Ofcom proposals balance improved fibre business case with customer protection
Jan 8, 2020
08 January 2020 - Ofcom sets out conditions to help bring full fibre nationwide - Improving the business case for fibre investment and protecting customers from high prices - Support for closing the UK's ageing copper network as new fibre is built
Homes and businesses up and down the country are set to benefit from much faster and more reliable fibre broadband, under major proposals set out today by Ofcom.
As demand for internet data accelerates, the UK’s infrastructure needs to be upgraded. Full-fibre broadband connections can deliver much faster speeds than copper – up to one gigabit per second. They are also up to five times more reliable, and less likely to slow down when lots of people use them at the same time.
So today we are proposing new, flexible regulation that will help fuel a full-fibre future for the whole of the UK.
Having a choice of networks has delivered significant benefits to people, such as innovation, better services and competitive prices. In 2017, we set out a range of pro-investment measures that kickstarted full fibre rollout by a range of broadband companies. Since then, full fibre coverage has trebled.
We are now building on that momentum with proposals that will transform the business case for fibre investment – for towns, cities and villages alike. Next year, we plan to vary our regulation for different parts of the country, which – combined with the Government’s planned £5bn funding for rural areas – will help ensure nobody gets left behind.
Today’s proposals are part of our review of wholesale telecoms used for residential and business services in the UK. This maps out how Ofcom will regulate BT for the period from April 2021 to March 2026.
Driving competition and investment
Our focus on promoting broadband network competition has helped full fibre coverage increase at its fastest ever rate.
We have already made it cheaper, quicker and easier for BT’s rivals to lay fibre cables by giving them better and cheaper access to Openreach’s underground pipes and telegraph poles. Several firms are now using this to connect thousands of properties without having to dig up streets multiple times.
We are now proposing to supercharge the strategy with a four-point plan to support competitive investment in fibre networks.
1. Improving the business case for fibre investment. In more urban areas, where there is likely to be a choice of networks, we will set Openreach’s wholesale prices in a way that encourages competition from new networks, as well as investment by Openreach – by giving it the opportunity to make a fair return.
In these areas, we are proposing that the wholesale price Openreach charges retail providers for its entry-level (40 Mbit/s) superfast broadband service is capped to inflation. This follows a significant cut Ofcom made to this product in our 2018 review, and still provides for a margin on fibre investment, as build costs fall.
Full fibre is consistently faster, and much more reliable, than copper-based broadband. So we are proposing that Openreach can charge a small premium for regulated products if they are delivered over full fibre, to help the business case. Its fastest fibre services would remain free from pricing regulation, to support the investment race between network builders.
2. Protecting customers and driving competition. We will ensure people can still access affordable broadband by capping Openreach’s wholesale charges on its slower copper broadband services. To prevent Openreach from harming competition, it would be restricted from being able to offer discounts that could stifle investment by its rivals.
3. Taking rural areas into the fast lane. In more sparsely-populated rural areas, where there is no prospect of multiple networks being built, we plan to support investment by Openreach – the only operator with a large-scale rural network.
We would allow Openreach to recover investment costs across the wholesale prices of a wider range of services, reducing the risk of its investment. If BT provides a firm commitment to build fibre in these parts of the country, we can include these costs in its prices upfront. If not, we would only allow it to recover these costs after it lays new fibre.
Public funding will also be vital in connecting rural areas. The UK Government is planning to invest £5bn to reach the most challenging 20% of the UK and we are working closely with Government on its plans for this.
4. Closing the copper network. We recognise that Openreach needs to retire its ageing copper wires so it does not have the unnecessary costs of running two parallel networks. We plan to remove regulation on Openreach’s copper products in areas where full fibre is built. This will support Openreach in switching customers over to the new fibre network.
We will also protect customers during this transition, by transferring our regulation – including price protections – from copper to new fibre services.
Jonathan Oxley, Ofcom Interim Chief Executive, said: “These plans will help fuel a full-fibre future for the whole country. We’re removing the remaining roadblocks to investment and supporting competition, so companies can build the networks that will drive the UK into the digital fast lane.
“Full-fibre broadband is much faster and more reliable. It’s vital that people and businesses everywhere – whether in rural areas, smaller towns or cities – can enjoy these benefits. So we’re making sure companies have the right incentives to accelerate full fibre to every part of the UK.”
Supporting 5G and business
We have also today set out how we intend to regulate Openreach’s ‘leased lines’ – high-speed connections used by large organisations, which also form the data highways of the UK’s mobile and broadband networks.
Similar to our approach for broadband, we plan to vary our regulation depending on the level of current or potential competition in a given area. This would involve Openreach having to provide companies with access to its ‘dark fibre’ – cables that are ‘lit’ by competitors – in non-competitive areas, at a price that reflects its costs. This would significantly reduce the cost for mobile operators to roll out their new 5G networks.
Today’s consultation closes on 1 April 2020, and we will publish our decisions in early 2021 before the current rules expire in April 2021.
NOTES TO EDITORS
1- Full fibre – or ‘fibre to the premises’ – is a form of ultrafast broadband that uses fibre-optic cables all the way from the exchange to people’s homes, without using any copper.
2- In March 2017, we published our proposals for regulating BT between 2018 and 2021. Subsequently, several broadband companies announced plans to invest in full-fibre broadband. Full fibre coverage then grew from 3% to 10% – though from a small base – between 2017 and 2019. Average monthly household data use increased from 190 GB to 315 GB over the same period.
3- More than 80 companies are now looking to use Openreach’s telegraph poles and underground ducts to lay new fibre. Between them, competing providers are now planning to use over 40,000 poles and 5,000km of duct, up from around 12,000 and 2,500km respectively in May.
4- We have also recently set out plans that would make it easier for people to switch between different broadband networks.
5- Allowing Openreach pricing flexibility on its fastest broadband products enables it to invest profitably in full fibre. It also gives rival operators the opportunity to compete with Openreach on price. The ability of networks to raise wholesale prices is constrained by people’s willingness to consider a cheaper service – such as the 40 Mbit/s package – as an alternative.
6- To ensure that Openreach provides the quality of service customers need, we have also today proposed maintaining existing strict rules for how quickly it must carry out repairs and installations. We are reviewing the Hull area separately and will consult on our regulation of KCOM in the coming months.
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