There’s an elephant in the room, its name is Openreach. It continues to be the awkward conversation subject that is tying the UK telecommunications industry in knots following the release of Ofcom’s 10-year communications review.
The industry is looking for guidance and leadership from the regulator – most notably about the future structure and ownership of Openreach and the future custodianship of the UK’s national telephony and broadband infrastructure. Fortunately, the review looks at more than the elephant, and also tackles a number of other issues and milestone decisions. This is just as well, as the proposed options for dealing with Openreach seem superficial. In calling for deeper separation from BT, but falling short of ordering BT to actually sell off Openreach, Ofcom is trying to put into place clear delineation. BT as a service provider, and Openreach as the custodian of the wires. Yet it seems unfazed by BT retaining ownership.
Of course, it is not just about Openreach. The rollout of 5G in the UK, maintaining competition in the mobile industry, inward telecoms investment decisions, universal service guarantees and simplifying the process of moving between broadband and telephony supplies are all critical. These market developments could stimulate more market competition and investment in innovation.
5G is a major focus, with an expected go-live date planned for 2020. The UK is already leading the field in 5G (Ofcom launched its extensive 5G consultation paper before the first 4G had even launched), and the regulator must solidify the UK’s place as a world leader in mobile phone technology development and adoption. It needs a strategy to ensure a viable, competitive landscape, as well as a clear plan for allocating spectrum and delivering nationwide coverage as quickly as possible.
Universal service, particularly for broadband is a big challenge for all operators at a time when broadband services have become highly commoditised and deeply unprofitable. At a time when government and industry is calling for more and better high speed broadband services, it is a poor state of affairs. This is following a price-driven race to the bottom that has seen broadband used as a loss-leader to prop up triple and quad-play bundles. It has left the sector, and its infrastructure, starved of investment.
The regulator is calling for Openreach, and by association BT, to simplify third-party access to telegraph poles, cable ducts, street cabinets and other infrastructure routes through clearer and easier to access processes and systems. This is to enable competitors to lay their own cabling in order to compete without being beholden to BT and Openreach for connectivity. It has been tried before, with the ill-fated Mercury Communications and the UK’s cable operators. Today, such an approach makes the cost of entry for many new providers too high to entertain. In comparison, ensuring equal and ready access to existing national infrastructure and last-mile cabling would enable a far lower cost of entry for competing new service providers.
However, Ofcom is right to suggest releasing spectrum in the 700 MHz band (good for distance and in-building penetration) and easing planning rules for new masts. Both measures will help increase mobile coverage and enable solutions for fulfilling the Universal Service Obligation for broadband.
Of course, the elephant won’t go away, and Ofcom is still not taking the wider competitive landscape into account in judgements and in the review. The negative view of Three’s move for O2 being typical of this. Ofcom’s stovepiped view of fixed and mobile services needs to end.
BT insists that the past decade of investment in the business would not have been possible without BT’s credit line and deep pockets behind Openreach. As an independent entity, it argues that revenue generation and CapEx will be far more difficult. It might have a valid point there, but is it enough to warrant ignoring the monopoly position BT has reinforced recently with it’s acquisition of EE?
Amid promises to increase its £1bn investment in the national broadband network to ward off Ofcom’s threat of a break-up, BT has remained publicly defiant. In its view, the best place for Openreach is as a wholly-owned part of the BT empire. If regulators approve Three’s purchase of O2, then BT’s argument will have considerable merit. Coupled with Ofcom’s proposed changes to the way Openreach is governed, it would be a pragmatic solution to this long-running issue.
One thing is for sure, Openreach is the key moving part, and the decisions regarding its ultimate fate is critical to industry stability and the success of the next 10 years of the telecoms industry in the UK. Increased oversight and regulated delineation does not necessarily make for a greater and fairer competitive landscape. However, separating services from national infrastructure, or better yet allowing competitors to grow to a size where they can fight an intact BT on a level basis, just might.
