As the UK regulator, Ofcom, wags its finger at BT, the UK broadband industry remains in a state of uncertainty. What prospect is there for a strategic leap to super-fast broadband as a national 'right'?
Ofcom's 10-year review of the UK telecoms market last week could have been the opportunity to set this country on the path to a revolution in the delivery of telecommunications services, taking it forward for the next couple of decades. Instead, we get a muddled, jargon-ridden document that tweaks the rules but fails to act decisively, and appears to please no-one. The structural reform of the telecoms industry that will be necessary to achieve the government's vision of super-fast broadband, was only nibbled around the edges. A full-on tackle was avoided amid a great deal of smoke and mirrors.
Ofcom has weighed in with a grand statement about a shift to large-scale investment in fibre networks to underpin superfast broadband – yet it has done no more tweak the status quo. The industry structure remains static. Its rather like a heavy-weight boxer wagging his finger at his opponent in the ring.
The Ofcom review comes in the wake of a strategic vision set by the government, where superfast broadband access will become a 'right' for citizens. The government's benchmark speed is 24Mbits/s. The policy follows an EU initiative to improve broadband throughout all Member States.
There are many question marks about the ability of the telecoms infrastructure to deliver the government's broadband vision. These question marks relate to the competitive bargaining power between the owners of the local infrastructure and service providers, as well as the physical state of the network.
It's clear from reading the industry submissions to Ofcom, that we have reached a point where a structural reform is needed. It should be decisive and clear and provide certainty. The question is how we define certainty. And whose certainty?
All of the industry players are demanding legal certainty, in order to justify the long term investments that will be needed. Telecoms is a long term game. Companies don't invest for 1,2 or 5 years, they invest for 20-plus years. Each of the industry players wants a different type of certainty. Even within the telecoms industry, there is no agreement as to what 'certainty' means.
Citizens too, need to have the confidence that the regulator will take their side and chastise the large corporations when they fail to provide good service, defraud, block content, or otherwise demonstrate bad behaviour.
Unfortunately, the Ofcom review gives neither certainty for industry nor confidence for citizens. If one were to give some sympathy to Ofcom, it would be that finding a path through the different industry demands won't have been easy.
On the basis of the inputs to Ofcom's consultation, competitive broadband providers claim they lack certainty because BT will retain influence over Openreach, the BT division that runs the local network to homes and businesses. These are BT's largest competitors, Vodafone, TalkTalk and Sky. They cite a number of issues that they want addressed.
Openreach is the critical element of the review. (See UK telecoms review – is Openreach too hot to touch?) It is currently a BT division. The BT board controls its finances and activities via a direct line of reporting. BT is even is able to decide when Openreach has breached a service obligation. BT's competitors allege that Openreach has been able to manipulate technological choice in ways that increase their costs, whilst manoevering internal pricing to increase BT's profits.
Ofcom wants to 'ringfence' Openreach, by putting it into a wholly-owned subsidary of BT. It will have its own board and the ability to make its own investment decisions. This is a cautious path that makes no-one particularly happy. Others might say it is like putting up a rabbit-proof fence.
Ultimately Openreach will remain part of BT, under the control of the BT board, who will make the strategic decisions. One might expect BT to be happy. But it is not. For BT, 'certainty' is about being able to make investments in its own network, and know that it can get a financial return on the money spent. BT's chairman, Gavin Patterson, said he wants he wants to keep things on a 'voluntary' basis and will resist any regulatory moves to separate Openreach. Regular Iptegrity readers will know that I am no fan of 'voluntary' agreements, as they reflect the interests of the business, and generally fail to address the public interest.
Ofcom's other big idea is to open up the telephone poles and ducts to competitors. This actually comes from the EU and the 2009 Telecoms Package, so really, Ofcom is taking credit here for something that it should be doing anyway. Duct access will help because competitors can begin to build out their networks using BT's existing structures, but it does not address how they deal commercially with Openreach. They rely on Openreach to provide maintenance and repairs for example, as well as to co-operate on equipment installed in exchanges.
Duct access seems to satisfy new players, such as Cityfibre, who want to install fibre to business premises, and believe that access to poles and ducts will enable them to do so. For Cityfibre, a new company investing in fibre networks, 'certainty' is about open access to the network infrastructure. It welcomed the Ofcom announcement on access, but reading its submission to Ofcom, what it wants is an open infrastructure so that it can lay new fibre. This actually seems to be askig for something more.
And as pointed out by the Financial Times, ducts are liable to be flooded or clogged with mud. The ducts may not even be usable. Around the area where I live, there are not even ducts - wires were historically just buried in the earth. On that basis, this effectiveness of this policy decision is questionable.
Moreover, the Ofcom decision leaves the equipment for BT's own services and competitors services still under the same roof. Mobile operator Three said this gives BT the incentive to discriminate in favour of its own services.
This is why having a strong strategy for Openreach is critical to achieving the government's vision.
Unsurprisingly, Vodafone, TalkTalk and Three say this would leave them with legal uncertainty and they want a stronger stance. They have called for the full structural separation of Openreach. Sky seeks a reference to the Competition and Markets Authority, who should take the decision on separation rather than Ofcom.
Interestingly, it's only BT Openreach, not Virgin, that is being forced to open up its ducts. Apparently, Virgin has refused to do so, and is being allowed to have its own way. This seems to be a waste of the infrastructure that Virgin has installed and a reduction in the choice for many users, who would like to have an alternative to BT for their line provision.
However, if the industry players continue to argue, as they may well do even after this review, there will be even less certainty for the citizen.
From citizens' perspective, 'certainty' means that they can get superfast broadband from their provider of choice. This is not about the right 'switch' your brand loyalty from one provider to another. It's about having a decent set of long term access options. We want availablity, reliability and future-proofing with an open Internet and good customer service - not fancy packaging. The citizens' perspective also means that the broadband service is not interfered with, giving them freedom of access to content and so-called over-the-top services without tolls and restrictions. Neither is 'certain' in the current environment.
For some users, such as those in rural areas, 'certainty' would be that they will get access to broadband at all. According to the National Farmers' Union, many rural areas are still struggling to get providers to bring a broadband service to their doors. Ofcom's beloved competition-based models that work in mature, urban markets do not bring broadband to the countryside.
Unfortunately, Ofcom does not get the citizens' perspective. In my opinion, it never has done. It seems to see us as like shoppers in a supermarket, without recognising some of the important specificities that make a communications service different from daily commodity purchases.
It is clear, in this case, that sorting out the industry is likely to resolve the citizen's position because it will facilitate the delivery of vastly improved, faster broadband. To met the citizen reuirements, the providers must be able to get access to the infrastructure on terms that allow them to deliver a quality service in a timely way and make a profit. It requires that the providers are not arguing about ducts and exchange space but are able to get on with installing equipment.
Strong and decisive action will be needed, backed up by strong enforcement if necessary. Openreach will be the key to this, because Openreach controls the access to the customer premises, and others are dependent on how that access is agreed. Whether network providers want to lay their own fibre or go through just connect at the exchanges, they will have to deal with Openreach.
Ofcom's move to open up ducts is just fiddling around the edges – it should part of a bigger strategy, but not the sole offering. The argument that Openreach should be separate from BT in order to avoid conflicts of interest, has merit. The more radical argument that Openreach should go into public ownership, because its assets are a public good, also has some merit. (See UK telecoms review – is Openreach too hot to touch? )
In any event, if Britain is going to achieve the vision of superfast broadband, the Openreach problem will have to solved. Of course, BT knows that – which is why it can put so much pressure on.
For a discussion of corporate power and the Internet see my new book The Closing of the Net to be published in March 2016.
This is an original article from Iptegrity.com and reflects research that I have carried out. If you refer to it or to its content, please cite my name as the author, and provide a link back to iptegrity.com. Media and Academics – please cite as Monica Horten, 2016, Ofcom review: Static on the line, Static on the line brings uncertainty for broadband industry, in Iptegrity.com, 3 March 2016. Commercial users - please contact me.