Ofcom risks sinking Government levelling up agenda

Beneath the rhetoric the most important component of the Government’s levelling up agenda is the improvement of broadband and mobile access (including upload speeds) to enable remote working and reskilling. Both are critically dependent on expediting full fibre roll-out. Ofcom has put this at risk by its supportive response to Openreach discounting plans designed to disrupt the investment plans and business models of its competitors.

We can all see how differences in affordable access to the on-line world opened up economic and social divisions, both locally and geographically, during lockdown. Hence the reason Ministers are once again trumpeting their plans to expedite full fibre roll out. The Openreach “Equinox” offer puts Government plans to expedite broadband roll out at risk. It jeopardises the roll out plans of Virgin, Vodafone, City Fibre, Hyperoptic and fifty or so players by deterring Sky, Talk Talk and others from contracting with alternative providers. But it also does little to enable BT to fill the gap.

The announcement did not produce the expected boost to BT share price to enable it to expedite its own investment plans. Analysts expected Ofcom to call it in and over-rule it. When Virgin went public on its objections the BT share price duly fell. When Ofcom surprisingly announced that it was minded to approve the discounts the share price did not rise. Analysts expected a legal challenge if Ofcom failed to change its mind. This would then be followed by a year of so of stagnation and distraction. This would impact BT’s earnings and ability to invest more than that of its competitors. The fall in BT’s share price after the news of a probable investment by Abu Dhabi probably indicates the confidence of well-advised investors that a legal challenge will succeed. But not all are well advised and that confidence does require the competitors to BT to work together to earn it by being ready to sue Ofcom as necessary.

If so, the main winners will be the lawyers. Everyone else, including BT, Ofcom and those whose broadband has been delayed by uncertainty, will be among the losers.

Short term, perhaps the biggest losers will be DCMS ministers whose credibility with Number 10, let alone with back bench MPs, will suffer during the run-up to another ZOOMed Party Conference. [I have booked to attend but suspect there will not be many of us physically present and such events cruelly expose the inequalities in local broadband access].

Background

One of the great success stories of lockdown was the ability of applicants (for example) those parts of Cornwall or South Wales with good broadband to prove their “right to work” on-line and get jobs in London or Newcastle. It is great news that the current arrangements will continue until April when they will be replaced by a new regime.  But the real benefit will come when we have genuine ubiquitous access to affordable full fibre and mobile connectivity fit for creative home-working at the same time at the children are learning or playing games.

During a recent CSTF ZOOM, to provide inputs to the CPF Covid Recovery consultation, we learned that the limiting factor on design engineers working from low cost housing in beautiful (but depressed areas) was the lack of bandwidth to upload creative work into corporate clouds. That means that levelling up economic recovery to enable the Government to avoid haemorrhaging votes next year in the former Red Wall (now Blue) seats, as well as those at risk to the LibDems in the South, entails being seen to expediting, not delaying, investment in full fibre.

Blether about theoretical access, without actual marketing and order taking and delivery by BT business/retail, let alone BT’s resellers, is meaningless to voters or businesses who cannot obtain in practice what is available in theory. Then we have the ticking time bomb (alias opportunity) of analogue switch off and the crisis that will trigger if those reliant on analogue lines, including for monitors and alarms, do not take action now.

I live and work in an area where the local exchange was enabled some years ago but whose users can expect no offering from BT until its competitors reach us. The Equinox discounting plans are clearly designed to ensure that is manana, if ever.

The period of stagnation and investment blight that would follow BT being allowed to implement the proposed discounts, in order to prevent resellers and ISP multi-sourcing across the altnets, are no more in my interest as a long-term BT shareholder than they are in my interest as a businessman, running a virtual business (all staff/contractors home-based) for 35 years, multi-sourcing my own connectivity for resilience.

They are certainly not in the national interest.

The Ofcom announcement that it is minded to approve the discounts can seen as a natural follow up to its decisions in March to enable BT to “build like fury”   but first BT has to find the funds.  The Analysts Consensus on BT’s investor web pages and the latest Motley Fool commentary indicate this is not going to be easy.

Discount policies designed to delay investment by its competitors will not, however,  make it any easier.

The concept that digital infrastructure is part of a mature, zero sum market illustrates a poverty of ambition that is not shared by investors looking to the alt nets to “turbocharge” the construction of the full fibre mesh networks that will underpin 5G digital infrastructures of the smart, low carbon, communities of the future and a new, green,  investment boom.

After looking at the track record and priorities of BT’s new shareholder, Altice , I anticipate them to press for a radical restructuring, using a strategy akin to that recently announced by its other major shareholder DT  to share the cost of providing ubiquitous fibre to the home to carry valued added content and services. Telia adopted a similar approach 25 years ago and now operates (but does not own) the infrastructures that it could not afford to build.

As a shareholder in BT (as well as a serial investor in altnets) I have long looked forward to seeing the UK follow the Scandinavian approach.

But Ofcom, once again, appears to be encouraging the UK to move in the opposite direction to the rest of the world. It therefore looks as though I am likely to see squadrons of pigs looping the loop outside my office window before I am offered full fibre with an upload speed that allows for “creative” home working – despite being less than a kilometre from a BT exchange which was “enabled” some years ago.

I therefore look forward to seeing the proposed discounts being withdrawn to short order, in the face of the threat of litigation against Ofcom if necessary, and replaced by a more constructive and imaginative approach that is in the long-term interest of BT shareholders as well as everyone else.

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