Ofcom has announced new regulations aiming to ensure that millions of homes will be upgraded to faster, more reliable broadband. It highlights that the coronavirus pandemic has emphasised the importance of a reliable internet connection. As demand for data continues to accelerate, the UK’s infrastructure urgently needs an upgrade. This will require significant private investment in full-fibre broadband, which is much faster and more reliable than the networks most people use today.
Following public consultation, Ofcom has now confirmed how it will regulate the wholesale telecoms markets used to deliver broadband, mobile and business connections in the UK, for the next five years and beyond. The regulations aim to drive competitive commercial investment and support the closure of the country’s 100-year-old copper network; while ensuring consumers are protected from high prices.
Ofcom believes this approach will lead to properties in around 70% of the UK having a choice of networks from competitive commercial rollout. Openreach has committed to deploy full fibre to a further 3.2 million properties (10%) in more rural areas. The UK government plans to cover the remaining 20% of the country through public funding.
Over the last few years, Ofcom has reduced the wholesale price Openreach charges retail providers for its entry-level (40 Mbit/s) superfast copper broadband service, in line with its falling costs. This price, and the prices of slower copper broadband packages, will be kept flat in real terms.
Openreach’s fastest fibre services will continue to be free from pricing regulation. The ability of networks to raise wholesale prices significantly for the faster, unregulated products is constrained by the fact that people can choose the entry-level service as an alternative. Openreach can also charge a bit more for regulated products that are delivered over full fibre instead of copper. This reflects the fact that full fibre is consistently faster, and much more reliable, than copper-based broadband. According to Ofcom, this approach improves the investment case for BT and its rivals by providing them with a margin to build the new networks. It also helps make sure people can still access affordable broadband. Ofcom recognises that full fibre is a long-term investment, taking more than a decade, if not two, to pay back. Therefore, it aims to allow all companies the opportunity to achieve a fair return over their whole investment period, and does not expect to introduce cost-based prices for fibre services for at least ten years.
As it replaces copper lines with new fibre cables, Openreach should not have the unnecessary costs of running two parallel networks. Therefore, when Openreach has rolled out full fibre in a particular area, Ofcom will progressively remove regulation on its copper products over a number of years. This will improve the business case for Openreach to invest, by removing the need for it to maintain two networks, while promoting the take-up of faster fibre services. Customers will be protected during this transition to ensure they can continue to access their services, especially vulnerable consumers.
Ofcom says that it has already made it significantly cheaper, quicker and easier for BT’s rivals to build their networks, by giving them better access to Openreach’s underground ducts and telegraph poles. This can halve the upfront costs of connecting a home.
Ofcom says that it will also prevent Openreach from harming competition, by reviewing all long-term discount agreements it offers its wholesale customers and restricting them if they could stifle investment by its rivals. Openreach will continue to be prohibited from offering geographic discounts on its superfast broadband wholesale services and this will be extended to full fibre.
