UK Wholesale Access Market Reviews

Email isabelle.anderson@point-topic.com to receive the full report

A report from UK Plus - deregulation produced step-change in ultrafast delivery

Introduction and background

Since 2018, the UK’s telecoms regulator, Ofcom, has carried out several wholesale market reviews aimed at lowering barriers to NGA network investment and expansion.  They have attempted to give communications providers multiple ways of rolling out services, to have maximum flexibility to respond to individual local market conditions, and to be accessible to both large and small players alike.

Momentum has greatly increased in terms ultrafast full fibre networks expansion and the UK is seeing a relative coming-of-age with FTTP coverage going from only 3 per cent (840,000 premises passed) in December 2017 to 18 per cent (5.1 million premises covered) at the end of 2020.   Openreach remain on target to reach 4.5 million premises by March 2021, Virgin Media aims to complete its DOCSIS 3.1 network upgrade to deliver gigabit-capable broadband to around 15 million homes and businesses by the close of the year and in early 2020 CityFibre increased their FTTP target from 5 to 8 million premises by 2025 with their total network build coming in at just over 500,000 homes and businesses at the start of 2021.

KCOM, who remains the incumbent in the East Yorkshire area of Hull, was acquired by Macquarie European Infrastructure Fund (MEIF) 6 Fibre Limited in August 2019 and shortly thereafter completed its citywide-FTTP rollout (200,00 premises) in October 2019, and under the first phase of its Full Fibre Expansion (FFE) investment programme has been actively expanding its footprint into the surrounding areas.   Since May 2020, the main strategic goal is to develop KCOM as a wholesale-focused business based on full-fibre services serving the Hull Area and surrounding locations.  The move will maximise network utilisation while delivering increased service provider choices for consumers, something that has been lacking in the area for many years.

Independent service providers have been growing in significance over the last several years as they have started to deploy their own fibre networks across the country and cover an estimated 1.2 million premises at the close of 2019.[1]  These include vertically integrated fibre providers Gigaclear whose network covers more than 22 counties across the South West, the Midlands and South East, along with Hyperoptic, who has a presence in 43 towns and cities nationwide.

Since 2018, Ofcom has adopted a more progressive approach to regulation of the fixed sector which saw introduction of policies intended to promote FTTP deployment across the UK.   In 2018, the regulator published their highly anticipated reviews of wholesale competition in their statements on Wholesale Local Access (WLA) and Wholesale Broadband Access (WBA) markets.  Considered radical at the time, the WLA review marked a fundamental shift within the sector as service providers of any size could begin to develop their own offerings using BT’s infrastructure.

This step-change ultimately required BT to develop a more robust set of Passive Infrastructure Access (PIA) products which could allow alternative network operators to significantly reduce their FTTP deployment costs by sharing BT’s ducts and poles.[2]  Furthermore, it required BT to make investments to improve the provisioning and availability of these services, removing the restrictions which Ofcom had imposed on the uses of these products, along with significant reductions in the rental costs payable by other operators.

At the end of January 2021, the number of unbundled lines stands at 9.22 million. There are 4.21 million Wholesale Line Rental (WLR) lines and the number of telephone numbers using a carrier pre-selection (CPS) service is 2.09 million.  There are now more than over registered 100 communication providers offering various levels of broadband services.  Figure 1 below shows the proliferation of independent telecoms providers since 2018 with significant investment and FTTP build plans, that have been granted Code Powers by Ofcom for the purpose of offering wholesale/retail services.  The provisions will be delivered by either extending or deploying new FTTP, Dark Fibre, FTTP/FWA hybrid networks with suppliers quoting that they may deploy parts of their network in BT’s ducts and poles using the Openreach PIA products.  Moreover, eight further providers were granted Code Powers during the same period, however these providers will be building or extending their own NGA networks.

Figure 1:  Code Powers granted since 2018 to potential FTTP wholesale providers quoting access to Openreach PIA


The Wholesale Line Rental KPI measures the Openreach performance in the Delivery of WLR orders i.e. delivered on the agreed ‘customer committed date’ and ‘working’ and Figure 2 represents these provisions on a 4-week moving average throughout 2020 to 2021.

Figure 2:  Wholesale Line Rental KPIs 2021-2021

Source:  OTA2 

 The following sections outline the key outcomes from the WBA and WLA reviews with further information about Ofcom’s long-term strategic policies, mainly the Wholesale Fixed Telecoms Market Review 2021-26 (WFTMR), and important developments within the wholesale sector especially in terms of Openreach’s recent pricing increase on leased line circuits being used to aggregate FTTP to multiple homes and business premises.

Market reviews in context

The UK electronic communications regulatory framework is mainly contained within the Communications Act 2003, the Wireless Telegraphy Act 2006 and the EU Common Regulatory Framework is implemented through the above legislation.  The EU Common Regulatory Framework was reviewed and a new electronic communications directive – the European Electronic Communications Code (EECC) – was adopted by the EU in December 2018 with EU countries applying the new directive to their national law by 21 December 2020.

As the UK officially left the EU on 31 January 2021, the UK had used a statutory instrument to transpose the EECC (European Electronic Communications Code) Directive into UK law and did so on 21 December 2020, with parts of the UK electronic communications regulatory framework being no longer appropriate without corrections, for example the requirement to notify matters to the European Commission.

The UK framework also included references to the EU’s objective of promoting the Single Market, and cross-references to EU obligations and Commission Recommendations that Ofcom will no longer have to comply with.

Ofcom is legally required to review several markets periodically under UK legislation and carried out substantial wholesale market reviews in 2008, 2010, 2014 and 2018, with the latest review due to be published in March 2021.

Wholesale Broadband Access (WBA) Market Review

On 31 July 2018, the Wholesale Broadband Access (WBA) market review was published with the Wholesale Local Access (WLA) market review statement being announced earlier on 28 March 2018.  Both reviews were carried out simultaneously because of their close links. They included market definitions and an assessment of which players hold significant market power (SMP), geographic analysis, regulatory frameworks and remedies.  Figure 3 provides a summary of Ofcom’s findings and recommendations.

The market for wholesale broadband access (WBA) was not yet deemed competitive everywhere meaning additional regulation was required and they took into account expected market developments and the timing of the next review. At the time, Ofcom did not expect to see much change there over the next four years.

Figure 3: Wholesale Broadband Access market review outcomes

DefinitionThe wholesale broadband products that communications providers use for themselves or offer to one another. The WBA market essentially sits between the WLA market and the retail broadband market. These wholesale products are building blocks of the retail offers that consumers buy
Market definitionA single broad product market for fixed asymmetric broadband services of all speeds at the wholesale level including residential and business products. Includes services using copper, fibre and cable access networks, including superfast broadband services (defined by Ofcom as in excess of 24Mbps download speeds)

 

Four separate geographic markets during consultation:

·        Market 1 14.2% of UK premises – areas covered by exchanges where BT is only operator

·        Market 2 13.8% of UK premises – areas covered by exchanges with 2 or 3 operators

·        Market 3 71.3% of UK premises – areas covered by exchanges with 4 or more operators

·        Hull area 0.7% of UK premises – areas covered by exchanges where KCOM is only operator

 

Markets definition in final review:

·        Market A – Exchange areas where there are only one or two potential significant wholesale broadband providers present or forecast to be present, 0.9% of UK premises in 2018

·        Market B – Exchange areas where there are three or more primary operators present or forecast to be present, 98.5% of UK premises in 2018

·        Hull area – Areas covered by exchanges where KCOM is only operator, 0.7% of UK premises in 2018

Final market power assessment·        Market A – BT (SMP) in WBA services provided at a fixed location

·        Market B – no provider holds a position of SMP in WBA services provided at a fixed location

·        Hull area – KCOM has SMP in the area

Main remedies imposedMarket A Requirements – regulation on BT to provide general network access on reasonable request and on fair and reasonable terms, conditions and charges and to notify of changes to these; not to unduly discriminate in the supply of services; publish a reference offer; to notify changes to technical information; publish quality of service information if directed by Ofcom Obligations in relation to accounting separation and cost accounting

Market B – imposition of more flexible general access and non-discrimination obligations on BT with pricing in a range based on costs

Hull area – general access and non-discrimination obligations on KCOM

Ofcom published its WLA market reviewing findings in three volumes with proposals covering both current generation access copper-based (CGA) networks and next generation access (NGA) networks.   Figure 4 below outlines the key outcomes of the 2018 WLA review.

Table 4: Wholesale Local Access 2018 market review outcomes

DefinitionThe physical connection between a consumer’s premises and the local telephone exchange – essentially it is the fixed line over which services including voice calls and broadband internet access are provided. The cost of this connection affects the prices consumers pay for their services
Market definitionWLA services based on copper loops, cable networks and optical fibre at a fixed location, covering both residential and business use. Excludes services based on mobile, fixed wireless and satellite technologies

 

Two separate geographic  markets: the UK excluding the Hull area; the Hull area

Market power assessment·        BT has SMP in the UK excluding the Hull area mainly because of had 84% share of market

·        KCOM has SMP in the Hull area

Main remedies imposedBT to provide LLU, VULA, PIA and SLU. Prices for LLU, SLU and PIA related to costs, control prices of BT’s FTTC wholesale service – the ‘up to 40 Mbps’ VULA service, obligation for BT to supply a VULA service providing access to its fibre network.

At the time of publishing, WLA Local Loop Unbundling (LLU) would continue, allowing alternative providers to physically take over or share BT’s existing copper lines between the local telephone exchange and the customer premises.  Only BT and KCOM had regulatory obligations imposed on them. Virgin Media was deemed not to have significant market power, which is based on take up rather than network coverage, meaning it was forced to open up its newly upgraded DOCSIS 3 infrastructure.   During the time of the review Ofcom provided an estimate for the national market share of the WLA market to 2020-21 as seen in Figure 5.

By March 2019, Openreach had published its Final Reference Order for its Duct & Pole Access PIA Products outlining its PIA product offerings allowing providers to install multiple cables, Blown Fibre Tubing (BFT) and/or sub duct in Openreach duct and joint chambers.  It also permitted equipment and cables on Openreach poles with the charges for PIA products being set out in the Openreach Price List and with the conditions of their spine duct and chambers based on cable capacity specification.  At the time, Openreach had also introduced some limited Service Level Agreements (SLAs) and Guarantees (SLGs) to PIA, although among the larger ISPs there was a feeling that those still need to be improved so as to make the product more predictable to provide robust support and instil confidence to adopt it at scale.  On 1 April 2019, Openreach’s PIA products were officially launched.

Openreach has reviewed its pricing strategies since 2019 and this is discussed later in the document.

Figure 5: BT’s share of the wholesale local access market in the UK


Source: Ofcom (2018) WLA Market Review

Virtual Unbundled Local Access (VULA)

In addition to the obligations imposed on BT to open access to its PIA services the WLA covered Virtual Unbundled Local Access (VULA) which at the time, was regarded by Ofcom as the primary focus of NGA competition because it is believed to be the most cost-effective way of supporting that competition. The regulator had been pushing the approach for some time under its active line access (ALA) recommendations (see Wholesale products for NGA). Ofcom decided to reimpose the obligation for BT to supply a VULA service providing access to its fibre network. In the absence of such a requirement, BT would have the incentive and ability to favour its own retail operations, thereby hindering sustainable competition in the corresponding downstream services and ultimately harming the interests of customers. The regulator took into account the feasibility of BT providing VULA services, which it offered through its Generic Ethernet Active (GEA) product and came to the conclusion that VULA would enable other telecoms providers to compete with BT in the provision of retail packages offering faster broadband in those areas where BT has upgraded its local access connections to fibre.

VULA is now also available over the more recent Openreach product delivering fibre-to-the-premises (GEA-FTTP), which allows retail providers to offer ultra-fast broadband services. During 2018 Openreach began to build GEA-FTTP in exchanges within towns and cities on a contiguous basis, passing the large majority of premises in the selected exchanges with GEA-FTTP. At the close of 2020, Openreach had 136,000 GEA connections compared to 25,000 at the end of 2018.

To receive the full report, email isabelle.anderson@point-topic.com

 

 

[1] INCA/Point Topic (2020) Metrics for the UK Independent Network Sector

[2] Ofcom (2018) Wholesale Local Access Market Review:  Statement – Volume 3