Ofcom has today published the initial conclusions of its Digital Communications review into the role of Openreach in the UK’s broadband infrastructure.
Ofcom has highlighted a number of problems with the current broadband market, not least that BT’s current structure gives BT Openreach “an incentive to make decisions in the interests of BT, rather than BT’s customers”. For what is a quasi-monopoly, such a structure must be less than optimal on competition grounds.
As happens all too often with UK infrastructure projects, the regulator has, however, chosen to duck the main issue: should BT Openreach, as a quasi-monopoly owner of the essential infrastructure used by its competitors, be separated from BT (which through BT and EE competes directly with other broadband providers)? An analogous situation would be if Eddie Stobart owned UK motorways, which it then charged its competitors to use.
But while not recommending structural separation of BT Openreach, Ofcom has said this option remains on the table. Ofcom now needs to clarify how and when this option will be next considered – not least as BT and other service providers have argued that the current uncertainty could be bad for investment decisions.
Responding to Ofcom’s report, Daniel Mahoney of the CPS said:
“Competition in the UK’s broadband infrastructure market needs to improve. Ofcom accepts that BT Openreach’s competitors need improved access to their infrastructure. The crucial question now is how that will work in practice.
“Ofcom should therefore speedily clarify how its aim to improve competition will be measured. Specific milestones must be set so that, if improved competitiveness does not emerge within the next 18 months, structural separation must become the default option.”
Ofcom has also called for a strategic shift towards large scale investment in fibre as an alternative to BT’s strategy. This is clearly necessary.
UK broadband speeds currently compare well to some European counterparts. However, this has largely been achieved by BT Openreach’s current approach of sweating copper assets. Ofcom points out that, for the future, a strategic shift towards fibre to the premise (FTTP) networks is needed – and here the UK is lagging behind its international competitors. Only around 2% of UK premises are covered by FTTP, comparing to well over 90% in Japan and South Korea (See Figure 1).
Figure 1: Fibre coverage to premises in OECD countries (End of 2015)
Source: Ofcom
Daniel Mahoney of the CPS concludes:
“Ideally Ofcom would have referred BT Openreach to the Competition and Markets Authority. Instead it has given BT Openreach a last chance to show that its ownership structure is not a barrier to the vibrant competition which is needed to rapidly improve UK broadband infrastructure.”
Date Added: Thursday 25th February 2016
