Ofcom have published their first ever combined review of the Wholesale Fixed Telecoms Market from 2021-2026. Ofcom took a more robust approach to this market review as it chose to cover a wider 5-year period starting from April 2021 as opposed to the usual 3-year timeframe, along with combining both the Business Connectivity Market Review (leased lines, Dark Fibre, etc.) and the Wholesale Local Access Market Review, which is more focused more on residential services, into a single overarching review. Point Topic, the leading resource for broadband market intelligence, has compiled the key points and outcomes below.
Since Ofcom published their pro-investment market reviews in 2018, gigabit-capable and full fibre roll-outs have undoubtedly progressed, although at a somewhat slower pace than expected, with Openreach, Virgin Media and CityFibre only really reaching their strides in 2020. As it stands, gigabit-capable broadband is available to 7.9 million homes (27% of the UK) and more than 5 million homes (18% of the UK) can now access full fibre broadband. Ofcom believes that with commercial deployments, through a combination of Openreach and other competing networks, gigabit-capable network coverage of 80% of the UK will be attainable by mid 2020s.
The market reviews are aimed at complementing the Government’s £1.2bn funding programmes running until 2024/25 which are mainly supporting the roll-out in the hardest-to-reach areas across the UK as part of an overall £5 billion funding commitment. The review demonstrates that Ofcom’s sights are clearly set on ploughing full steam ahead with full fibre roll-out and aims at putting into place the right conditions to do so. Overall, the main players welcome the conduciveness of the regulations to their scaling up plans whilst some players, mainly TalkTalk, who are reliant on Openreach’s FTTC network services have been extremely vocal about their opposition to some of the regulations.
Key changes to the regulations:
BT continue to be recognised as having significant market power (SMP) and Openreach will continue to be required to allow all network operators to lay their own fibre networks using Openreach’s infrastructure through its Physical Infrastructure Access (PIA) product. There is however, no overarching policy when it comes to full fibre deployment and Ofcom have opted for a geographical regulatory approach identifying three main areas.
Area 1, usually dense urban locations where there are at least two existing networks, Openreach’s products will not be regulated with the hope of promoting further investment and competition. Ofcom have not identified any such areas at this stage but expect to do so in the future.
Area 2 covers around 70% of the UK and has been identified as potentially competitive areas, where one or more existing alternative ultrafast networks are present or where there are plans in place for deployment. Openreach will continue to be required to provide wholesale access to its network. Ofcom have set flat, inflation-adjusted, regulated prices for Openreach’s entry-level superfast broadband service, which has a download speed of up to 40Mbps. They are not regulating the prices of Openreach’s higher-speed services – providing an incentive for investment by Openreach and competing networks. However, Openreach will be able to charge more (£1.70 per month extra) for the 40Mbps service if it is delivered over full fibre. Ofcom sees the move as creating stability and regulatory certainty to investors and allows all companies the potential to earn a fair return, while also helping make sure people can still get affordable broadband.
Area 3 is comprised of usually rural and hard-to-reach areas, makes up the remaining 30% of the UK and are considered non-competitive by Ofcom. They’ve stated that where Openreach is the only operator providing a large-scale network, regulation has been introduced to support investment by allowing Openreach to recover its costs to build a new fibre network from a wider range of services (similar to a “regulated asset base” model approach), such as copper line services, which could reduce the risk of its investment. Considering BT’s commercial commitment to deploy full fibre to 3.2 million rural premises by March 2026, Ofcom will align the level and scope of the charge control to be the same as in the areas with potential for material competition. They went on to further state that, “[we] recognise that there are a number of small operators who are planning to invest in some of these areas, and this pricing approach also supports them.”
The tables in the full report provide a comparison of Ofcom’s initial proposed market remedies for Areas 2 and 3 put forth in the January 2020 consultation along with the final remedies published in the March statement.