Key Points from Ofcom’s Strategic Review
Ofcom’s pronouncements are often weighty and demand close inspection. From 112 pages the FISP team’s legendary long view has been distilled to 8 key points.
Vying for policy pole position are two positions – one long overdue and the other of uncertain practicality. [References are to chapter and verse of Ofcom’s publication]
- The decision to promote FTTP instead of favouring copper local access (para 1.22) is a direct assault on BT’s existing strategy. This demotion of hybrid fibre/copper technologies and the leverage of outmoded network assets, on which BT and the Government have laid great store, suggests that Ofcom has gained a stronger technological appreciation of the need for infrastructure future-proofing and the extent to which investment models have shifted. With deployment costs down and perceived revenue value up the rationale for short-term palliatives has weakened.
- The intention to force BT to open its passive infrastructure to competitors is probably the more important policy proposal – especially access to BT’s dark fibre (para 4.38). However, access to BT’s ducts is likely to be practical in less than half of the situations – the rest are too old, too decrepit or already too full to allow use by competitors. (para 4.27). The problematic practicality is disappointing given that over decades the regulator has allowed (within BT line rental tariffs) an agreed contribution towards routine network investment – cyclical funding whose application by BT now seems in doubt. Success will depend on how realistic a new “reference offer” by BT looks to Sky, TalkTalk etc. Ofcom is talking about “the emergence of network-based competition” (paras 4.12 and 8.19) – an acknowledgement that infrastructure competition policy has so far not been successful in UK. But it goes further – it suggests that a focus on service-based competition has been inimical to investment in infrastructure (para 4.12).
- Ofcom appears to support a Universal Service Obligation having a floor of 10Mbps. However, Ofcom also recognises that speed isn’t everything. Quality of Service (QoS) including symmetry and latency is increasingly valued by customers (para 3.37). This is an arena in which many device manufacturers are developing approaches (oft-termed Quality of Experience) to provide user feedback on performance reality as opposed to ‘up to’ network claims. It may also be an area that triggers municipalities to consider, in the spirit of devolution, local or regional aspirations better attuned to specific community priorities. It follows therefore that promotion of investment in FTTP by Ofcom (point 1 above) is key.
- The proposal to enforce improved performance standards on Openreach is welcome but, judging by results of previous attempts, enforcement will be difficult. See also the quarterly “Office of the Telecoms Adjudicator” reports that assess Openreach’s performance against KPIs (para 5.24).
- The Ofcom announcement is merely the first step (“initial conclusions”) in a consultative process that will continue throughout 2016. Ofcom’s series of sector-specific “Market Reviews” scheduled to report during the year will contain more detail about Ofcom’s firm decisions and future actions. For example, the Wholesale Local Access Market Review and the Narrowband Market Review – as set out in Ofcom’s annual plan.
- Ofcom threatens to impose structural separation if BT fails to comply with the spirit as well as the letter of Ofcom’s reforms (para 6.75). Note, however, that Ofcom has yet to discuss a future structure for Openreach with the European Commission (para 6.79).
- In matters mobile, the imposition of coverage obligations as part of future spectrum auctions (para 3.46) is surely “old money”. For example, Ofcom imposed a 90% coverage obligation on all UK operators in February last year.
- The section on OTT and the impact of bundling on the ability to switch (Section 9) will, as online delivery becomes more prevalent, be an important area to study.