2019s Overlap Conclusion was never put to stakeholders in the ConDoc, in breach of Ofcom\u2019s duties of fair consultation and reasonable enquiry.<\/p>\n

3. Ground 2:<\/strong> Ofcom\u2019s Overlap Conclusion does not in any event rationally support the conclusion that OMTs create no potential barrier to using altnets.<\/p><\/blockquote>\n

The tribunal has today returned its verdict and dismissed all of CityFibre’s grounds, which marks a victory for Ofcom and means no future roadblocks for Openreach’s discount scheme.<\/p>\n

CAT Ruling<\/strong><\/p>\n

We unanimously reject both Ground 1 and Ground 2 of CityFibre\u2019s appeal and dismiss the appeal in its entirety. In doing so, we note that Ofcom has reserved to itself the power to review its decision and to intervene if it considers that the Equinox offer is affecting competition in a way which Ofcom had not previously appreciated. We would encourage Ofcom to maintain careful scrutiny of the market at this important time, to ensure that the judgements it has made in the Statement continue to be validated by the emerging evidence of actual competitive conditions.<\/p><\/blockquote>\n

A Spokesperson for Openreach said:<\/strong><\/p>\n

“This case was about the process Ofcom followed in approving our full fibre prices, not the prices themselves. We’re pleased with the outcome and have always maintained that Ofcom was right to find that our prices allow other networks to compete fairly. Competition is good for customers, it\u2019s what Openreach exists to promote, and it\u2019s something Government and Ofcom have rightly worked hard to encourage.”<\/p><\/blockquote>\n

Greg Mesch, Chief Executive Officer of CityFibre, said:<\/strong><\/p>\n

“Whilst the CAT has dismissed the appeal, and we have always recognised that the threshold for a successful judicial review of a regulator\u2019s decision is a high hurdle, the CAT has made significant criticisms of Ofcom.<\/p>\n

It has stated that Ofcom’s consultation process could have been improved. Ofcom failed to appreciate that infrastructure competitors would have had information highly relevant to its assessment despite that information being important for the purposes of securing investment. The CAT has also criticised Ofcom for its failure to provide clear and consistent guidance to those making very significant investment commitments on the basis of Ofcom\u2019s policy decisions.<\/p>\n

The CAT\u2019s conclusion expressly encourages Ofcom to \u2018maintain careful scrutiny of the market at this important time\u2019 to ensure that any decisions it makes deliver real competition.<\/p>\n

We are sure that Ofcom will take careful note of the CAT\u2019s comments. Ofcom must now be proactive in scrutinising any future Openreach offers if it is to sustain and protect investment in infrastructure competition.”<\/p><\/blockquote>\n

We’ve pulled out a few of the key summary points from the CAT’s decision to reject each of the two primary grounds below.<\/p>\n

Summary of CAT’s Key Points<\/strong><\/span><\/p>\n

Ground 1<\/strong><\/p>\n

In relation to whether Ofcom had reasonable evidence on which to base the Overlap Conclusion, we decide it did by reason of:<\/p>\n

(1) The expressed preference of altnets (including CityFibre) not to overbuild Openreach;<\/p>\n

(2) The limited current overlap at the time of the Statement, as assessed by Ofcom with the benefit of information from Openreach and CityFibre;<\/p>\n

(3) Published plans about network build, supplemented by information provided privately by CityFibre, which allowed extrapolation between the current position and the longer term anticipated outcomes; and<\/p>\n

(4) The expectation that the business models for altnets other than CityFibre would remain focused on retail sales, not wholesale. This conclusion was based on work done in the WFTMR and supplemented by discussions with ISPs and altnets in the Equinox consultation process.<\/p>\n

While there might be argument about the weight to be attached to some of these points and the uncertainty attaching to aspects of them, it cannot be said that there was a demonstrable flaw in the reasoning or no evidence to support an important step, such that the outcome was irrational.<\/p>\n

Ground 2<\/strong><\/p>\n

We do not consider that Ofcom has misdirected itself in taking into account the likelihood of certain events happening or not happening. It was appropriate for Ofcom to make evaluative judgements about whether there was a realistic possibility of certain outcomes, such that it should be concerned about ISPs not using altnets.<\/p>\n

In our view it has done that in a way which is sufficiently consistent with the tests set out in both the WFTMR and the Statement (to the extent they are different), given the context and the purpose of the tests as they appear in those documents.<\/p><\/blockquote>\n

The move will no doubt come as a blow to CityFibre, but they don’t see this as being the end of their fight. As we understand it, the operator sees this appeal as more of an opening salvo for what they might do if Openreach ever attempts to launch even more aggressive discounts in the future (this is a distinct possibility – revisions to the Equinox offer would be a logical strategy).<\/p>\n

Preparations are, we’re told, already being made for such an eventuality and much stronger litigation may be launched. At the same time CityFibre have been continuing to lobby Ofcom over the issue and there’s a feeling, among some at the operator, that they might have made a bit of headway on that front. Time will tell. We are currently awaiting CityFibre’s comment and will add that as soon as it arrives.<\/p>\n

UPDATE 12:56pm<\/strong><\/p>\n

We’ve added a comment from CityFibre above, which takes some positives from the verdict.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Competition Appeal Tribunal has today “dismissed” CityFibre’s attempt to challenge Ofcom’s approval of Openreach’s (BT) “Equinox” offer (here), which introduced a “major” price cut (details) at wholesale to their Fibre-to-the-Premises (FTTP) broadband products for UK ISPs. But the operator is far from giving up.<\/p>\n","protected":false},"author":1,"featured_media":30019,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[1,1645],"tags":[474,418,56,86,414,32,36,69,38,89,66,74,475,96,71],"class_list":["post-31495","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-law","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":"\nCityFibre Lose Appeal vs Ofcom's Approval of Openreach FTTP Price Cut UPDATE - ISPreview UK<\/title>\n<meta name=\"description\" content=\"The Competition Appeal Tribunal has today "dismissed" CityFibre's attempt to challenge Ofcom's approval of Openreach's (BT) "Equinox" offer (here), which\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ispreview.co.uk\/index.php\/2022\/07\/cityfibre-lose-appeal-vs-ofcoms-approval-of-openreach-fttp-price-cut.html\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CityFibre Lose Appeal vs Ofcom's Approval of Openreach FTTP Price Cut UPDATE - 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