Market Insight

Ofcom publishes proposals for Openreach reformation

February 25, 2016  | Subscribers Only

Alzbeta Fellenbaum Alzbeta Fellenbaum Manager – Research and Analysis, Service Providers & Platforms

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  • The regulator stopped short of demanding BT spin off Openreach, opting for a “softer” option of increased infrastructure access
  • BT’s rivals will gain from increased access Openreach’s ducts and poles, allowing greater flexibility in last mile fibre rollout
  • Ofcom has no plans to modify the pricing structure of Openreach’s wholesale products, suggesting that the regulator is keen to encourage network rollout from alternative operators.

The UK’s telecoms regulator Ofcom published its initial proposals which form part of the Strategic Review of the UK’s Digital Communications market. The proposals, published on 25th February, set the scene for regulatory changes that will take place allowing for greater network investment by BT and other operators in the country’s fixed broadband market.

According to the report, Openreach must allow its competitors access to its network of telegraph poles and underground tunnels so they can build their own fibre networks. In addition, Openreach will be ‘reformed’ such that it makes independent decisions on budget, investment and strategy in consultation with the wider industry.

Ofcom is taking steps to address service quality, including the introduction of tougher rules on faults, repairs and installations. Customers will be automatically awarded compensation for issues such as missed appointments, and Ofcom will oversee these procedures to ensure that the compensation is passed on to the end user.

The UK government and Ofcom will work together to deliver a ‘new universal right to fast affordable broadband for every household and business in the UK’. As outlined in the report, the universal right should start at 10 Mbps for everyone, increasing over time with increasing demand.

Our Analysis

Ofcom has sidestepped the thorny subject of the complete separation of Openreach from the BT Group – an option that has been the subject of much debate over the last year or so. While softer alternative may lead to some disappointment on either side, the decision will probably prevent any imminent legal bickering and arguing that may ensue. That being said, Ofcom has only shelved this option for now, and has not completely ruled it out as part of its future plans.

BT faced calls from rivals including Sky and Vodafone to spin off Openreach, amid claims BT’s ownership of the UK’s PSTN network is a barrier to competition and has a harmful impact on prices, investments, and services. BT has attempted to placate Ofcom by announcing a raft of investment and upgrades to its broadband network, including a minimum connection speed of between 5 Mbps and 10 Mbps for all its customers.

As expected, the decision to allow open access to Openreach’s network has had a mixed reception. According to BT CEO Gavin Patterson, BT welcomes the use of their ducts and poles by other operators ‘…if they are genuinely keen to invest very large sums as we have done.’ Patterson was also keen to mention that their ducts and poles have been available to their competitors since 2009 via the Physical Infrastructure Access (PIA) solution. However, the network access now proposed by Ofcom takes it to the next level by removing some of the limitations associated with the old PIA solution. Under the new ‘open access solution’ proposed by Ofcom, BT’s competitors will be able to use Openreach’s infrastructure to connect to businesses, a move which was not permitted using the old PIA solution. Nevertheless, the news that it gets to keep Openreach will be a relief to BT, and is another welcome piece of news following the approval of its buyout of UK mobile operator EE in January 2016.

Interestingly, Ofcom has no plans to modify the pricing structure of Openreach’s VDSL (FTTC) wholesale products, which could suggest that the regulator is keen for alternative operators to build their own networks rather than rely on Openreach. UK-based Hyperoptic has welcomed the proposals, and has already tested Openreach’s ducts with a view to offering a FTTH 1 Gbps broadband service using this infrastructure in future.


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