Openreach CEO: Ofcom Review Must Reflect ‘Competitive’ UK Broadband Market

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Joe Garner believes rival’s investments and market share should be taken into account by Ofcom’s major communications review

The significant investments currently being undertaken by BT’s broadband rivals are signs of a competitive market, according to Openreach CEO Joe Garner, who has urged Ofcom to take this into account while it conducts its first major review of the UK’s communications in a decade.

BT has frequently been accused by its competitors of enjoying a dominant position in the fibre space and that the playing field is not as level as it was in copper – although BT itself has campaigned against the copper “subsidies” it thinks other firms benefit from.

It claims the fact that 42 percent of all new Openreach fibre customers are signed up by the likes of Sky and TalkTalk and Virgin Media’s £3bn cable expansion, as well as fibre to the premise (FTTP) investments by the likes of CityFibre and Hyperoptic, suggest a level playing field.

A ‘level playing field’

Joe Garner BT Openreach CEO“I think what we’ve seen is the steady growth of external communications providers,” said Garner (pictured). “That’s being driven by consumer demand that they’re now meeting very actively between themselves and on an absolutely equivalent basis.

“If you look at the position on copper and the differential between wholesale line rental (WLR) and local loop unbundling (LLU) there’s a price differential that was stacked in favour of LLU to encourage new entrants to the market. One argument that could be made is that on copper there was a ‘price advantage’ versus BT whereas on fibre it’s a level playing field.

“The regulator deliberately unlevelled the playing field in favour of new entrants. I would argue that on fibre, everyone was a new entrant so everyone had the opportunity to take advantage of being the first. BT took advantage of being an aggressive first mover and others are now competing.”

BT says this competition is improving its own service. It will hold trials of G.Fast technology capable of delivering speeds of up to 500Mbps on a copper connection this summer and is working to ensure a reliable, not just a speedy connection.

Competitive threat

Unlike CityFibre, Hyperoptic and others, Garner said BT cannot “cherry pick” the bits of value chain that are most desirable and needs to provide a nationwide service.

“I take [the competition] very seriously and we absolutely are responding. We’ll vigorously defend our network,” he said. “It’s the first time [Virgin Media] have been building at scale for some time. We’re seeing lots of people building network and it’s a sign of a healthy, competitive market.”

However, he says there is no need to open up Openreach’s leased lines to third parties. BT has previously written to Ofcom claiming moves to allow rivals to “light up” dark fibre on the Openreach network would cause more service faults and remove any incentive to invest, but this did not stop the regulator publishing proposals to allow just that this week. Garner said such measures would merely distort the market in favour of the bigger players.

“On dark fibre there is a real risk it would un-level what is a level playing field today,” he said. “I could very well understand why the larger, well-resourced communications providers that have the ability to develop the boxes and all the supporting infrastructure might like the idea of dark fibre, but what would it do to the other end of our 530 communications providers and their capabilities. Will it not favour of the big guys in favour of the smaller players?”

Urban rollout

techcityThese leased lines are essential for many businesses coping with increased data demand, but much attention has been paid to the presence of urban ‘not spots. Garner said that in many areas, such as London’s Tech City, low residential populations and the difficulty in laying new cables make deployment economically unviable.

He downplayed the problem, saying that leased lines were more suitable for businesses anyway and that their problem is probably cost rather than availability as Ethernet is more expensive than fibre to the cabinet (FTTC). He did point out that in any case, small businesses could apply for grants under the super connected city voucher scheme.

“In Tech City, we’re on six percent take-up. Not many people live there. What you have got is small businesses,” he said. “If you’re an Internet business, then you probably want a symmetrical line because you’re probably uploading a lot of stuff, no just downloading. The right product for you is an Ethernet circuit, not FTTC.

“All that said, we’ve said we’re going to build out [in Tech City] anyway. Anyone in Tech City can get very good Internet access, but the right answer is Ethernet.”

The super connected voucher scheme exists because the government is forbidden from intervening in urban areas by European regulations. BT has won all of the public funding available for rural areas under the Broadband Delivery UK (BDUK) scheme and would welcome the opportunity to do the same in cities too.

“We do believe that the state-aid restrictions around urban areas do not encourage the kind of investment we’ve seen with BDUK,” said Garner. “We do think that’s an area that would benefit from being looked at.”

Future break up?

Besides Ofcom’s major review, BT could face other regulatory challenges due to its pending £12.5bn takeover of EE. Rivals argue that the merger of the UK’s largest fibre and LTE providers would be harmful to competition and some want to see Openreach spun off. However Garner said “with great confidence” this would not happen.

“I think there’s a wealth of evidence to say the current set up has been working very well,” he said. “We forget, in early 2009 when the FTSE 100 was at 3,500-ish, when everyone was making people redundant, insolvencies were rocketing, unemployment was rocketing, [BT] made the decision to invest £2.5bn in a major infrastructure build. Could that have happened with separate entities?

“It’s a market that’s working very well. I think the case against [breakup] needs to be made.”

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