Ofcom confirms regulation of fixed telecoms markets used to deliver UK broadband, mobile and business connections

Pricing flexibility for Openreach’s fastest services; entry-level superfast prices kept flat in real terms

Ofcom has confirmed how it will regulate the wholesale telecoms markets used to deliver broadband, mobile and business connections in the UK, for the next five years and beyond.

The new regulations have been designed to build on the full fibre rollout momentum cultivated over the last year – driving competitive commercial investment and supporting the closure of the country’s 100-year-old copper network; while ensuring consumers are protected from high prices.

The coronavirus pandemic has underlined the importance of a reliable internet connection. The UK’s copper telephone network – some of which was laid over 100 years ago – has helped deliver superfast broadband to 96% of homes. And people have generally been getting better services in recent years, without spending more in real terms.

But as demand for data continues to accelerate, the UK’s infrastructure urgently needs an upgrade. This will require significant private investment in full-fibre broadband, which is much faster and more reliable than the networks most people use today.

Ofcom said in a statement:

Network competition has helped full fibre coverage increase at its fastest ever rate over the last year – and that momentum has continued throughout the pandemic. Our regulations build on this momentum – driving competitive commercial investment and supporting the closure of the country’s 100-year-old copper network; while ensuring consumers are protected from high prices.

We believe this approach will lead to properties in around 70% of the UK having a choice of networks from competitive commercial rollout. Openreach has committed to deploy full fibre to a further 3.2 million properties (10%) in more rural areas. And the Government plans to cover the remaining 20% of the country through public funding, to help ensure nobody gets left behind.

Openreach’s fastest fibre services will continue to be free from pricing regulation. The ability of networks to raise wholesale prices significantly for the faster, unregulated products is constrained by the fact that people can choose the entry-level service as an alternative.

Openreach can also charge a bit more for regulated products that are delivered over full fibre instead of copper. This reflects the fact that full fibre is consistently faster, and much more reliable, than copper-based broadband.

This approach improves the investment case for BT and its rivals by providing them with a margin to build the new networks. It also helps make sure people can still access affordable broadband.

Ofcom continued:

We recognise that full fibre is a long-term investment, taking more than a decade – if not two – to pay back. So, we aim to allow all companies the opportunity to achieve a fair return over their whole investment period, and do not expect to introduce cost-based prices for fibre services for at least ten years.

As it lays new fibre to replace ageing copper lines, Openreach should not have the unnecessary costs of running two parallel networks. So when Openreach has rolled out full fibre in a particular area, Ofcom will progressively remove regulation on its copper products over a number of years.

Ofcom says this this will improve the business case for Openreach to invest, by removing the need for it to maintain two networks, while promoting the take-up of faster fibre services.

Kevin Billings, Director and Communications Industry Principal, Pegasystems provides his thoughts on the announcement:

“The ruling creates a regulatory environment that enables BT (Openreach) to feel more comfortable about the investment it needs to make in delivering full-fibre broadband to 20 million homes in the future. It means that Openreach will have reasonable control over the prices it charges to other operators who use their network (Sky, Vodafone etc).

“Today, most of their high-speed broadband services are delivered over the existing copper wires into premises over the ‘last mile’ (or however far the property is from the green box on the street where the fibre currently reaches) and they are being overtaken by providers of direct fibre to premises, who are typically smaller, and regional players, who have been helped by the government to roll out their services and compete with the larger players.

“In tandem, over the last year, broadband connectivity has become a critical lifeline to ensure business continuity, reflecting the changing working patterns. But this has placed additional cost and operational pressure on BT and other CSPs to improve the coverage, capacity and quality of their broadband networks.

“To fulfil Ofcom’s goal and maintain the current pace of full-fibre rollout, CSPs need to streamline and rationalize older legacy broadband networks, migrate to next-generation high-speed services and extend connectivity to broader (rural) areas. However, managing deployment migration and maintenance of these new services is costly and highly complex. But technologies such as automation and streamlining of operations can be implemented to manage costs, protect profitability, speed up rollout and respond to maintenance issues.”