Altnets lament Ofcom's approval of Openreach price cuts

UK telco watchdog Ofcom has agreed to let BT's network arm Openreach proceed with its wholesale price changes.

Nick Wood

May 24, 2023

4 Min Read

UK telco watchdog Ofcom has agreed to let BT’s network arm Openreach proceed with its wholesale price changes.

Under its Equinox 2 pricing regime, retail ISPs will get cheaper access to Openreach’s FTTP products in return for committing to longer-term contracts. Ofcom’s approval of the new tariff structure comes as something of a surprise, because after initially appearing to be in favour of it, the regulator then delayed its decision, saying it wanted more time to carry out a more extensive review.

On Wednesday, Ofcom argued that allowing Equinox 2 will lead to lower prices that can be passed on to end users. Nonetheless, its decision has not gone down well with altnets, which maintain that Equinox 2 enables Openreach to leverage its relative size to squeeze smaller wholesalers out of the market before they have had a chance to achieve similar economies of scale.

“Whilst we are still reviewing Ofcom’s statement in full, INCA is initially disappointed with Ofcom’s decision,” said a statement from Malcolm Corbett, CEO of the Independent Networks Cooperative Association (INCA), which lobbies on behalf of altnets.

“Not only do we believe that this outcome will have a negative impact on competition and investment and ultimately consumers, we also believe that Ofcom’s approach to taking this decision was flawed. This initially seems to be an illogical decision based on a questionable process,” he claimed.

CityFibre CEO Greg Mesch weighed in as well.

“We are disappointed Equinox 2 has been approved and will be undertaking a thorough review of Ofcom’s decision,” he said.

“We must not forget that while introducing price discounts to bind its wholesale customers and damage emerging competition, BT is at the same time significantly increasing prices for millions of its retail consumers. Ofcom must ensure that competition is effective and sustainable if consumers are to benefit,” he said.

Explaining its decision, Ofcom conceded that altnets are likely to face stronger competition from Openreach, but that the conditional terms of Equinox 2 don’t create a barrier for ISPs to use alternative networks. It also noted that Openreach has pledged to not make any changes to its prices until at least the end of March 2026.

“Our overriding objective is to bring better broadband to people across the UK, by promoting competitive investment in high-speed networks and making sure there’s a level playing field for all companies,” said an Ofcom spokesperson, in a statement. “With this in mind, and based on the evidence available to us, we don’t consider Openreach’s new pricing discounts to be anti-competitive.”

This seems counter-intuitive, because retail broadband is such a competitive and price-sensitive market that an ISP will naturally be inclined to go with the provider that offers the lowest tariffs and the largest addressable market, even if that means committing to a longer contract.

“Rivals will feel that Openreach is trying to use its market dominance by locking in providers for longer. If so this will squeeze their own margins, making it harder to rollout their own networks and compete at scale,” noted TMT analyst Paolo Pescatore.

“However, Openreach wants to have long term certainty as it invests in building out a fibre broadband network in the UK,” he added.

Indeed, Openreach welcomed the decision, with chief commercial officer Katie Milligan saying it will lead to “lower prices and long-term certainty – encouraging the switch to faster, more reliable broadband connections.”

“It’s also good news for the UK, as it supports our continued multi-billion-pound investment in upgrading the country’s broadband infrastructure,” she said.

Vodafone UK, which offers retail FTTP services to consumers and businesses, welcomed Ofcom’s decision too, saying it will enable it to offer more attractive broadband packages for its customers.

“We think their proposed offer poses no threat to efficient alternative fibre providers and, importantly, doesn’t discourage retailers like Vodafone from using other wholesalers,” said Vodafone UK CEO Ahmed Essam. “Indeed, we hope to widen our use of alternative fibre providers in the near future.”

Perhaps he thinks altnets will respond by lowering their own tariffs, ushering in a wholesale price war? If one does kick off, then chances are, not every altnet will survive.

“We are in a golden era of connectivity and moving people to fibre is in everyone’s interests as the merits of the technology outweigh copper,” said Pescatore. “However, the market as things stand cannot support all players as there are too many chasing too few pounds. Consolidation is inevitable given the overbuild that is taking place.”


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About the Author(s)

Nick Wood

Nick is a freelancer who has covered the global telecoms industry for more than 15 years. Areas of expertise include operator strategies; M&As; and emerging technologies, among others. As a freelancer, Nick has contributed news and features for many well-known industry publications. Before that, he wrote daily news and regular features as deputy editor of Total Telecom. He has a first-class honours degree in journalism from the University of Westminster.

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