Consolidation on Ofcom's radar for 2026 wholesale telecoms review

Its aim is to ensure the regulatory framework promotes competition and investment in gigabit-capable broadband networks, leading to good outcomes for consumers.

Ofcom aims to publish its main consultation on proposals for regulation early next year. A final decision is due in early 2026, and the regs will apply until March 2031.

Wading through the industry feedback on its consultation might take Ofcom a bit longer compared to its last wholesale review – carried out in 2021 – due to the sheer number of fibre builders there are in the UK these days.

"While altnets have deployed to around one third of the UK, build has been more fragmented than we expected, with there likely to be over 100 altnets deploying fibre networks in the UK. A relatively small number of these altnets account for the majority of altnet build to date, with a long tail of smaller altnets," said Ofcom, in a document detailing the new review.

As a result, Ofcom is aware that this number could well change between now and the end of the decade.

"Given the large number of companies that have entered the market, consolidation is likely to be a feature of the market in the coming years," said Ofcom.

"Although the timing and means by which this happens is uncertain, we are alive to the possibility that this could help those consolidated providers become stronger competitors," it continued. "In our assessment of competition, we will not only consider the presence of rival networks to Openreach but, importantly, the level of competitive constraint they place on Openreach and their ability to compete sustainably."

Consolidation in the altnet market is already taking place.

CityFibre made its latest acquisition earlier this month, agreeing to buy privately-held Lit Fibre in an all-share deal said to value the latter at around £80 million. The purchase will add 300,000 premises to CityFibre's footprint, helping to establish itself as what CEO Greg Mesch calls the UK's third infrastructure platform of scale.

The Lit Fibre deal is by no means CityFibre's first foray into M&A – it previously bought FibreNation, Entanet, and KCOM and Redcentric's national networks.

CityFibre isn't the only fibre builder cutting deals. Virgin Media O2 (VMO2) and Nexfibre – the wholesale fibre JV between VMO2 parents Liberty Global and Telefónica – in September agreed to buy regional fibre builder Upp.

These altnets have undoubtedly contributed to the UK's flourishing gigabit broadband market, enabled in part by changes to regulations ushered in by Ofcom's last wholesale review in 2021.

Back then, Ofcom took the decision to regulate incumbent Openreach according to the degree of infrastructure competition – whether extant or planned – in a given part of the country. It also introduced dark fibre access (DFA) in areas of the UK where there were no competing networks.

Ofcom's last review also introduced measures to make it easier for Openreach to decommission its copper networks, and also imposed new quality of service (QoS) requirements on the incumbent.

The response was positive. Openreach subsequently raised its FTTP rollout target to 25 million premises; VMO2 announced its fibre upgrade plan; CityFibre secured funding to deploy competing infrastructure to 8 million premises; and the market was flooded with those aforementioned fibre altnets of varying shapes and sizes.

As Ofcom noted this week, as of September 2023, 78% of UK premises had access to a gigabit-capable network, with 57% having been passed by FTTP. When Ofcom carried out its last review, those stats stood at 40% and 24% respectively.

Figures published by the FTTH Council Europe last week revealed the UK added 4.7 million homes to its fibre footprint in the 12 months to September 2023, making it the fastest-growing market in its EU39 league table.

Taking all this into account, Ofcom is understandably keen for its new review to avoid doing anything dramatic that might stymie this progress.

"Our decisions to date have incentivised and supported significant investment," said Ofcom, adding that its new review will have the same objective.

"We consider that the long-term nature of network investments requires certainty and stability of regulation," Ofcom said. "We recognised this in 2021 and therefore set expectations about future regulation, which stands as the starting point for this review."