Ofcom hints at Openreach pricing push-back

UK comms regulator Ofcom has decided to extend its assessment of wholesaler Openreach’s latest proposed pricing, thanks in part to unguarded comments from BT’s CEO.

In early February of this year, Ofcom decided it needed to take a closer look at the new set of fixed-line prices – Equinox 2 – proposed by BT’s supposedly autonomous wholesale arm Openreach. While the probe seemed to be prompted by complaints from competitors of Openreach that it was using its dominant position to price them out of the market, Ofcom nonetheless seemed disinclined to intervene at the time.

Fast forward a month or so and the regulator’s position towards Equinox 2 seems to have hardened somewhat. “We have received a number of detailed responses to our consultation, some of which raise issues which require further assessment,” said an Ofcom update, today. “We had planned to publish a final decision on the consultation by the end of March 2023. We now anticipate that it will take an additional two months to undertake this further analysis and issue our final decision.

“The Equinox 2 offer is due to launch on 1 April 2023. To provide certainty and stability for industry, our view is that it would not be appropriate for the offer to launch until we issue our final decision. We are considering issuing a Direction to Openreach, using our powers under the Communications Act 2003, to achieve this, unless Openreach voluntarily defers the launch of the offer.”

It seems Openreach would be wise to ‘voluntarily’ do what it’s told.

The Ofcom update goes on to say “Separately, a number of respondents to the consultation referred to a recent interview given by Philip Jansen, the Chief Executive of BT Group, to the Financial Times (reported on 2 February 2023). In the interests of transparency, we have published an exchange of letters between Mr Jansen and Ofcom by way of follow-up to that article.”

That opening stipulation is hilarious since the two things are clearly linked in Ofcom’s collective mind, otherwise why mention it? In fact, when you consider that this consultation was initiated the day after that FT piece was published, it would seem to be central to the matter.

The piece was headlined “BT chief warns Openreach fibre push will ‘end in tears’ for rivals”. Here are the first two paragraphs: “BT’s chief executive said the telecoms group had turned its broadband network into an “unstoppable machine” that will ultimately “end in tears” for many of its fibre competitors. There is only going to be one national network,” Philip Jansen told the Financial Times. “Why do you need to have multiple providers?”

You can see why that story raised some eyebrows in the industry. The impression created is of Jansen hoping to crush all fixed-line wholesale competition and re-establish Openreach as a monopoly. As stated above, Ofcom has published correspondence between Jansen and its Chief Exec, Melanie Dawes (pictured, top), both dated 6 February 2023.

Jansen, clearly somewhat panicked by the FT piece, wrote “I’m extremely disappointed that some of my comments have been taken out of context within this article and particularly in the headline.” He explained that the ‘end in tears’ quote was in reference to specific areas where there is significant altnet overbuild, a regular observation of his in quarterly media calls. The ‘only one national network’ quote was in reference to Openreach’s coverage, Jansen insisted, and the ‘multiple providers’ quote was in reference to individual CSPs, not the entire market.

“Thank you for calling me last week on your comments reported in the Financial Times,” opened Dawes’ reply. “Although I understand that you consider that you were not correctly reported, reading the article caused us significant concern.

“I would like to stress that Ofcom remains committed to our strategy of network competition, as established in the wholesale fixed telecoms market review. The rules we implemented in that review ensure a level playing field for all fibre investors, constraining BT’s market power to ensure that future success will be determined by competition on the merits. Were it to become apparent that BT is able nonetheless to distort competition in the market, we would not hesitate to take regulatory action to address this.”

That sounds like a fairly firm slap on the wrist at the very least and further supports the feeling that this whole review was prompted largely by one news story. Assuming Jansen’s objections are truthful, we have some sympathy for him, because the way his comments were initially framed did lack context. On the other hand, it was at the very least hubristic of him to adopt such a domineering tone on behalf of an intensely scrutinised and regulated part of his business.

But Ofcom should not be basing policy on news stories, even ones published by Telecoms.com. BT and Openreach should be judged on their actions, not one or two reckless exec interviews. By now Ofcom should have been able to complete its analysis of the market implications of Equinox 2 and this further delay smacks of political pressure behind the scenes.

One of the main jobs of regulators is to balance the short-term interests of consumers with the long-term health of the overall market. Allowing Openreach to dramatically drop its prices would result in lower consumer prices and/or higher ISP margins in the short term, but could eventually drive competitors out of the market, with the resulting monopoly ultimately harming consumers. Ofcom has had the data for three months and should focus on that, not eye-catching headlines.

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