Wholesale Fixed Telecoms Market Review 2021-26

Yesterday Ofcom published its Wholesale Fixed Telecoms Market Review 2021-26 (WFTMR), which sets out how it will regulate telecoms fixed access services for the next five years.

This follows Ofcom proposals to support competitive investment in fibre networks, which we previously reported on Ofcom’s consultation in connection with the WFTMR last year. Ofcom have in the main followed through on these proposals, promoting competition to drive investment in and national coverage for full fibre networks.

Whilst the decision does not set a rate of return range for BT, it has been welcomed by the incumbent operator as it gives a level of certainty to the returns it can make on its £12bn plan to upgrade its network to full fibre. It will also give the certainty needed to value Openreach and potentially trigger a minority stake sale in the company’s digital network business to help fund BT’s full fibre plans. Fibre network competitors CityFibre and Virgin Media have also welcomed the decision.

The UK Government has also announced today further information on its £5bn gigabit broadband roll-out scheme “Project Gigabit“, as well as confirming a significant extension of the Gigabit Voucher scheme.

Some of the key takeaways of the WFTMR decision are set out below.

Key takeaways

No price caps on full fibre connections

Ofcom has decided not to impose price caps on full fibre connections provided by Openreach. This, combined with Ofcom’s clarification on future regulation of fibre (see further below), effectively means that no price caps will be in place for at least the next ten years.

In addition, rather than setting further price curbs, Ofcom will freeze wholesale fees for Openreach's entry-level superfast broadband service (download speed of up to 40 Mbit/s) by setting a flat rate, adjusted for inflation.

No cost-based regulation for ten years

Ofcom have explicitly stated that it does not expect to introduce cost-based price controls until at least 2031, thereby offering much needed certainty and clarity for investors. To bolster this even further, beyond 2031 Ofcom also expects to continue to regulate in a way that supports the continued development of competition and investment provided that competition and investment are still in the process of emerging.

Different approaches to regulating Openreach’s residential broadband products in different parts of the UK

Ofcom will vary how it will regulate Openreach’s broadband products based on the level of current or prospective competition in an area, categorised as follows:

• Competitive areas: Where there is established competition, Ofcom will not regulate Openreach’s broadband products. However, Ofcom has yet to identify any areas as ‘competitive’ at this stage, although it indicates that it expects to do so in the future.
• Potentially competitive areas: In areas where there is one or more existing alternative ultrafast network present (approximately 70% of the UK), Openreach will continue to be required to provide wholesale access to its network.
• Non-competitive areas: In the remaining 30% of the UK, where Openreach is the only provider of a large-scale network, Ofcom shall tailor regulation to support investment and competition.

Regulation of Openreach’s leased lines will also be regulated in a similar way, ie. a geographic approach linked to the level of competition

Support for the retirement of Openreach’s copper network

Ofcom have explicitly recognised that Openreach should not only not have to incur unnecessary costs in running two parallel networks, but also that faster migration of customers from copper to full fibre will strengthen the business case for full fibre, and incentivise investment in the same, and so  Ofcom will progressively deregulate copper networks and transfer regulation to full-fibre services in order to support Openreach as it replaces its ageing copper networks with full fibre.

Openreach discounts prohibited or under the microscope

With the aim of promoting network competition, Openreach will not be permitted to offer geographic discounts on its wholesale full fibre services, similar to the prohibition already in place on its “superfast” services.  Openreach will also have to give Ofcom prior notice of certain commercial terms (such as volume discounts) that might prevent internet service providers from using other networks, thereby stifling investment.

Relaxation in the quality of service safeguards in the wake of Covid-19

While over the years Ofcom has toughening minimum service expectations on Openreach, for example around how quickly it must carry out repair and installation, this general trend has been bucked for 2021/22 only as Ofcom soften these in light of the impact of Covid-19.