Ofcom’s Strategic Review of Digital Communications & companies update February 2016

Ofcom today published the initial conclusions from its Strategic Review of Digital Communications. According to its press release, Ofcom’s decisions are designed to achieve:

• A choice of networks for consumers and businesses. Openreach must open up its network of telegraph poles and underground tunnels to allow rivals to build their own, advanced fibre networks, connected directly to homes and offices.
• Reform of Openreach. Openreach needs to change, taking its own decisions on budget, investment and strategy, in consultation with the wider industry.
• Better quality of service across the telecoms industry. Ofcom intends to introduce tougher rules on faults, repairs and installations; transparent information on service quality; and automatic compensation for consumers when things go wrong.
• Better broadband and mobile coverage. Ofcom will work with the Government to deliver a new universal right to fast, affordable broadband for every household and business in the UK. Ofcom also intends to place new obligations in future spectrum licences to improve rural mobile coverage (see this previous post for more on the Government’s plans for a 10Mbit/s Universal Service Obligation for broadband).

Ofcom has elected to strengthen the current model of functional separation between Openreach and the rest of BT, rather than require structural separation. However, Ofcom has reserved the right to “take forward structural separation if functional separation cannot be strengthened”. It also acknowledged that “structural separation may be the cleanest and most clear-cut long-term solution”.

Today’s statement positions the opening up of Openreach’s network of underground ducts and telegraph poles (Duct and Pole Access, DPA) as a key element in helping to ensure “a strategic shift to large scale fibre deployment”. Ofcom envisages DPA will encourage investment, competition and choice in fibre to the premise (FTTP) deployments via the establishment of alternatives to the fibre to the cabinet (FTTC) technology employed by BT to date and its future plans for G.fast, both of which involve upgrades to BT’s copper network:

“Instead of being constrained by BT’s chosen strategy of incrementally upgrading its existing copper network, competing operators should have the opportunity to build their own FTTP networks.”

Ofcom wants to encourage further investment in infrastructure, rather than requiring competitors to continue to rely on BT’s products and services:

“…we want to ensure the incentives are there for operators to build new networks as opposed to relying overly on buying access from BT…Competing providers should be incentivised to build their own networks where this is viable. It must not be too ‘easy’ for competitors to rely on ‘buying’ access to another’s network when there is the potential to invest in their own.”

Ofcom acknowledges that the reasons for the low take up to date of the DPA remedies previously placed on BT are complex, particularly the restriction that DPA could only be used to provide residential and small business access connections:

“The current DPA remedy is designed to support the provision of broadband services to residential consumers and small businesses, and cannot be used for connecting larger businesses. We recognise that operators are less likely to deploy new networks if they are unable to connect business as well as residential customers. Where DPA is used to deploy to residential consumers at scale, we will look to remove this restriction.”

Ofcom will also require Openreach to “provide comprehensive data on the nature and location of its ducts and poles. This new ‘digital map’ of the UK will allow competing operators to invest, plan and lay advanced networks, giving people more choice over how they receive their phone and broadband services.” Ofcom will also ensure pricing flexibility for new infrastructure investments.

In September 2015 Cityfibre, Virgin Media, euNetworks and Zayo came together as the Infrastructure Investors Group, arguing that opening up access to BT’s dark fibre lines for other operators (something under consideration as part of Ofcom’s Business Connectivity Market Review) could be counter-productive, in that it risks pushing focus away from the investments in rival dark fibre networks made by IIG members. Today’s statement included this in relation to dark fibre:

“Dark fibre does not allow the same degree of control over network topology as DPA (though costs may be lower), since competing providers are constrained by the availability of existing fibre. This issue may be more important only where network topology is an important point of differentiation. Dark fibre does offer some potential for innovation: for example, it might allow mobile network operators to use new technologies, for example C-RAN, at existing base stations independently of each other. We have recently consulted on the imposition of a dark fibre remedy in our Business Connectivity Market Review and will publish our decision on this shortly.”

In terms of reactions to today’s statement, BT welcomed Ofcom’s decision that structural separation should be a “last resort” and pledged to work with Ofcom to improve standards. BT also said that it was happy to offer DPA if competitors are “genuinely keen to invest very large sums as we have done”, also acknowledging there has been little interest in DPA to date. Ofcom’s statement was also welcomed by Virgin Media and CityFibre, with Sky, TalkTalk and Vodafone expressing some reservations.

Other companies news this month:

• Virgin Media Chief Executive Tom Mockridge issued a statement in support of the proposed merger between Three and O2 in the UK, following Ofcom Chief Executive Sharon White’s concerns last month. He said that “a combined O2-Three could have more to offer consumers and, crucially, more capacity for other providers who want to drive competition in their own right.” Virgin Media also issued its Preliminary Q4/Fiscal 2015 Results; the company now delivers “ultrafast broadband, video and fixed-line telephony services to 5.6 million cable customers and mobile services to 3.0 million mobile subscribers”.
• The Telegraph reported on a tie-up between Vodafone and Liberty Global to combine Vodafone’s mobile operations in the Netherlands with Liberty Global’s Ziggo broadband network.
• Computing, Lightwave and ISP Review reported on BT’s successful use of G.fast for Cloud Radio Access Network (C-RAN) services, the network connection between a mobile mast and dedicated mobile backhaul networks. BT said that tests at its Adastral Park labs achieved data connections at speeds of between 150Mbps and 200Mbps over G.fast connections within a C-RAN environment.
• ISP Review reported that the ITS Technology Group has made their growing collection of ultrafast fibre networks, which are spread out in various locations across the UK, available to partners as part of a wholesale solution.