As part of its ambitions to see full-fibre broadband available nationwide over the coming years, UK comms regulator Ofcom has set out how regulation could evolve to support competition and further investment from new alternative networks, Openreach and Virgin Media.
Ofcom’s goal is to encourage and enable significant, long-term investment in full-fibre broadband to give customers a choice of networks where feasible, while allowing companies who build these networks to make a fair return.
Ofcom’s strategy for fibre investment is three-fold: promoting competitive networks as far as possible, using Openreach’s ducts and poles to reduce the cost of network build, with regulated prices that support competition; enabling investment through the way it sets regulated prices in more rural areas where network competition will not emerge; and supporting public intervention to deliver fibre in the hardest to reach areas.
Its latest proposals are designed to support a step-change in investment in fibre by Openreach, Virgin Media and new entrant networks such as CityFibre, Hyperoptic and Gigaclear.
They represent a significant departure from Ofcom’s historical approach to economic regulation. Its specific proposals allow all investors the opportunity to make a fair return (the ‘fair bet’) on new fibre networks by allowing them to generate the increased revenue expected from the speed, reliability and resilience that fibre offers.
Ofcom suggest that the specific proposals allow this by:
Accordingly, Ofcom is injecting more margin into the network layer to allow sufficient margins for all network investors, suggesting that these proposals will support network competition and investment in the more urban areas of the country: the first 70 per cent of the UK.
Ofcom says that the remaining more rural areas, where there is no prospect for competing networks and a weaker commercial case for investment, should not be left behind. Its proposals support continued retail competition while maintaining the incentives for Openreach to invest in full fibre by allowing Openreach to spread the costs of investment in fibre across a wider group of consumers.
This is a radical departure from its previous approach and is akin to utility rate of return regulation or a ‘regulated asset base’ model (RAB). This will enable Openreach the opportunity to profitably invest in full fibre at low risk, suggests Ofcom.
Enabling 5G networks to emerge in the more rural areas is also critical, and this requires the availability of fibre to connect the mobile base stations. To support this, Ofcom is proposing cost-based access to Openreach’s ‘dark fibre’ in these areas, including a reasonable return on Openreach’s investment. Dark fibre is where Openreach gives competitors physical access to its fibre cables, allowing them to take direct control of the connection. This approach will allow continued and effective supply of mobile backhaul capacity and business connections.
The consultation closes on June 7th.
Ofcom intends to consult on its full set of proposals, including market definition, market power and remedies, in December.