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UK telcos surround the referee and appeal for penalties


via Flickr © joncandy (CC BY-SA 2.0)

Ofcom is suffering no shortage of advice as the UK regulator launches its ‘Digital Comunications Review’ of competition in the UK market.  On one side BT’s mobile operator competitors are screaming “foul” and calling, at the very least, for a rethink of BT’s functional separation as the ex-incumbent limbers up to take over mobile market leader EE.

At the same time, all the operators are apparently asking that regulatory attention be given to the challenge from the likes of WhatsApp and other OTT players who, they claim, are unfairly snatching their messaging and voice revenue without ‘contributing’ to the infrastructure cost.

They are asking that regulatory equity be imposed,

If you thought the old ‘OTT players contributing to infrastructure costs’ plea should have bitten the dust by now (users already pay for their access to the Internet as do the OTT players - it’s  called the Open - and hopefully neutral - Internet), then you’re not alone. Perhaps they think it’s worth a try.

The regulator won’t have much trouble batting away the ‘make Google pay’ appeal, but the call by competitors to complete the separation of BT’s infrastructure and service arms is worthy of serious attention.

In 2005 BT more or less proposed a deal to the regulator. It would end the broadband deadlock by really getting serious about unbundling for broadband access. In fact it would establish an infrastructure division, OpenReach, which would treat both BT and its service competitors equally. In return, and in due course - once the arrangement was up and running - BT would be let off the regulatory hook on its service level pricing.  In other words it could compete on equal terms with competitors and move its pricing about.

This deal worked spectacularly well. For once, the ‘market’ did what it was supposed to do once the fetters were thrown off and unbundling saw the UK enjoy some of the best DSL service pricing in the world. Broadband take-up rocketed.

But that was then. Now BT’s competitors complain that BT has found ways to game the system it agreed to. By pumping up OpenReach’s wholesale pricing to both it and its competitors it is able to maximise broadband value for itself by squeezing the margins of its competitors.

If that wasn’t bad enough, its migration to ‘super-fast’  broadband means the architecture of the new network is less conducive to physical unbundling. So instead of nice, transparent equipment co-location BT is offering its competitors ‘virtual’ unbundling (to use the buzz-phrase of the moment) - that eye-watering margin squeeze could get even tighter. And if THAT wasn’t bad enough, BT is now taking over the biggest mobile network operator at a time when multi-play network service convergence is actually happening (rather than just being a subject for conferences).

Ofcom’s task here is not a trivial one - which way will it go?

In terms of the original network neutrality debate, you may remember that it was, at the beginning, not about US government regulation and encroaching socialism, but about the rights (or not) of Internet users (both the end-users and the Googles) to exchange data with each other without being double-dipped by access providers. Some observers expected that this issue would abate when large telcos started using the Internet, end to end, themselves to deliver their own services. Apparently not.

Vodafone, of course, has just announced that it’s going to support Voice over WiFi as well as Voice over LTE from this summer -  which means that it’s going to steer its lucrative services over other telcos’ (fixed) infrastructure without contributing to that infrastructure cost. Surely time for a new chant.

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