Ofcom promises to ‘supercharge’ fibre with four-point plan

Telecoms regulator Ofcom has proposed a four-point plan to accelerate investment in fibre networks at interest continues to gather momentum in the UK.

In what could turn out to be a catalyst to gather further momentum in the market, Ofcom has revealed a four-point plan to accelerate deployment. Interest in fibre connectivity has certainly increased across the country, though BT and Openreach have called for regulatory reform to further aid aggressive deployment plans. The plan is now open for consultation, with Ofcom set to publish its decision in early 2021 before the current rules expire in April 2021.

Firstly, caps will be placed on wholesale prices to encourage competition from new networks. Secondly, Openreach will be prevented from applying drastic discounts which could stifle competition. More flexibility will be offered in the rural regions to encourage investment however, and finally, Ofcom will deregulate Openreach’s copper products in areas where full fibre is built to help Openreach retire the network.

“These plans will help fuel a full-fibre future for the whole country,” said Jonathan Oxley, Ofcom Interim Chief Executive. “We’re removing the remaining roadblocks to investment and supporting competition, so companies can build the networks that will drive the UK into the digital fast lane.

“Full-fibre broadband is much faster and more reliable. It’s vital that people and businesses everywhere – whether in rural areas, smaller towns or cities – can enjoy these benefits. So, we’re making sure companies have the right incentives to accelerate full fibre to every part of the UK.”

Compared to other nations across the European bloc, the UK is in somewhat of sluggish position. Pointing the finger towards investments in G.Fast broadband upgrades as opposed to the more expensive, but longer-view, fibre products has generally been accepted as the main reason. According to OECD estimates, only 1.92% of total broadband connections in the UK are fibre, which leaves the state in a comparatively unattractive position.

OECD Broadband statistics

“Today’s proposals appear to be a big step in the right direction to give clarity and investment certainty,” an Openreach spokesperson said. “Like the Government and Ofcom, we want to upgrade the UK to faster, more reliable full fibre broadband. We’re getting on with the job, building to 26,000 premises each week and we remain on track to reach 4m homes and businesses by the end of March 2021.

“We’ll consider the range of proposals carefully and will continue to work with Ofcom and industry on getting the conditions right to help achieve the Government’s ambition of rolling out gigabit capable broadband across the UK as soon as possible.”

Although some might question the need for such speed, it won’t be too long before applications emerge which drive data usage through the roof. Let’s not forget, in 2010 average fixed broadband speeds were 5.2 Mbps, satisfactory at the time but horrifying for the consumer of today. Average speeds in 2019 were 22.37 Mbps and it will not be long before these are considered below par.

Aside from speed, it is also worth noting that fibre broadband connectivity also offers a very useful boost to reliability.

“It’s good to see Ofcom using its powers as a regulator to stimulate competition, drive investment and improve outcomes for consumers,” said Ed Dodman, Director of Regulatory Affairs at Ombudsman Services.

“Many of the broadband complaints we handle from consumers and small businesses are to do with issues around speed and reliability, so we support proposals that will lead to improvements in these areas across the UK.”

Although the OECD statistics do not paint the prettiest of connectivity pictures in the UK, momentum has been shifting in the right direction.

From a political perspective, the idea of gigabit speed broadband has taken hold. It might turn out to be nothing more than empty campaign promises, but it has raised the issue of fibre connectivity and the digital divide to the national conversation.

Looking at the consumer, there is certainly more appetite. This will be partly down to the consumer being more educated on the different connectivity options, Ofcom rules killing off dubious and misleading fibre claims from ISPs and the price of fibre connectivity dropping in recent years.

And thanks to increased demand from the consumer, the UK fibre landscape is looking like a more attractive investment. Goldman Sachs purchasing CityFibre is evidence of this, but other financial players are becoming increasing interested in communications infrastructure as a long-term investment. Securing additional funds from third-parties is becoming a critical component of the mix, especially with more alt-nets appearing.

In the short-term, the emergence of ‘alt-nets’ should only be viewed as a good thing. More providers will create more value for the consumer through increased competition and providing the telcos incentive to invest in fibre. However, you have to wonder whether the number of alt-nets in the UK is sustainable in the long-run.

The more providers there are, the more fragmented a market becomes. Fragmentation is the enemy of scale, making it more difficult to aggressively pursue expensive investments. There is of course a risk of over-build in certain markets, though the presence of these alt-nets creates an interesting M&A future for the UK.

CityFibre is a primary example of what happens when a market becomes too fragmented. This is a company which only exists because it was able to acquire several distressed fibre players and merge them into a single business. Some ambitious and cash-rich parties might look at the potentially fragmented market in the UK as another opportunity to consolidate and create another scaled player at some point in the future.

Although this move should not be considered the silver bullet from Ofcom, it is certainly very encouraging. The UK telecoms industry has been calling for regulatory reform for some time in pursuit of greater levels of certainty as well as a more favourable investment climate in the UK.

What we have here is an excellent example of collaboration. For the digital society of tomorrow to be more than a pipe dream, industry will have to come together with the investment community and Government, presenting a united front. This proposal is perhaps evidence the rhetoric is perhaps evolving into reality.