Ofcom faces possible legal challenge over approval of Openreach price cut

Several alternative UK network (AltNets) builders, including Gigaclear and CityFibre, among others, are reportedly set to launch a legal challenge against Ofcom’s recent approval of Openreach’s “Equinox” offer (here), which introduces a “major” price cut (details) to the incumbents Fibre-to-the-Premises (FTTP) broadband products.

Naturally, ISPs that were much more reliant on Openreach’s wholesale products, and which have only limited interest in building their own full fibre networks (e.g. TalkTalk, Sky Broadband and Vodafone), have been generally supportive of the new discount scheme.

However, the “Equinox” discount generated an angry response from AltNets and Virgin Media (VMO2), many of which are currently busy investing billions (collectively) to deploy rival FTTP networks (Summary of UK Full Fibre Builds). Some of those networks will deploy in the same areas as Openreach, or be overbuilt by them in the future, and sell their own rival wholesale products to ISPs.

Such AltNets, many of which are in the early stages of their investment and thus carrying a lot of risk, have previously warned that Openreach’s new discounts might ultimately result in a reduction in competitive fibre infrastructure investment and deployment. Further down the road, they fear, this could also reduce choice and innovation, and potentially result in higher prices for consumers (although initially it should result in lower prices via competition).

Previously, Openreach’s FTTP products have tended to be more expensive, which made it easier for AltNets to grow their take-up by being more aggressive on price, but that will now become harder. The other aspect centres around how the new pricing could make it harder for AltNets with wholesale solutions of their own to attract third-party ISPs to their networks, since they’d have less reason to pick them over Openreach.

According to The Times (paywall), the deadline to challenge Ofcom’s decision through the Competition Appeal Tribunal (CAT) expires at the end of November 2021 and several altnets, including at least CityFibre and Gigaclear, now plan to launch a legal challenge against the regulator.

Officially, the CEO of CityFibre, Greg Mesch, merely said they were “considering appropriate next steps“, while Gigaclear’s CEO, Gareth Williams, confirmed that they intended to join proposed legal action by a rival in the alternative network space. Meanwhile, Virgin Media said they were keeping all options open, although their own tentative plans for launching a future wholesale product could complicate their position on such action.

On the flip side, we do exist in an aggressively competitive market, especially in urban areas, and thus AltNets typically take a big risk in assuming that the incumbent wouldn’t adapt or be allowed to adapt. In those areas, Ofcom’s market review had already decided that Openreach shouldn’t face much regulation. This partly also reflected Ofcom’s earlier decision (here) to give Openreach a “fair bet” on FTTP (i.e. softer regulation to help foster deployment), which was promptly followed by an accelerated £15bn commitment to cover 25 million premises by December 2026 (c.80% of the UK).

At the end of the day, Ofcom, which once again found itself conducting a very difficult balancing act between the vested interests of opposing sides, ultimately brushed all these concerns aside and ruled that Openreach’s price cut would “[not] have a material adverse impact on competition.” By the looks of it, this decision will now be tested in the courts.

Typically, legal challenges against regulatory rulings can be long and costly affairs, albeit ones that do sometimes succeed. One big question will be whether or not the AltsNets will push for a break in the discount scheme until the case is settled, but that may be difficult as it has already begun. ISPreview