Ofcom consults on plans to tackle the UK Communications Confusopoly

Ofcom has just published its Proposed Annual Plan for 2016/17  with a deadline of 26th February 2016 for responses. It has three clear objectives:

  1. Promote competition and ensure that markets work effectively for consumers
  2. Secure standards and improve quality
  3. Protect consumers from harm

First the bad newswhy YOU need to call for additional action

Once again, despite the comments of the Ofcom CEO to the DCMS Select Committee earlier this year, the need for markets to work effectively for business users has been left out of its priorities. That is, however, in line with her predecessor’s reading of legislation which assumed that business users could look after themselves – with the Communications Management Association acting as their voice. But CMA fell silent when its finances imploded after the failure of TMA 2002 . Today the FSB is doing an increasingly good job articulating the varied needs of Small Business and the Institute of Directors is about to follow suite but, apart from INTUG and sporadic local campaigns, the needs of medium to large business are ignored: hence my series of blogs beginning with “How rural is Smithfield?” and leading through to the Ministerial advice to those on business parks to forget BT and BDUK and do their own thing

If Ofcom is not going to address the needs of British business users perhaps it is time for them to call for action by the Competition and Markets Authority, but first they need to find a collective voice.  In the mean time, I suggest that readers responsible for the communications of medium to large businesses consider whether they should ask the Computer Weekly 500 to organise a meeting (perhaps in co-operation with the Digital Policy Alliance and its members) to discuss their inputs to the consultation on the proposed Ofcom work plan. It may be that “simply” organising a “communications channel” with Ofcom from a working group which collates attributable evidence of problems and of need will be sufficient. I personally have become tired of those who whinge but do not follow through with evidence of the problems they face and the impact on their business. I understand why this may not be easy but …     

Now the good newswhy you should support the action planned by Ofcom

The draft for consultation indicates that Ofcom may, at long last, be about to act as a Competition Regulator, responding to market developments when it is necessary to prevent abuse, particularly by current and would-be dominant players, instead of acting as a backdoor state planning agency, protecting the past from the future.

This is particularly important given the scale of change that is now taking place: from communications technologies and architectures to operating costs and business models. I recently blogged on how this affects the Investigatory Powers Bill,: with the convergence and divergence of fixed, mobile, wifi and lifi and the compounding impact of adware and insecurity all combining to make technology specific legislation obsolete before implemented. My views were informed by an exercise to look at why those living in inner city social housing complexes in London, have such inferior and expensive broadband access to those in similar blocks in Seoul or Hong Kong.

In my “Dirty Digest” of the Ofcom Strategic Review Discussion Document (back in July)  I linked the reasons back to the way Local Loop Unbundling destroyed BT’s business plans for fibre to the home, not cabinet. What I had not appreciated, until I started visiting some of the social housing complexes that are now extending “fibre to the flat”, was that the cost of installing fibre, let alone of the associated equipment, has plummeted over the past year. A combination of technology advances, mass production and a global price war between Huawei, CISCO and Alcatel-Lucent has led to equipment costs coming down by 50 – 70% in a year . Meanwhile competition in the provision of backhaul services (including from players like Zayo, who area busy buying and relighting fibres switched off in recent years to avoid business rates) have forced BT to bring its prices down, in areas where it faces competition. Thus the price for 10 Gpbs Ethernet has fallen by 37% this year. Where BT does not face competition and change would cannibalise its more captive SME leased line business (e.g. 1 Gbps lines) , the prices have not moved since April 2014. Meanwhile Ofcom allowed an increase in the price for obsolete copper/aluminum Openreach twisted pairs.  

When I read History at Cambridge in the late 1960s, one of the papers concerned the conduct of two seminal enquiries (1799 and 1800) into monopolies. One was into the way Thpmas Williams had acquired control of the Parys Mountain copper mine and driven down the price of copper so that he could destroy the Cornish mining cartel and establish his own monopoly. In doing so, he had, however, helped transform the UK economy and enabled the Royal Navy to copper bottom its ships and beat the French at sea. The other was into the abuses of the cartel that ran the coal trade from Newcastle to London. In both cases the potential recommendations were regularly overtaken by events. The experience prepared me for when I did the regulatory economics module under Michael Beasley at London Business School and later worked on the 1978-9 policy studies that led to telecoms liberalisation and privatisation. The messages were the same, it was just that events moved faster. Today the pace of change has further accelerated.

As so to a few thoughts on the Proposed Ofcom Annual Plan.

The second sentence of Paragraph 2.1 is a masterly summary of the task “Communications markets are f ast moving, with changing consumer and business needs, new and evolving network, device and service technologies, and significant activity in mergers and acquisitions”.

Paragraph 2.4 refers to the way that “over the top” services are complicating market comparisons leading to a very polite statement in Para 2.6 of the need to address the current industry “confusopoly” (my description not theirs): “The array of services on offer at different prices, with different tariff structures and contractual terms may reduce price transparency and complicate user decisions“. 

Over the week-end I spent some hours trying to work out the comparative cost of the services currently on offer to those in social housing from BT and its competitors. The Draft Ofcom Annual Plan is 28 pages,  including appendices. The BT Tariff Guide for Residential Customers is 57 pages. BT’s websites are full of special offers but relating these to ongoing charges after the period of the offer is not at all easy.

I finally worked out that, unless in receipt of one of five benefits which qualify them for the BT Basic Phone and Broadband package, the minimum telephone bill is likely to be about £72 per quarter (including call charges or a UK only “anytime” service) while the basic (up to 17 mbps, usage capped to 10 Gbps)  broadband service is £24. This gives a price for phone and broadband of £85. Meanwhile those offering fibre to the flat tend to charge around £60 for entry level broadband, rising to £84, when an anytime UK voice over IP service is added. [Note that I have done the comparisons using quarterly list prices: everyone has special introductory offers – that from Hyperoptic has raised more eyebrows than most, providing a gigabit service for less than the average phone bill, albeit this may, in practice, be available only to those who have access to its services but have not yet signed up].    

The price gap widens significantly rapidly for those wanting more than a basic service or who breach the usage caps. More-over, those with the ability to unravel the various package deals, would usually be better off taking raw broadband and subscribing service by service. The poor and gullible are indeed being systemically confused. This gives a clear case for “robust” action by Ofcom to improve the quality/clarity of the information on offer (Para 3.11 in the section of the Draft Plan on goals and objectives).

Para 2.11 of the Markets section contains another splendidly polite under-statement: this time regarding the way that technologies may be nearing retirement. It is not just that the physical tracing of the origin of emergency calls is now more reliable and accurate for VOIP calls  which include the GPS location of the originating device, but that whole network technologies (written down in regulatory theory but not in accounting practice), are now worth no more than scrap: hence the relevance of my earlier reference to the predatory Thomas Williams wiping out much of the Cornish copper industry in the 1780’s and 1790’s.

This leads to another of the questions that Ofcom does not ask, and arguably should not ask, because it is for politicians not regulators:

Should providing regulatory certainty extend to protecting incumbents against change because previous regulatory decisions prevented their attempts to respond to those (or similar) changes a decade or so earlier?

I believe it should not: but that is because regulators should not discriminate between investors, whether to protect past investment or to artificially encourage new investment. Such interference is for politicians – and the political lobbying that takes place today is every bit as murky as it was in the 1800’s: the main difference being that lobbying is now nearer to being an equal opportunities career than engineering, IT or political cartoonist (only two female entries in the Political Cartoonist of the year 2015 awards).      

       

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Hmm, I think Ofcom have been given plenty of evidence but have not acted or have been unable to act. There market definitions are out of date and the notion of ultrafast has only just reached their radar, percieving no need to challenge BT's orthodoxy of fibre being a premium service.

The economic gaming of costs and investment something admired by fellow economists as a legitmate occupation has not worked well for the UK.

The DCR does not include a 'true up' on NGA costs and investment, but instead just uses BT's numbers and secret reports on how £1,7bn of state aid is being absorbed into BT's accounts.

You cannot claim to be furthering customer interests if your ignoring what is a very large elephant in the room.

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