BT monopolies and fibre - the government must do more to promote competition in the UK

Telecoms.com periodically invites expert third-party contributors to submit analysis on a key topic affecting the telco industry. In this article Nigel Eastwood, CEO of New Call Telecom, provides his views on the current UK government’s telecoms strategy. He argues more needs to be done by the government and telecoms regulator Ofcom to ensure healthy competition in the UK market. 

Does the budget boost competition in UK telecoms?

George Osborne’s budget, announced a few weeks ago, was his last chance to stake a claim as the Chancellor who really understands the needs of the telecoms sector. I welcome his broad strategy to deliver better, faster fixed and mobile broadband, extend superfast and ultrafast broadband, and grant extra funding to support opening up the 700MHz spectrum for mobile use. But these are all, at their heart, consumer-facing policies. When it comes to competition within the telecoms industry itself, the Chancellor was less convincing.

We need concrete plans to ensure healthy competition

Accompanying the budget statement was the Digital Communications Infrastructure Strategy document. In it the Chancellor acknowledges that many within the telecoms industry are concerned and believe “the government should create the right conditions to enable further market investment” and urge the government to “focus on competition to deliver the necessary outcomes.” This said, there are no clear, concrete plans set out by the Chancellor to do either of these things, even though he acknowledges that “competition has proved a powerful driver of innovation, faster services and improving customer experience.”

So, despite decades of promises and robust rhetoric on the value of open markets from governments of all persuasions, the grindingly slow changes in the telecoms sector show we’re still no closer to a regulatory regime that actively promotes healthy competition.

You wouldn’t always know it, but it’s now more than 30 years since BT lost its protected monopoly status and was privatised. It’s also a decade since BT formed Openreach in order to avoid being broken up by Ofcom. However, just over a week ago there were more calls to sanction BT on the back of their plans to extend their near-monopoly by purchasing EE.

Real competition in the telecoms sector is still hampered by factors including lack of access to infrastructure and lack of consistent bandwidths which make it difficult for competitors to create customer-centric pricing structures. It’s not a level playing field for smaller operators. No matter how vibrant, attractive and customer focused you are, in the UK telecoms market you’re still at the mercy of the big boys. Plus it’s not great for the consumer either. A recent Which report found that customers of smaller broadband providers are much happier than those of the big three who all received customer satisfaction scores below 50%.

If BT acquires EE, we’re looking at a BT group that will have a 32% share of subscribers of consumer mobile, and around 36% of consumer-broadband subscribers. But the real issue here is that once it bags EE, BT will have more than 70% of the wholesale broadband market. And if that’s not a monopoly, I’m not sure what is. But as it is stated in the Digital Communications Infrastructure Strategy document, “Ofcom is responsible for monitoring this environment, and for ensuring that the regulatory regime remains appropriate as the market develops.” Call me cynical, but this does sound a little like kicking the can down the road once again.

We now need regulations to ensure a competitive market for fibre

The Chancellor also missed a prime opportunity in this Budget to provide a fully competitive market environment for fibre. We all know there is huge public and business appetite for ultrafast internet. You only have to look to the US: the American public has embraced superfast services, adoption rates are rapid and Google Fiber is surging ahead connecting homes and businesses in cities across the country.

In the UK however, even though according to a recent Ofcom figures, the number of superfast fibre lines is increasing rapidly and now stands at around 3.3 million, we’re seriously under-delivering in an area that has massive commercial potential. Ofcom research suggests only one in four British residential fixed-broadband connections is now superfast, offering a headline speed of 30 Mbps or more. Even smaller numbers are ultrafast, offering a headline speed of 100 Mbps or more.

The Government does recognise the importance of fibre and ultrafast Internet. In their Digital Infrastructure document they say that it’s their ambition to make sure that ‘ultrafast broadband of at least 100Mbps should become available to nearly all UK premises’. But the problem is that, right now, Openreach has an effective monopoly over this network. It can charge other operators whatever it likes through VULA charges to access this infrastructure for its own retail customers. BT has been allowed to effectively price its competitors out the game.

We need an environment where it is profitable for alternative providers – both big and small – to supply fibre to their customers. Otherwise, all this rhetoric about Britain’s ‘ultrafast future’ rings hollow, and the government’s ambition to roll-out ultrafast broadband will remain an empty promise.

Ofcom has previously said that it will introduce a new regulatory condition that would require BT to ensure that the margin between VULA charges and its retail superfast broadband price is sufficient for competitors to make a profit. But this isn’t enough. This would still give BT the flexibility to limit rival’s profits to depressingly small amounts – and all this is at a time when traditional telecoms margins are already coming under assault from a whole range of different disruptive technologies.

We need a fair and rational system, and that means full price regulations. Just as access to the copper network at the moment is set at a single low value so operators can compete effectively with BT for customers, this same regulation must be applied to fibre. Introducing this in 2017 – or even beyond – would be much too late. BT would already have completed its ‘land grab’ of customers. I was very disappointed to see this brushed over by the Chancellor in his budget.

So while I welcome the continued investment in infrastructure and focus on expanding services for the consumer, if competition continues to be stifled, then in future all we’ll have to look forward to is more of the same: lack of choice, poor service, poor infrastructure and lack of competition.

Nigel Eastwood is global CEO of New Call Telecom International, a multi-platform telecoms operator with interests in the Netherlands, the UK, India and the Middle East. Its UK broadband brand, Fuel, is one of the fastest-growing residential suppliers in the country.