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Ofcom fans the flames of BT’s separation anxiety

flames

via Flickr © Dr Stephen Dann (CC BY-SA 2.0)

  • Ofcom proposes price regulation for mid tier broadband
  • No regulation for full-fibre and G.Fast
  • Also slaps on stringent performance requirements

Yet more bad news for BT and a reminder that full separation from Openreach will remain an option for Ofcom and a sword of Damocles ready to drop on BT’s head if its behaviour slips.

Ofcom announced this morning that it intends to action what it called “measures designed to promote investment in new fibre networks and ensure that customers are protected from higher prices.”

As bait for Openreach to  invest in ‘full fibre’ (right out to the home or business) and G.Fast (the fastest DSL going up to hundreds of Mbit/s) Openreach will be allowed to charge whatever it thinks the top end of the market (above 40Mbit/s) can bear, at wholesale prices. Ofcom hopes this might also encourage alternative network builders, and Ofcom itself,4 to invest more since they won’t be competing directly against regulated prices which, by definition, tend to be low.

On the down side (for BT)  it proposes to control the wholesale price for the tier below - the so-called ‘superfast’ broadband at 40Mbit/s download and 10Mbit/s up - and gradually reduce the amount charged by Openreach to telcos from today’s £88.80 per year to £52.77 in 2020/21.

Ofcom says it expects these wholesale savings to be passed on to residential customers through cheaper retail prices as telcos compete to upgrade those users still on slower lines  to 40Mbit/s.

According to Jonathan Oxley, Ofcom’s Competition Group Director, the plans “are designed to encourage long-term investment in future ultrafast, full-fibre networks, while promoting competition and protecting consumers from high prices.”

Ofcom says its assumption is that  more people will take superfast broadband over the coming years as they feel they require faster, more reliable connections to support new online services. It claims that until recently,  BT’s ability to raise prices has been constrained by people’s willingness to consider cheaper, standard broadband as an alternative - Ofcom thinks that is changing.

It will be interesting to see how important that extra premium tier of broadband speed is actually going to be in the market - especially if it’s highly priced.  There are some indications that broadband data consumption is already starting to slow to the point where many in the industry worry that high 5G speeds, for instance, will be welcomed for a growing number of IoT/M2M applications... eventually.

But individual ‘human’ broadband users may simply find they don’t need that much of a boost for the applications they use. These are increasingly cloud-based x-as-a-service applications which involve filling screens with HTML or video. While reasonable speed and low latency are important, you don’t need hundreds of Mbits per second unless you’re up- and downloading large files.

Just as a not-at-all-scientific example, I recently moved from 17Mbit/s to 74Mbit/s expecting to enjoy a transformation.  In the event, nothing seemed to change. I’ve no doubt that a careful measurement of performance before and after would reveal some improvement, but clearly half a second to one tenth of a second between click and screen-fill is not that noticeable to a human screen worker -  in any case, not this one.

But price is only one part of Ofcom’s changes. Its new rules also put pressure on BT and Openreach to repair faults and install new lines faster. Should Openreach fail to meet these new targets, Ofcom has the power to impose fines.

While pointing out that the sector as a whole – not just Openreach – “has a role to play in delivering significantly better quality of service than it does today.” Ofcom proposes that Openreach be required to:

  • complete 93% of fault repairs within one to two working days of being notified, compared with 80% today;
  • complete 97% of repairs no later than six or seven working days;
  • provide an appointment for 90% of new line installations within 10 working days of being notified, compared to 80% within 12 days currently; and
  • install 95% of connections on the date agreed between Openreach and the telecoms provider, up from 90% today.

These new requirements would need to be met in full by 2020/21. Ofcom has also proposed transitional targets to ensure progressive improvements in service before then. Ofcom will monitor Openreach’s performance closely and step in if the required standards are not met.

So the pressure is being applied to BT in a way that suggests Ofcom was quite clever in letting BT hold on to Openreach by the tips of its fingers. Any slips and it will be quite easy to sever the two for good. However a separation could leave Ofcom with less leverage over Openreach than it has now via BT. BT’s shares dropped 2 per cent at opening today.

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