Ofcom blocks “New to Openreach” offer – UPDATED

This morning, Ofcom has published its decision in relation to the “Incremental New to Openreach” customer offer, which would have given broadband providers £9.50 a month credit for 2.5 years for eligible full-fibre connections.

The final decision which was published today follows a consultation in July concluded that the discount would not be fair and reasonable, and could harm competition between fibre networks. This decision is limited to this specific offer and doesn’t ban other offers Openreach is running.

The offer was due to start from October and would have included a £35 rebate towards the connection fee as well as £9.50 per month. For larger operators, this would count qualifying orders above the retail providers’ target baseline; this would apply for 18, 24 or 30 months depending on how far above the baseline those orders ended up, whilst smaller providers wouldn’t need to exceed the baseline.

The key element of this offer is that these discounts would be given to the provider rather than to the end user, so it would incentivise providers to carry out promotional activity and potentially provide some great deals, but it was not a straight discount to an end user. Providers would be carrying on some risk here when it came to the larger operators, due to the baseline calculations.

The deal for “New to Openreach” meant switching between two Openreach providers would not be considered a new customer. To qualify, there would have to be no Openreach service on the line for 3 months, making cancel-and-reprovide hacks not work.

Ofcom was concerned both about the size of the discount and the customers that it targets.Specifically, it would mean that other networks providing alternative infrastructure might struggle to cover their costs.

This decision will be welcomed by the alt-net industry, which has already been struggling in terms of profitability and low ARPU with offers being rife.

Other offers, including a connection rebate in Virgin Media O2 areas, as well as expansion of the Equinox offer area, are not affected.

Update 9:10am nexfibre has issued a response to the new order from Ofcom blocking the offer.

“Ofcom’s decision today is a positive step towards protecting competition in the UK fibre market, although we would have liked to see the regulator go further.

Openreach’s tactic of drip-feeding price changes via special offers needs to stop at a time when competition remains nascent. Ensuring alternative networks have the incentives to invest, grow and achieve scale will be critical to creating credible, sustainable competition.

That is precisely why our proposed acquisition of Netomnia matters; creating a stronger challenger that can drive competition, investment and greater choice for consumers.“

Response from nexfibre on Ofcom decision

Just after updating this article a response from Openreach has also arrived in our inbox.

“Ofcom’s decision not to approve our incremental FTTP new to Openreach offer is in line with their consultation position. We put this offer forward in good faith to help our customers compete and deliver better value for households.

While we continue to believe the offer would have benefited customers and competition, we’ll review the decision carefully and continue to engage constructively with Ofcom and our customers.

We’ll launch our other offers and continue to compete fairly, including our FTTP offer within the VMO2 footprint and an ethernet offer for businesses. We’ll continue to invest in the UK’s digital infrastructure, bringing growth in every postcode and helping our customers deliver for homes and businesses.”

James Lowther, Managing Director for Commercial at Openreach

Arriving a few minutes ago and now added is a response from CityFibre

“We welcome Ofcom’s decision to block Openreach from implementing its proposed new to network offer. It is critical that Ofcom continues to monitor BT Openreach closely as well as prioritising sustainable infrastructure competition given the huge benefits it is driving for consumers.”

CityFibre Spokesperson

“Although we believe the regulator could have gone further, we welcome Ofcom’s move to clip Openreach’s wings on its most aggressive offer and looking ahead it’s crucial the dominant incumbent’s behaviour is fully kept in check as meaningful wholesale competition emerges.

More broadly, these repeated tactics show why consolidation in a fragmented, unstable fibre landscape is needed so that the sustainable, scaled challenge Openreach clearly fears fully materialises, leading to better outcomes for providers and consumers – that’s why approval of nexfibre’s acquisition of Netomnia is a crucial moment for the UK’s fibre future.

In the meantime, we will carefully review the details of Ofcom’s decision.”

Virgin Media Statement

INCA on Tuesday 29th September issued a statement.

“This is a landmark decision for the UK’s independent broadband sector.

“Ofcom has recognised that Openreach cannot use its scale and incumbency to offer targeted prices that a reasonably efficient competing network could not sustainably match. Building competing networks is only one part of creating effective competition. Those networks must also have a fair opportunity to win and retain customers.

“INCA and its members provided detailed evidence about how this offer would influence the decisions of major internet service providers and target precisely the customers independent networks need to secure. We welcome Ofcom’s willingness to act on that evidence.

“This decision creates an important precedent. Any future Openreach offer, including a modified or repackaged version of this scheme, must be assessed against the same fundamental test: can a reasonably efficient competing network recover its costs and compete fairly?“

Paddy Paddison, CEO, INCA