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Ofcom reveals initial digital communications review findings

UK comms regulator Ofcom has outlined the challenges facing the UK in ensuring that consumers and businesses receive high-quality digital communications services over the next decade and beyond. Among the issues to be addressed are bundled media services offered over different platforms by the same operator which may present risks to competition.

Ofcom’s Strategic Review of Digital Communications, announced in March 2015, is examining competition, investment, innovation and the availability of all digital communications services. These include broadband, mobile, landline and bundled services.

Ofcom says that communications are essential to the functioning of the economy, and to the way people work and live, and that improving these services for consumers and businesses is its first priority, and the review forms a fundamental part of that work.

Ofcom is seeking views on its review, which is focusing on four main areas detailed in a discussion document:

  • investment and innovation in the market, which can help make services widely available;

  • competition, to deliver quality services and affordable prices;

  • empowering consumers and businesses, particularly making sure they have the information and means to choose and switch between providers; and

  • keeping regulation targeted at areas of concern, and deregulating where possible to allow markets to function well.

Sharon White, Ofcom Chief Executive, said the review was about ensuring people get the best possible communications services, wherever they live and work. “Our priorities are clear. We want to promote competition, investment and innovation, so that everyone benefits from even better coverage, choice, price and quality of service in years to come.”

Investment and innovation

UK consumers and businesses have benefited from significant investment in communications services in recent years. 4G mobile broadband is now available to 42 per cent of premises from all four operators, and 90 per cent from at least one. Superfast broadband is now available to 83 per cent of premises, with a range of providers competing on service and price.

Ofcom wants to see the widest possible availability of high-speed broadband at home, at work and on the move. Ofcom estimates that a broadband speed of 10Mbit/s is necessary to benefit from today’s popular online services, such as on-demand video. However, 8 per cent of UK households cannot currently access those speeds.

Availability is a concern in more rural areas, particularly in the nations and regions, but also in some urban places where roll-out costs or low incomes present particular barriers. Ofcom’s review will seek possible solutions to these problems.

It is examining how regulation can enable the commercial development of future ultrafast broadband, making it as widely available as possible.

Ofcom is also considering what further options might be available to improve mobile services. Mobile 4G broadband will reach 98 per cent of UK premises, as a result of Ofcom rules and industry investment. But consumers’ and businesses’ growing expectations for reliable, universal, always-on voice and data services will need to be matched by network investment.

Making sure competition delivers

A major focus of the current review is how well competition is delivering benefits to consumers and businesses. Ofcom’s last strategic review began in December 2003, concluding in September 2005.

It led to the creation of Openreach, through which BT is required to provide access to competing providers on equal terms, for them to offer telecoms services to consumers.

This approach has delivered real choice, quality and value for phone and broadband customers over many years. However, some challenges remain. For example, the incentive for BT to discriminate against competing providers can be limited by regulation, but not removed entirely.

BT’s network has evolved in recent years, with fibre lines running closer to premises. This may require different models of competition than those that worked best for the traditional copper telecoms network.

In addition, Ofcom has been concerned that Openreach’s performance on behalf of providers has too often been poor, requiring the introduction

of rules for faster line installations and fault repairs.

The review will address these issues, and Ofcom is today seeking views and evidence on future regulatory approaches, including:

  • Retaining the current model, where Openreach operates as ‘functionally separate’ from BT, and using regular market reviews to address any concerns around competition;

  • Strengthening the current model by applying new rules to BT – such as controls on its wholesale charges with stronger incentives to improve quality of service, or tougher penalties if BT falls short;

  • Separating Openreach from BT could deliver competition or wider benefits for end users. It would remove BT’s underlying incentive to discriminate against competitors. Separation could also offer ways to simplify existing regulation. However, the process would be challenging and it may not address some concerns relating to Openreach – such as service quality, or the timing and level of investment decisions;

  • Deregulating and promoting competition between networks. Virgin Media and a variety of smaller operators own networks, which allow them to provide phone and broadband services without using BT’s network at all. This kind of ‘end to end’ competition, which sometimes involves running fibre lines directly to premises, can help incentivise Openreach to improve its infrastructure. However, it could also lead to duplication of networks and weak competition.

It will also examine converging media services – offered over different platforms, or as a ‘bundle’ by the same operator. For example, telecoms services are increasingly sold to consumers in the form of bundles, sometimes with broadcasting content; this can offer consumer benefits, but may also present risks to competition.

Empowering consumers and businesses

People tailor communications services to their own needs, choosing from a range of providers at a price that suits them. For this to work properly, they need to understand the range of options available to them, and be able to switch between them effectively.

Ofcom’s review is considering whether consumers have all the information they need to make the choice that is right for them, both when researching the market and at the point of sale. It is also looking at how switching between providers might be made easier.

On 20 June, Ofcom introduced new rules that mean people can switch provider over BT’s network by only dealing with their new supplier. Ofcom is currently considering whether similar processes may be appropriate for mobile and services bundled with pay-TV, as consumers increasingly buy services this way.

Beyond this, Ofcom is keen to explore new ways in which consumers can engage with the market, in order to benefit from competition. Examples might include making services easier to compare, and increasing access to independent advice or feedback generated by users.

Targeted regulation and deregulation

The rules that govern the communications sector must evolve to keep pace with developments in technology, consumer needs and expectations. Ofcom’s review will identify where existing regulation may be simplified, removed or replaced.

For example, the rise of ‘over the top’ Internet communications services, such as instant messaging, may create a case for less regulation on mobile operators, or for extending existing rules to internet-based services.

Next steps

Publication of the discussion document marks the conclusion of the first phase of Ofcom’s Strategic Review of Digital Communications.

Since announcing the review, Ofcom has been engaging with a wide range of stakeholders – including industry, consumer groups, the UK Government and devolved administrations – through meetings and workshops.

Ofcom will now take forward the review’s second phase, and is seeking evidence and responses to the discussion document by 8 October 2015. This will inform a statement at the turn of the year on priorities and action, which will shape Ofcom’s regulatory approach for the next decade.

Responding to Ofcom’s initial findings, Mai Fyfield, Sky’s Chief Strategy Officer, said: “It is welcome news that Ofcom is putting the future of Openreach at the centre of its review.  For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need.  We believe Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry.  In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st century.”
In its initial submission to Ofcom’s Strategic Review of Digital Communications,, Sky set out details of the standard of service delivered to consumers by BT’s Openreach division, which operates and maintains the UK’s national telecoms network. The evidence highlights how a history of under-investment has led to range of service quality problems including an excessive number of network faults, failure to meet targets for repairing faults, long waits to have new lines installed, appointments that are missed and jobs that are not completed.
Key findings from Sky’s submission include:
  • More than 90% of new line installations, which require an Openreach engineer to attend, take 10 calendar days or longer. Almost one in ten installations takes longer than 30 days.
  • Openreach changes the agreed installation date for Sky customers on average around 36,000 times a month.
  • Openreach misses over 500 appointments each month to install new lines for Sky customers and fails to complete a further 4,000 jobs per month.
  • Fault rates across Openreach’s network increased by 50% between 2009 and 2012, the last year for which reliable data is publicly available.
  • Openreach’s performance in fixing faults is consistently below the targets set out in agreements with service providers.

According to Matthew Howett, Practice Leader, Regulation at Ovum, Ofcom’s initial comment shows it is listening to the industry’s concerns. “Leading up to its publication, BT and its rivals had been engaged in a bitter war of words in relation to where Ofcom should focus its priorities. Rivals to BT believe the incumbent should be further split up and the access division, Openreach, hived off. BT responded calling for pay-TV to be in the spotlight. Both of these have made it into the discussion document, however neither should probably be the focus,” he suggested.

“The strategic review seeks to ensure that the industry continues to meet the needs of end users. The last such review, a decade ago, lasted almost two years and ultimately led to the separation of BT’s access network. This review is unlikely to result in a further separation of the incumbent. While Ofcom recognises there are challenges with Openreach, in particular in relation to service quality, it heavily suggests that further separation will not address these, and could ultimately be disproportionate. That’s not to say that tweaks to the Openreach model aren’t likely,” he advised.

“What this review really does is present an opportunity for the regulator to properly consider the impact competing services coming from so called OTT players are having on the sector, and whether this impact warrants further deregulation of the traditional communications markets. As new, more nimble players such as Skype and WhatsApp have arrived on the scene and competed away traditional telco revenues, regulators have been somewhat constrained in their ability to react, and certainly have not responded in the way telcos might have liked. This is where Ofcom’s focus ought to be, and could even be an area where BT and its rivals find mutual agreement,” he concluded.

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