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Openreach Equinox 2 discount scheme poses ‘market risk’

Openreach says its new discount scheme is designed to bring long-term stability to ISPs and encourage more customers on to full fibre.

By Ryan Morrison

Equinox 2, the new wholesale discount scheme for fibre-to-the-premises products run by Openreach has been criticised by other network providers and analysts, with one expert telling Tech Monitor it would “impact the entire market and consumers”. This is the second round of discounts and offers run by Openreach to drive uptake of its full fibre offering and comes with a requirement on ISP customers that they have to commit to connect most new lines to the fibre network.

Openreach is investing £15bn to bring full fibre to 80% of the country with about 62,000 new connections each week (Photo: Gary L Hider/Shutterstock)
Openreach is investing £15bn to bring full fibre to 80% of the country with about 62,000 new connections each week. (Photo by Gary L Hider/Shutterstock)

The new deal comes as Openreach continues its £15bn investment to bring full fibre to 25 million premises in the UK by December 2026. That is about 80% of all connections with about nine million completed so far. To justify this investment, with 62,000 premises connecting to fibre every week, Openreach is under pressure to convince ISPs such as Sky, TalkTalk and Vodafone to move customers across to full fibre offerings.

At the same time, Openreach is under increased competition from so-called AltNets, independent operators running their own full-fibre network rollouts, on price and availability. Other operators such as Virgin Media O2 are also rolling out full-fibre networks that will be opened up to wholesale customers.

“BT is facing the biggest competitive challenge in its history with billions of pounds of fibre investment pouring into the UK, creating the prospect of genuine broadband wholesale competition at scale for the first time,” said Virgin Media O2 CEO Lutz Schuler in a statement. “To avoid putting planned and future investment at risk, and to safeguard fair competition, it’s vital that these wholesale pricing proposals are thoroughly scrutinised to ensure Openreach is not using its market power and dominance to lock in providers and deter them from switching to other networks.”

The deal builds on the original discounts from Equinox 1 that further reduces the monthly rentals for fibre-to-the-premises tiers, as well as discounts for ISPs connecting customers to the network. They also only apply to the more competitive parts of the country, not rural or semi-rural locations where Openreach is the only operator.

Openreach says the aim is to make fibre-to-the-premises the default technology for broadband on their network and the incentives aim to encourage ISPs to move customers across where possible, adding that there are “no volume or exclusivity requirements to obtain the discounts” as it works to forestall any investigation by Ofcom or complaint by an AltNet on anti-competitive grounds.

Risk to alternative networks

Chief commercial officer Katie Milligan said the offers don’t commit ISPs to Openreach exclusively but give them long-term certainty. “Alongside our new, faster speed tiers, we’re confident they’ll help them continue to support and delight their own customers in a highly competitive market.”

Paolo Pescatore, telco analyst from PP Foresight says convincing its rivals won’t be as easy as Openreach thinks. “There are concerns among rival infrastructure suppliers like Virgin Media O2 and AltNets that prices are too low, squeezing them out of the market.”

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He added: “In theory, by offering lower wholesale pricing this saving should be passed onto consumers resulting in lower fibre broadband packages.  While this latest offer known as Equinox 2 feels more like tweaks, it will raise eyebrows.”

The problem, says Pescatore, is that rivals will feel Openreach is attempting to use its market dominance by locking in providers to long-term deals, squeezing their own margins and making it harder to further roll-out its own network to new territories.

“Openreach wants to have long-term certainty as it invests in building out a fibre broadband network in the UK,” he said, with the full saga presenting a tough challenge for regulator Ofcom which will have to balance whether the new prices will negatively impact the market and choice.

“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. 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. A more sensible approach should be adopted to ensure UK plc benefits from fibre broadband.”

Ofcom has said it will review Equinox 2 to investigate whether it raised competition concerns that require intervention, with the aim of publishing its findings in early February. The new Openreach deal is set to come in from April next year.

Read more: Is the telecoms industry really in freefall?

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