Connected Research

Union policy research in the 21st century

Ofcom consults on opening up BT fibre investment

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Ofcom has today launched a consultation on opening up the fibre-based networks of both BT and KCom to competitors (Ofcom news story; direct link to consultation). The intention is to ensure that BT and KCom (in Hull) provide a wholesale access product so that retail competitors can deliver their own services over the ‘pipes’ which the two network providers have laid down.

The consultation is not a surprise – Ofcom has been working on it for some time – and, indeed, BT has recognised that it will need to open its fibre network to rival service suppliers (see, for instance, its announcement on the award of the Next Generation Broadband project in Northern Ireland; and also an interview with Ian Livingston in the Financial Times). Added political spice is given by the reference to rivals renting not just network capacity on a wholesale basis but also space in BT’s ducts although, as I have blogged previously, there is nothing new about this in terms of regulatory discussions and such a solution is likely only to be a partial one anyway.

Ofcom has spent a little time in its documents dismissing the idea that other operators than BT and KCom – for instance, Virgin Media – might be compelled to open up networks to rivals. This is on the grounds that only BT and KCom (within Hull) have what regulators term ‘significant market power’ (that is, a share of more than 25% of the market in which it is allowed to operate); Virgin Media’s share is, according to today’s Ofcom statements, just 19% (around one-third of homes passed by cable take the Virgin Media service and Virgin Media’s percentage of homes passed is just over 50%). BT has recently gone quite public in debating whether Virgin Media might also be compelled to open up its network to rivals.

The predominance of the significant market power argument is about to be tested, since the BIS consultation on the Next Generation Fund proposes that open access should be a condition of all projects supported by the Fund: that is, should Virgin Media be a network partner in any successsful bids to the Fund, it would have to open its network to rivals regardless of whether or not it has SMP. In principle, this is a supportable position to take on the use of public money. Whether this represents a ‘thin end of the wedge’-type argument (if here, why not there?) is an interesting conundrum that Virgin Media will have to resolve should it desire to participate in Next Generation Fund projects.

At the same time, it is clear that the reference to SMP in telecoms regulation effectively creates a barrier to investment. As I pointed out recently, Virgin Media has little money to invest in extending its cable network farther than the 12.5m homes passed where it has been stuck for quite some time, while its approach to network expansion has depended more on what it calls its ‘off-net’ strategy (i.e. partnering with other network providers). But, should it extend its own network much further, i.e. by a further six percentage points, and that is quite easy to imagine if it is an active participant in Next Generation Fund projects, then it is likely to be caught by the SMP requirements and that raises a very interesting set of questions.

It’s worth making the point that other network providers much smaller than Virgin Media – such as H2O Networks – are building out their fibre installations on an open access basis (but then, this is a pure network provider, not one with a range of content to sell to customers).

Operators being unwilling to subject themselves to the constraints of providing wholesale access to rivals would be an indicator not only that the playing field is really not level but also that the requirement to do so is burdensome. That is something that needs to be recognised a little more openly than is currently the case. A discussion over whether there is a need to have a little more flexibility in the definitions of what constitutes SMP, as well as in the identification of which networks are sizable enough to be required to open up to rivals, may not be too far around the corner.

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Written by Calvin

23/03/2010 at 1:07 pm

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