Ofcom moves to ensure Openreach cannot undercut rivals rolling out full fibre
Regulation is often a cycle that keeps repeating so perhaps it is no surprise that things sometimes seem familiar in the area of broadband regulation that Ofcom controls. The irony of the latest round of consultations is that the regulations that made local loop unbundling so successful are what discouraged competiting providers from building their own networks for so long and with millions of people used to low priced broadband getting people to switch to more reliable full fibre is going to be an uphill battle. It is often overlooked that in many other countries where full fibre is more widely available the only way to get a service from someone other than the BT equivalent is to switch to a full fibre service.
As part of its Wholesale local access market review Ofcom is in the consultation phase over a proposal that if enacted would see Openreach forced to maintain uniform pricing for its GEA-FTTC and G.fast services across the UK. The idea being that it will not be able to offer discounts in different cities, so for example if CityFibre/Vodafone was to launch a city wide FTTH service in Aberdeen, Openreach will not be allowed to run a promotion at the wholesale level for just a few exchanges in effort to stop customers leaving. The consultation does mention the different market pricing that exists for WBC ADSL2+ services as evidence that BT and/or Openreach could do the same again, but it must be remembered that this reduction on exchanges with high levels of LLU competition only appeared well into the LLU roll-out.
The GEA-FTTP products are not included in this new consultation, which means we might see the scenario where Openreach FTTP is cheaper than its FTTC services, though the number with the choice of both is very small.
Of course with the current pricing rules that apply to GEA-FTTC services Openreach is only capped in what they can charge, i.e. there is scope for them to run a UK wide promotion of half price FTTC for 12 months and to add to the confusion Ofcom is already proposing a reduction in the cap for the 40/10 GEA-FTTC service. There is going to be a delicate balancing act to be played out behind this reduction in the cap to encourage more take-up for FTTC services and encouraging the roll-out of full fibre networks.
The biggest challenge in the UK for full fibre roll-outs in the areas where FTTC services can deliver superfast speeds (this argument weakens as you get longer line lengths and FTTC speeds drop and where FTTC is only able to deliver sub 5 Mbps speeds the public are likely to jump at whatever provider can give better speeds, but even then the monthly and install price needs to be right) will be getting the public to upgrade, i.e. if their boxset binge habit is satisfied by the FTTC service a lot of the sales patter will be ignored no matter how ground breaking the technology. This means price rather than technology is going to continue to be the driver in the UK, and thus the likely model is going to be full fibre services at less than existing FTTC products - a repeat of an old cable broadband pricing game i.e. always be a little cheaper than the equivalent BT products. Of course there will be that 1% of prosumer type customers willing to pay more but the long term profit from full fibre is not in rolling out to that 1% of people, but covering whole suburbs of cities, which unfortunately is often the areas where Virgin Media has a heavy presence too and while Virgin Media is expanding it will not roll over and give up in its existing footprint if for example Vodafone launch a 500 Mbps symmetric service for £27.50 per month.
The rush to full fibre so that we can bask in the glow of the light from all that lit fibre needs to managed to ensure that the work of the BDUK projects does not need repeating post 2025, there is a very real risk that the full fibre roll-outs even if they exceed expectations and reach 50% of the UK are going to be in the urban areas, simple economics will mean that even if duct and pole sharing does deliver as well as LLU did you will still see the new networks largely deploying in the dense urban areas. The urban centric roll-out would leave the smaller market towns in a repeat of 2009 to 2013 when they did not see any significant speed improvements (the most rural areas of the UK may well benefit if the plans Gigaclear bear fruit and the amount of FTTP from BDUK projects continues as it is now).
One aspect of the full fibre roll-outs that may have escaped peoples notice is that of the two million premises of full fibre from Openreach, one million premises are destined to be targetted at business locations e.g. high streets and business parks. The remaining one million was set to be residential but if the UK can sustain building new build homes at the 250,000 to 300,000 per year rate the one million is going to be almost exclusively new homes. So if you live in a city that has not got the obvious attention of the likes of CityFibre or Virgin Media Project Lightning already then in the next couple of years G.fast is likely to be your upgrade option. If Openreach can find a business model that works can we expect to see a widespread overbuild of GEA-FTTC by GEA-FTTP but that is a very big IF and is reliant on interest from the providers beyond just BT Consumer. One often missed factor for the small size of the full fibre footprint is the relatively slow pace of new build homes and apartments for a few years.
The last 30 years of change in the UK telecoms scene was often driven by attempts to corner profits from the incremental revenue that telephone calls provided, but with broadband and the rise of the mobile slashing that opportunity the profit areas are now on-demand video and its not the catch-up TV elements but your premium events such as sports and films.
The real winners from a major full fibre roll-out in the UK are likely to be the firms getting the civils contracts and the size of some the contracts Gigaclear have signed make this clear. Remember too that even if 90% of Openreach ducts have space for a fibre to be put through it someone physically has to do it and there are those problematic 10% where more space is needed or things like a collapsed duct that needs repairing. The pace of a full fibre roll-out in the UK may actually be held back by the number of people available to actually do the work and the cost of their labour.
Lets hope that in 8 years time we are not writing news items about public funding to push full fibre overage from 75% to 95% and people complaining that their 4K TV subscriptions are increasing in price every 6 to 12 months just like line rental is now.