UK fibre builders get a break from Ofcom

Ofcom will not cap the wholesale prices fibre network operators can charge customer for access to the fastest available services on their networks.

The announcement will be music to the ears of those building out fibre networks in the UK, for whom the threat of regulatory intervention on pricing was casting a shadow over their plans. None more so than incumbent operator BT, whose Openreach business remains the biggest fibre builder in the market, despite growing competition from smaller players.

“For us, it is the greenlight we’ve been waiting for to get on and build like fury,” said BT chief executive Philip Jansen, in a canned statement.

Essentially, the move removes one of the remaining stumbling blocks potentially causing fibre network operators to drag their heels in the UK: the ‘it’s not fair’ argument that has been trotted out by telcos the world over, concerned that they would invest heavily in fibre only to find that competitors had the right to piggyback on their networks and offer the same services without paying their fair share, all in the name of benefiting the consumer.

“This approach improves the investment case for BT and its rivals by providing them with a margin to build the new networks,” Ofcom’s announcement reads, along with the usual caveats about making sure consumers still have access to affordable broadband.

“We recognise that full fibre is a long-term investment, taking more than a decade – if not two – to pay back. So, we aim to allow all companies the opportunity to achieve a fair return over their whole investment period, and do not expect to introduce cost-based prices for fibre services for at least ten years,” Ofcom said. It’s important to note though, that the actual rules apply from April 2021 until March 2026; the ten years comment from Ofcom is a prediction only.

Ten years is not a hugely long time in terms of network payback, but it’s a start.

According to equity analysts at Jefferies, the incumbent was hoping for Ofcom to commit to no cost-based price controls before 2036, rather than 2031, as today’s announcement suggests.

But as CCS Insight’s Director, Consumer and Connectivity, Kester Mann points out, “while [BT] would have preferred a longer period free from regulated pricing, the announcement still brings much-needed certainty to make a return on investment.”

Indeed, BT said it can now confirm its plan to build out fibre-to-the-premises (FTTP) to 20 million premises by the mid- to late-2020s, a target it has been trotting out periodically for about the past year. Methinks it would have been reluctant to backtrack on that goal had the regulatory ruling been less favourable, particularly with fibre network location cherry-pickers like CityFibre and others making a lot of noise about their own progress and plans.

“Based on our initial assessment, BT believes that the document is broadly in line with the expectations laid out at our Q3 2020/21 financial results and, when taken as a whole, will allow BT to earn a fair return on its c.£12 billion FTTP investment,” BT said.

And speaking of CityFibre, it too has come out in support of Ofcom’s new rules.

“Ofcom’s Market Review is the culmination of its strategy, using competition to drive Full Fibre investment and nationwide coverage,” said CityFibre chief executive Greg Mesch. “It will inspire confidence and unleash a decade of innovation and investment from competitors like CityFibre, rebalancing market share away from incumbents and driving better services and prices for wholesale customers and consumers.”

He may be coming on a bit strong with the “decade of innovation” thing, but the move should facilitate faster fibre rollout in the UK. Ofcom predicts its new approach, which – alongside other rules on copper, dark fibre access, duct and pole access and so forth – is the culmination of its Wholesale Fixed Telecoms Market Review 2021-26, will lead to properties in around 70% of the UK having a choice of networks from competitive commercial rollout…although it did not put a timeframe on that.

“Openreach has committed to deploy full fibre to a further 3.2 million properties (10%) in more rural areas. And the Government plans to cover the remaining 20% of the country through public funding, to help ensure nobody gets left behind,” the regulator said.

“Now it’s time to ramp up the rollout of better broadband across the UK,” said Ofcom CEO Dame Melanie Dawes, an entirely predictable comment that was echoed by Oliver Dowden, UK Secretary of State for Digital, Culture, Media and Sport.

“Our strategy for the rapid rollout of gigabit broadband is working, with coverage increasing from 10% in 2019 to nearly 40% today. Stable, long term regulation is crucial to this. We welcome the regulations Ofcom have announced today, which strike the right balance between encouraging commercial investment and protecting consumers,” Dowden said.

But while those in the corridors of power are patting themselves on the back for pushing fibre rollout, the news will not be universally cheered in the UK telecoms space. The retail providers buying network access from Openreach and others would doubtless have preferred tight pricing controls to boost their own business cases.

“This was always a delicate decision for the regulator which had to tread a fine line between encouraging long-term investment and maintaining fair competition,” said Mann. “It may have got it about right.”