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The billion pound broadband campaigning continues apace
Friday 18 September 2015 09:45:26 by Andrew Ferguson

The day to day humdrum of the UK broadband scene is people getting on with their lives, peppered by those with Internet connection problems. Ofcom sits in the unenviable position of carrying out its first full review of the market since it created Openreach which is widely viewed as a success as it helped kick start the massive LLU scene that has Sky and TalkTalk has the number 2 and 3 providers with more combined customers than BT Retail.

The Telegraph features a article written by Mai Fyfield who is the chief strategy officer at Sky putting forward the Sky case for Openreach to become its own FTSE 100 company.

"In the era of copper-based services, Ofcom created complex regulation to deal with the conflict of interest at the heart of a vertically integrated BT.

But the system no longer works because of the transition to fibre, where ownership of Openreach gives BT a built-in advantage over rivals. When BT switches a customer to fibre, it just hands over a notional fee from one internal division to another. Other providers face a real increase in costs that makes it less attractive to invest in upgrading customers. This poses long-term problems for competition."

Extract from The Telegraph

The argument centres around the belief that Openreach and BT Retail is ran as a vertical operation, or as TalkTalk would express it and has done via complaints about margin squeeze to Ofcom, BT Retail is too cheap for them to compete in the FTTC market place.

While there is every possibility that a totally separate Openreach may pander to the 2 and 3rd largest retail providers more, unless BT Retail shrinks in size substantially they will still be the biggest customer. There is also the question mark over where Virgin Media stands in all this, a more agile and responsive Openreach may not be in the best interest for the expansion they have planned and the long tail of smaller providers are very likely to be squeezed out in the product planning phases. CityFibre may also be worried as if Sky and TalkTalk get an independent national Telco where some extra investment will mean that start of a decade long national FTTH roll-out then their Gigabit city venture may wither away and become just enough metro network to add to the number already present.

So here in lies the big unknown, large players are talking about current fibre prices being too high, but also talking about investment being ready to increase the spread of broadband, but broadband in what form? Perhaps the way forward might be for Ofcom to sound out what actual levels of investment Sky and others would be willing to put into lots more FTTH/P in the UK and enshrine that as the goal if there is to be a Openreach standing on its own in the FTSE index. The current FTTC network while often derided as not future proof by its use of fibre aggregation nodes ready for construction of native FTTP/FTTH has reduced the investment needed for a larger FTTH roll-out, but delivering 69,000 to 95,000 fibre nodes is a lot easier and quicker than installing fibre manifolds with 20 metres of some 27,500,000 households in the UK.

Deployment of FTTH is not technically difficult (especially given the ground work already done as part of the FTTC roll-outs) the majority of the time and labour is old fashioned trench digging and pipe laying and if as it seems Openreach is struggling with the pace of roll-out of FTTC where commercial cabinets are being delayed to ensure milestones are hit on BDUK projects it seems clear that a much larger workforce is needed, utilising third party contractors will prove difficult too as once they sense the scale of the demand their price will go up due to the usual supply and demand equation.

Comments

Posted by Somerset about 1 year ago
All the FTTC installations I have seen have been done by contractors.
Posted by 961a about 1 year ago
Good article
Many may chunter about the present arrangements, but if you consider the state of the network (designed for voice calls remember) at the time when dial up was the norm then progress has been impressive
My only complaint concerns the amount of investment on ever increasing speeds at the top while not enough is being done for those still on dial up
Posted by andrew (Favicon staff member) about 1 year ago
To be honest I don't think Sky and all the others are really that worried about universal availability, more about what bundles and the ARPU you would represent on the balance sheet.

Ofcom has to balance that against the issue of universal availability, a too strong universal requirement may dampen investors desire to invest, i.e. happy to spend say £7bn to £10 billion for 80% UK FTTH coverage in a decade, but for that next 20% costing the same amount again they are reluctant.
Posted by themanstan about 1 year ago
@961a

This comes down to OFCOM being poor at predicting how the technology evolves and having a prime role in customer value.

By looking to make BB as competitive and low priced as possible for the end-user, and by not looking to how the evolution of BB in the Rest of the World and reacting dynamically. They've hobbled the one company that could role out nationwide. Other incumbents (Europe) started rolling out fibre solutions almost a decade before BT.
Posted by 961a about 1 year ago
I'm sure you're right

But their reluctance to fund the last 20% is exactly the reason that Ofcom needs to ensure that investment takes place at the bottom end.

Every industry likes to cherry pick the profitable bits just the same as every household increasingly needs a basic connection to broadband and the internet to carry out essential day to day stuff
Posted by themanstan about 1 year ago
Given how profitable SKY has been (>£700M per annum year on year), they could have stolen a lead with a final mile network of their own... when BT were hobbled.
The answer is clear though, rather then invest themselves it's easier to blame someone else for a lack of investment.
Posted by TheEulerID about 1 year ago
The big question is still about finance and resources. Openreach is a £5bn a year business, about one half from MPF/WLR wholesale rental with the rest being largely leased circuits and, now, GEA. Regulatory pressure is to reduce wholesale pricing (in real terms, including copper pairs).
It's really rather difficult to see where extra revenue could be gained to finance a substantial increase in capital investment given how tightly it is regulated.
Posted by TheEulerID about 1 year ago
I should add that the terms of any split would be extremely difficult to negotiate. How would debt be split? Very importantly, on what basis would the pension deficit liability be split? What would happen to BT Wholesale?
Of course a split suits Sky and TalkTalk as, for all the talk, it weakens a competitor. Unlike Sky & TalkTalk, BT Retail does not have its own network assets (unless it gained BTW).
Posted by 961a about 1 year ago
The questions you ask indicate exactly what monster can of worms a split would open

Concentration on the technical way forward would be lost in a mega row that would benefit no one
Posted by Blackmamba about 1 year ago
Hi Somerset .
There are many Ex BT/Openreach staff working as contractors providing FTTC and fibre cabling after getting a very good payout.
Posted by TheEulerID about 1 year ago
One thing that is also worth mentioning is that Ofcom's regulatory approach to broadband provides absolutely no incentives for providing service to the last 20% (or wherever the cut-off occurs). It's based purely on commercial competition driving infrastructure prices down to a level dictated by urban costs. With universal pricing that inevitably leaves gaps.
Posted by Bob_s2 about 1 year ago
Splitting of companies goes on all the time it is not that difficult. The pension if Openreach is floated as a seperate company is not an issue as it does not come under TUPE
Posted by andrew (Favicon staff member) about 1 year ago
@Bob_s2 so Openreach carries zero liability for existing pensions? And staff with many years pensions will see those frozen and new pensions start from year 1, and any length of service benefits culled.

Mmm can see that caused a few problems with the unions.
Posted by mabibby about 1 year ago
"...the majority of the time and labour is old fashioned trench digging and pipe laying"

Plenty of probation service resources can surely help in this area? :)
Posted by TheEulerID about 1 year ago
@Bob_s2

I think you probably ought to do a bit more research. BT is responsible for any pension deficit, and as such it is answerable to the trustees. It is inescapable and a contractual matter. If the company was restructured to imperil that guarantee (such as the way you suggest) it would rapidly end up in court.

It's also not possible to change the terms of existing pensions, nor any accumulated pension to date by those not yet collecting pension.
Posted by TheEulerID about 1 year ago
I should add that any settlement the regulator tried to make would have to consider all that too, or it also would end up in court. Finally, and not least, there is a crown guarantee on the pensions (the extent of which has been tested in law).

Do you really think the government wants to pick up that deficit (as they had to do with the Royal Mail).
Posted by TheEulerID about 1 year ago
I forgot to mention, TUPE does not affect pension rights built up to date. The transferred employees have the right to keep their accumulated pension in the existing scheme.
The BT pension scheme was changed a few years ago. It's now career average and based on retiring at 65 (the previous, public sector one was at 60). None of that has any impact on pension accumulated under the old scheme.
Much the same is happening in the public sector too of course.
Posted by Saurus about 1 year ago
Plenty of probation service resources can surely help in this area? :
Highly unlikely it's all been privatised!
Posted by Dixinormous about 1 year ago
Certainly looks vertically integrated on the financial front. Quoting Sean Williams, BT Group Director of Strategy and Policy: “...no investments have been diverted away from Openreach. BT Group has played a vital role by investing £10.5bn of capital in to Openreach over the past 10 years.”

The cash from all divisions all goes into one pot. Openreach's CapEx budget comes from that pot.
Posted by Dixinormous about 1 year ago
'Of course a split suits Sky and TalkTalk as, for all the talk, it weakens a competitor. Unlike Sky & TalkTalk, BT Retail does not have its own network assets (unless it gained BTW).'

In which case BT are vertically integrated. The whole point is it shouldn't matter whether Retail and Wholesale are part of the same group. Retail are supposed to have the same access to Wholesale as everyone else and a business model that doesn't rely on being connected to Wholesale.
Posted by TheEulerID about 1 year ago
That misses the point. The other operators gain an advantage by having their own networks (who have elements of vertical integration). BT Retail does not have its own network and has been prevented, by regulation, in doing so.
It would be a considerable disadvantage in that respect. Of course it is already handicapped by Ofcom (deliberately through the margin squeeze test) and would be a smaller business without the same bargaining power.
Posted by TheEulerID about 1 year ago
Bear in mind the whole strategy of BT Retail will have been predicated on how it is place in relation to its network service providers. It's investment strategy would have been different.
Posted by TheEulerID about 1 year ago
As far as investment goes, it's true that BT will make strategic investment decisions, but they will be on grounds of return. If it makes sense to invest in OR because there is a prospect of return then they will. If it doesn't, then they will not. Why on earth would BT forgo potential profits in OR? The issue is making the commercials work which have to be justified on their own terms.
Posted by Blackmamba about 1 year ago
Hi TheEuler.
Over the years I have been receiving my BT pension indexed linked they keep trying to buy me out with a lump sum may people have taken it. I would think the staffing levals are low as a ratio on BT/ Openreach as a vast amount of work is covered by contractors who come and go. If Openreach is split off who will have access to the ports on G/fast if BT has paid for the Equiptment and work.
Posted by andrew (Favicon staff member) about 1 year ago
If Openreach is split off the g.fast and VDSL2 ports remain with Openreach who look after them now.
Posted by TheEulerID about 1 year ago
@BM

Staffing levels are, of course, vastly lower now. I think OR has around 35,000 employers (about half of all BT based UK employees maybe?). A the time of privatisation I think BT employed about 260,000. I suspect BT, like many companies, outsources a huge range of services that might once have been done by directly employed staff (as also happens in the public sector). Using outsourcing means not having to carry big fixed costs, but it can be expensive.
Posted by fastman about 1 year ago
Euler 249.500 in 1985 !!!!!
circa around 85 - 90, 000 in Uk I think now
view from openreach is do more of what you can with your own people
Posted by fastman about 1 year ago
expect more work done in house where it can be
Posted by Blackmamba about 1 year ago
Hi TheEuler.
I was one off the 260k and at that time BT was barred from putting in fibre and was forced to use copper under regs you are correct that in house staff were bypassed for contractors due to the downsizing in exchange work and overhead /UG. I was working with a person that was given the job of Survay all the old Cab,s to take fibre in the Guildford area at this time there were 8 switching exchanges in the UK.
Posted by TheEulerID about 1 year ago
@BM

At the time of BT privatisation, the competition model that the government adopted was based on infrastructure, which meant encouraging cable (based on the US model). That means granting local monopolies to the cable companies on TV distribution. BT weren't banned from fibre as such, but on TV and that killed the entire commercial case.
Posted by TheEulerID about 1 year ago
It's also worth noting that (back in the mid 1980s), fibre for domestic used was an almost complete unknown. It would have meant starting an industry virtually from scratch with no standards to work on.
In truth, this ought to be seen as a play to forstall cable networks and get govt acceptance of BT as the infrastructure network supplier - at least for domestic properties.
Posted by Blackmamba about 1 year ago
Hi TheEuler.
In many locations by Cabs Openreach has provided ports for customers res and bus eg 20% take up rate and are pressing ahead daily to give service to others which are further out this gap is closing fast just see the results on Thinkbroadband map weekly.
Posted by andrew (Favicon staff member) about 1 year ago
@Blackmamba Not attacking, but honestly I do not understand your last post.
Posted by Blackmamba about 1 year ago
Hi Andrews Staff.
If you check on Cab 6 in Wormley you will find that the customers have the opertunity for Fibre on demand there is a post code where this service is showing see speed. If this is the case Openreach has delivered extra ports to the location via UG and overhead fibre to this one customer. Therefore fulfilling there obligation 15 meg on this Cab,s area BD/UK.
Posted by Blackmamba about 1 year ago
Hi Andrew Staff.
I think the fibre runs to Godalming Exchange from Cab 6 and would pick up the old Cable wireless network.
Posted by andrew (Favicon staff member) about 1 year ago
@blackmamba and as I've asserted several times, FTTP on Demand never disappeared from the checker even though orders are not being taken.

In short checker shows it, but orders are not being accepted at this time, since the original FoD product is on hold with only those orders in process before the hold started continuing to be delivered.

Even if FoD available it makes no difference to speed test map unless someone actually has it installed.
Posted by Blackmamba about 1 year ago
Hi Andrews Staff
What backhaul would this customer use ?.
Posted by andrew (Favicon staff member) about 1 year ago
What customer?

FTTP on Demand will use whatever backhaul the provider decides to use where it picks the traffic up from the Handover Node e.g. WBC or LLU network.

Same for GEA FTTC

WBC ADSL2+ by definition will use the WBC network

For LLU depends on which operator is chosen.
Posted by fastman about 1 year ago
Blackmama for the avoidance of doubt FOD is a 121 product between customer and service provider and price is determined between Premises and Ag node -- it does not not use capacity that is provided to or for an existing cab
Posted by fastman about 1 year ago
so the cost of doing one person FOD could be the same as community funding an new FTTc cab in a village -- so get the community to work together rather than this obsession with FOD -- as I said that area badly disinformed by so called telecoms experts who have muddied the water and not helped the community in any shape or form
Posted by fastman about 1 year ago
FOd is a horrible cost and does not help anyone else other than the person using it
Posted by fastman about 1 year ago
what on earth does the C & W network have in any relation to FTTc or FOD - more dis / misinformaion
Posted by Somerset about 1 year ago
ABM -'pick up the old Cable wireless network.' Clearly your knowledge is way out of date. Area codes and where a CEO lives are not relevant to these discussions.

'8 switching exchanges in the UK.' Please explain.
Posted by Dixinormous about 1 year ago
'BT Retail does not have its own network and has been prevented, by regulation, in doing so.'

There was no reason regulation wouldn't be changed, as it was to allow Openreach to operate active equipment. You may remember that Pierre Danon wanted Retail under his management to compete with Wholesale and unbundle exchanges.

It appears that BT Group politics kicked in and he was shown the door.

Ofcom would almost certainly have not objected to this, it would've provided competition to BT Wholesale and indeed WLR had Retail opted for an MPF solution.
Posted by Dixinormous about 1 year ago
'FOd is a horrible cost and does not help anyone else other than the person using it'

Indeed. I would've purchased it pre-price rise, however the doubling of monthly costs, despite the protestations from the then-CEO of Openreach that they were the same as native FTTP, tipped it over the edge.

330/30 for £175+ a month probably doesn't make sense if you aren't a business in receipt of a connected cities voucher to cover the install.
Posted by TheEulerID about 1 year ago
@Dixinormous

He did indeed, but there was grave doubt at the time that BT would have been allowed to do it. The BTW service at sites BTR enabled would have either had to be withdrawn or greatly increased in price due to the loss of it's dominant customer.

Then there's the application of the Ofcom margin-squeeze test. BTR would not have been allowed to reduce prices to take advantage of lower LLU costs.

Pierre Danon was not considered to have been a success at BT Retail.

So it was a non-starter as the regulator would almost certainly have scuppered it.
Posted by TheEulerID about 1 year ago
So if BTR had gone around circumventing Ofcom regulation by producing its own private network services it would almost certainly have been stamped on by Ofcom. It was not part of Ofcom's strategy to allow BT to gain commercial advantage by keeping network infrastructure investments to itself.
Indeed the setting up of OR and BTW with the equivalence principle was part of Ofcom's way of forstaling anything like that.
Posted by fastman about 1 year ago
dixnormous that why id there a few in the same location have a direct conversation with openreach -- Se FAQ's
Posted by Dixinormous about 1 year ago
Thanks for the suggestion but it would be a costly project, the aggregation node is over a kilometre away, and there's not going to be enough demand for people to spend four figures a piece on having FTTC overbuilt with FTTP.
Posted by ThorpeCottage about 1 year ago
All I see is competition for broadband but all say in small print landline rental at ~£17 per month. So the landline is NOT competitive. BT monopoly? Where is Ofcom? At the end of the day I expect most wil go 4g.
Posted by andrew (Favicon staff member) about 1 year ago
Ofcom regulates underlying wholesale cost which is sitting around £9-10 per month.

Even Virgin Media track the bt retail price even though different network totally
Posted by Blackmamba about 1 year ago
Hi Somerset.
The 8 Exchanges were called DMSU one was Guildford and they were all linked with fibre and PCM. The DMSU is digitial,Main, Switching,Unit these distribuited all the traffic even dial up all exchanges feed into these units.
,
Posted by Blackmamba about 1 year ago
Hi Dix.
Find your local node near Cab FTTC and the cost determins the price you pay. If Openreach is going to provide to your post code/DP you should receive the service you require at a reduced price.
Posted by Somerset about 1 year ago
@BM - Wrong. And the relevance to broadband?
Posted by andrew (Favicon staff member) about 1 year ago
@Blackmamba Dare I repeat that Fibre on Demand is not available for order and FoD2 is in trial and will change all the pricing and rules around this.

On the DMSU, fail to see what System X has to do with IP based networks
Posted by Dixinormous about 1 year ago
@BM I know where my local node is. Per my post it's over a kilometre as the crow flies away, nowhere near the FTTC cabinets. It required over 1.3km of blown fibre to reach said cabinets.

I also know the price having picked up a quote before FoD was closed to new orders.

Openreach have no plans to deliver native FTTP to this postcode. Per my post it already has FTTC, and it is not eligible for state aid.
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