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Ofcom Digital Communications Review: Wading Knee-Deep Into European Politics

While the European Commission is keeping its thoughts to itself ahead of a much-anticipated review of European telecoms rules, Ofcom, the UK telecoms and media regulator, has fired the opening salvo in the battle over the future regulatory structure of the telecoms industry.

In February Ofcom published its Initial Conclusions from the Strategic Review of Digital Communications. The review is essentially how to get broadband to as many people as possible, as quickly as possible and with the highest possible speeds. Ofcom’s strategy is:

“Competition between different networks, supplemented by competition based on access to BT’s ducts and poles, is central to our strategy. Where this competition is effective, it will allow us to deregulate downstream forms of network access.”

By addressing persistent bottlenecks, but deregulating a highly competitive services market, Ofcom sets out the right approach (as previously argued by the DisCo blog). It’s difficult to build a telecoms network without access to passive infrastructure like ducts and poles so pushing for improvements in the way competitors get access to these resources is sensible.

Ofcom’s attention to the fact that premium sports programming can raise switching costs is laudable.  While the “temporary monopoly” of IP rights doesn’t necessarily imply monopoly in the antitrust sense, DisCo has previously noted cases where content licensing can give rise to competition concerns.

Ofcom’s Political Timing

Of all of these items, it is Ofcom’s proposals with regard to BT’s Openreach division that has the most people talking, not least because of the coincidence of timing with the European reform of telecoms rules; a coincidence of timing that may prove a major impediment to what Ofcom apparently wants to achieve.

As the law firm Ashursts says in a note on the review Ofcom will need to discuss “….the greater independence of Openreach with the European Commission later this year”.

To be more precise Ofcom will need to get the European Commission’s agreement if it wishes to force BT to review the structure of Openreach.

Former Director General Fabio Colasanti used to wryly remark that functional separation required an empowered regulator and a “willing victim”. If BT were not willing to make the changes that Ofcom seems to be seeking then the European Commission would need to agree to Ofcom’s request to force them.

As aficionados of EU telecoms policy will know the threshold for the Commission to agree to functional separation is pretty high. The framework requires that:

“Where the national regulatory authority concludes that the appropriate obligations … have failed to achieve effective competition and that there are important and persisting competition problems and/or market …. it may, as an exceptional measure, …. impose an obligation on vertically integrated undertakings to place activities related to the wholesale provision of relevant access products in an independently operating business entity.”

For the Commission to approve it Ofcom would need to:

“submit a proposal to the Commission that includes (a) evidence justifying the conclusions of the national regulatory authority … (b) a reasoned assessment that there is no or little prospect of effective and sustainable infrastructure-based competition within a reasonable time-frame;”

Given the example Commission approval or disapproval would set at a politically sensitive time, and the level of lobbying this would generate by other European telecoms companies, regulators and governments, I suspect this is unlikely.

The Commission could, of course, change these rules and lower the threshold. However, new rules won’t be agreed for a few years, which wouldn’t help Ofcom now.

Superfast Broadband in the UK

But the key questions here are: what is the problem Ofcom is seeking to resolve and would consumers, business customers and the British economy be better off if Ofcom got its way?

On the first question, Ofcom is seeking to get broadband and superfast broadband to more houses, at faster speeds and sooner. Currently, Ofcom reports, 83% of UK homes can obtain superfast broadband (30Mbp/s or more). Is 83% good or bad? Alone that statistic does not tell us very much. How does the UK compare to other advanced nations?

Ofcom’s ‘European Broadband Scorecard’ puts the UK in the top spot for standard and superfast broadband coverage (in comparison to France, Germany, Italy and Spain). So 83% seems to be the leading score. Not only that, but the UK occupies the top spot in most categories from frequency of usage to the (lowest) number of fixed broadband lines operated by the incumbent (ie the most competitive market). As Ed Vaizey, Minister of State for Culture, Media and Sport noted in 2015 “If broadband is so terrible, why are we the leading ecommerce nation in the world?” .

So it seems that Ofcom must believe that this rollout can be further accelerated, and that it discounts the idea that a change could put the current rate of progress in jeopardy.

Technology Neutrality and the Investment Case for Fibre

Ofcom also suggests that fibre deployment is a competitive necessity for the UK. While Ofcom hasn’t completely abandoned technology neutrality as it acknowledges that upgrading copper can yield speeds of up to 500Mbps, it suggests that this is not enough. However, it is not clear why upgraded copper and cable systems are not enough. Ofcom makes comparisons to countries such as South Korea and Japan, but fibre deployments there were heavily subsidized. If public money is spent on fibre systems then it is not spent on something else.

Fibre deployment, like the deployment of other network technologies or ICT innovations should be demand driven; if there is a business case to rollout fibre privately, then great. This is the best way to ensure consumers and businesses get the services and speeds they want at the appropriate price. For that to happen you need a competitive market, something the UK has (and not something easy to achieve in telecoms).

A competitive telecoms market is indispensable to a thriving modern economy. It drives investment and ensures that consumers and businesses get high speeds at a reasonable price. Ofcom, and then subsequently the European Commission, need to conduct clear assessments based on data and to be clear about their objectives be that improved customer service, a drive to fibre or a commitment to technology neutrality regulation. Ofcom’s strategy should be clearer and avoid any contradictions; its political strategy needs some work.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.