Ofcom slaps cap on Openreach broadband packages

After receiving no criticisms from the European Commission, Ofcom is moving forward with measures to regulate the broadband wholesale market in a bid to drive competition and network upgrades.

This project has been ongoing for months, but the final statement from Ofcom puts forward three measures which will apparently improve the broadband market for the consumer. Firstly, BT must make its telegraph poles and underground tunnels open for competitors to build their own full-fibre networks. Secondly, Ofcom will impose a cap on how much Openreach can charge for entry-level superfast broadband service (download speeds up to 40 Mbps). Finally, there will be no regulation placed on Openreach’s fastest wholesale superfast broadband products.

“Today’s statements cover the period from 1 April 2018,” Ofcom said in a statement. “They confirm a package of measures Ofcom set out last month to further increase investment in ‘full-fibre’ broadband networks, and drive improvements in the quality of Openreach’s service.”

The first point, the ducts and poles, actually dates back to late 2016. During the latter months, Ofcom presented the idea of allowing telcos greater access to BT’s ducts and poles to encourage rivals to lay their own ‘full-fibre’ networks, perhaps as a reaction to the industry’s moaners.

Several competitors had complained Openreach was not upgrading its network at a fast enough pace, though this initiative essentially suggests the moaners put their money where their mouths are. Instead of being the victim, coerced into insufficient services because there are no alternatives, rivals can now lay their own fibre. Preaching about the need for upgrades to the network has been long and self-righteous, let’s see if there is any substance to the claims.

In terms of the pricing, perhaps a lack of regulation on the superfast broadband services will encourage rivals to actually invest themselves. Openreach can charge what it likes right now, and should there be complaints from rivals, the option to do it themselves is there. Maybe Ofcom is playing an expert game of chess; give Openreach the opportunity to overcharge and when they do, rivals are forced to spend on fibre themselves.

While Openreach is ‘independent’ following the split from BT, we still imagine the puppet strings are still attached, just in a more subtle manner. The caps on the slower broadband products, £12.06 a month by 2020/21, will apparently cost £80-120 million in profits during the 2018/19 financial year, so there is incentive to recapture these profits elsewhere. The profit-hungry management team might not be able to resist the tempter which is a cap-free pricing structure on the superfast broadband products.

By encouraging Ofcom to abuse rivals on pricing in the full-fibre segment, the watchdog might have played a blinder in the long-game category. Could this red-tape intervention actually inspire increased full-fibre investments?

This announcement seems to be one of the highlights of Ofcom’s broader cunning plan for 2018/19, which it also published today. Among the regulators other priorities for the next year or so are: