UK communications regulator Ofcom is all set to do a full network review in 2021 which will lump residential and business fiber together as one market, but in the meantime, wants to see what it can offer to encourage the build out of fiber, in one of the most retrograde European markets, which has so far resisted fiber.
When you reach an impasse in broadband development, it is often due to the incumbent (and others) not wanting to invest at a time when it was uncertain how regulators would treat such a build out, for instance would fixed percentage wholesaling be forced on that supplier? In the US over a decade ago, that decision was settled by operators refusing to build out their fiber closer to homes, and they went to court to prevent wholesalers automatically having a right to make such a connection. In Europe, traditionally the reverse has happened with local loop unbundling.
The US story is one where the cable operators proceeded to steal $billions of revenues from the incumbents, who failed to embrace fiber and in AT&T’s case, is only doing that today, to good effect. It took the involvement of Google in fiber to the home investments before this really hit home.
Ofcom wants to circumvent that now and has come up with a policy that looks set to trigger large scale investment by multinationals such as Vodafone, in fiber networks – which it has invested in throughout Europe – but at the same time Ofcom wants the incumbent, the Openreach subsidiary of British Telecom, to also have an incentive to invest.
Its answer is to ask for copies of the network build out plans of all broadband operators and then divide the territories of the UK into 3 categories – those which have or will have 2 competitors plus Openreach able to connect over 65% of homes; one competitor plus Openreach able to connect to over 65%; and those where Openreach is the only likely network operator who can reach those homes.
The idea is to put the onus on Openreach to build out where it is on its own but offer these lines wholesale to rivals – and where there is sufficient competition, offer unrestricted access to Openreach’s ducts and poles so that rivals can build out infrastructure themselves. Openreach gets to keep the most expensive customers to attach, and gets all the universal broadband service fund cash (with the exception of Hull) to address this.
In competitive areas, market regulation would be dropped and Openreach would do what it liked around wholesale, but so too could companies like Vodafone, which has a chest of cash that it is looking to invest, but wants to be clear whether or not it will have to share fiber lines with rivals. Court judgements in the Netherlands and Belgium, have so far suggested this might happen. So far, based on its existing data from the various UK networks, none of the regions are currently competitive, and only a handful would be once existing plans come to fruition.
For the potentially competitive areas with Openreach plus one other rival, the Ofcom focus will be on promoting competitive entry through unspecified remedies. So here Ofcom can do what it likes.
Effectively, this whole thing means picking out the postcodes you want to attack, putting them into your network plan and have Ofcom deregulate so that you don’t have to share your networks with rivals where your efforts are particularly costly, and you can then make final investment plans where you can pay for your investment.
Ofcom has identified 54,928 postcodes which form contiguous clusters which have to be categorized into these three types.
The Openreach analysis on older data suggests that 3,912 postcode sectors covering 9.1 million premises would fall into the non-competitive area, which Openreach has to deal with on its own.
The outcome of all this is likely to be one or more extra fiber investor in urban and metropolitan areas, leaving Openreach to get on with providing broadband to 9.1 million underserved premises, all of whom will get inferior service, slower speeds and be left the wrong side of the broadband divide. But at least it’s a plan, and Ofcom has just thrown it out for comments in the hope that companies like Vodafone (who must have helped write this policy surely) will be tempted to put their hands into their pockets and wire up Britain at last.