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Openreach has incentive to stifle broadband competition, says Ofcom

Ofcom is proposing tighter regulation on the wholesale prices Openreach charges service providers, to avoid stifling competition

Telecoms regulator Ofcom has launched a consultation on a proposal to introduce a clause in the draft significant market power (SMP) conditions it plans to impose on Openreach, which would prevent it from varying wholesale rental charges on its fibre-to-the-cabinet (FTTC) broadband footprint across the UK.

Following its spring 2017 consultation on the Wholesale Local Access (WLA) market, Ofcom proposed stimulating broadband competition by cutting wholesale prices on “superfast” FTTC products, and introducing more flexible pricing rules on “ultrafast” and fibre-to-the-premises (FTTP) products.

Ofcom said that since then it has already started to see signs of more investment in ultrafast networks, with Openreach beginning to pivot towards FTTP and CityFibre and Vodafone teaming up to roll out FTTP to a million homes by 2021.

However, it said, some respondents to the March 2017 consultation – specifically CityFibre and Vodafone – said they were worried Openreach might try to prevent or reduce competitive roll-out of ultrafast networks by cutting the wholesale prices it charges in parts of the country where they were building new networks themselves.

“We believe this is a cause for concern, as such targeted behaviour by BT could weaken competitors’ business cases for the deployment of new networks,” said Ofcom in its consultation document.

“This creates a risk that competitors cut back on their investment plans in geographic areas targeted by BT, and may be deterred from investing in other areas in anticipation of the threat of similar targeted responses.

“The benefits to BT from reducing competitive pressures could be substantial and therefore we consider it may have an incentive to engage in such behaviour,” said the regulator.

Ofcom said it recognised that, in general, Openreach has maintained uniform national prices for the rental of FTTC broadband.

But given the national roll-out of FTTP is in its infancy, it considered the risk of harm from deterring that investment was greater than any costs that may arise from constraining Openreach’s ability to introduce targeted discounting. In such circumstances, varying wholesale pricing by area would constitute undue discrimination.

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As such, it is now seeking to introduce a clause to specify that targeted discounting amounts to undue discrimination, effectively stopping Openreach from varying wholesale rental charges on FTTC.

FTTP will not be included simply because it would need a much larger FTTP footprint to indulge in targeted discounting on such services.

It pointed out that Openreach did have form in this area, saying that when rivals began to invest in copper-based local loop unbundling (LLU) 12 years ago, it cut prices on its wholesale broadband access product in dense exchanges where it saw the potential for competition to emerge. This meant rivals faced the choice of buying a wholesale service to resell to their customers, or investing in LLU to do it themselves.

An Openreach spokesperson said: “We note the consultation and we’ll respond accordingly, but our main focus is on building a business case for a truly large-scale FTTP network.

“Under the right conditions, we believe we can make full fibre available to 10 million premises by the mid-2020s, and the real key to delivering that will be removing the barriers that exist and promoting the enablers to such a major investment.

“This is only one small aspect of the WLA review and we’re awaiting Ofcom’s broader conclusions on the right regulatory framework to encourage investment by us and others.”

Ofcom’s latest consultation will close on 12 January 2018, with the new rules to come into effect on 1 April 2018. ... ... ... ... ... ... ... ... ... ... ... ...

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