Ofcom blocks ‘unfair’ Openreach pricing scheme
The communications regulator has blocked Openreach’s new pricing scheme, arguing the proposed charges were “unfair” and granted it an unfair advantage over competitors.
Ofcom has ordered Openreach, a fibre broadband network, to withdraw its ‘Incremental New to Openreach Offer’.
The offer would have provided internet service providers (ISPs) a monthly discount for bringing new full-fibre customers onto its network.
But the regulator found the “large discount” involved, up to £9.50 per customer for up to 30 months, may undermine sustainable competition as other smaller, rival operators would not be able to match the terms while covering their own costs.
Additionally the offer is aimed exclusively at new customers, which Ofcom argued could affect other operators’ ability to grow.
Roughly half of UK households that have access to full-fibre broadband are yet to sign up, granting Openreach a wide customer pool to propose the discount to.
In its response to its consultation to Openreach’s offer, Ofcom said: “The offer would be unfair and could harm sustainable competition, which is essential for low prices and better services in the long run.”
Openreach builds and maintains the UK’s physical broadband network infrastructure and faces competition from alternative providers including Virgin Media O2 and Cityfibre.
James Lowther, managing director for commercial at Openreach, said: “Ofcom’s decision not to approve our incremental FTTP new to Openreach offer is in line with their consultation position. We put this offer forward in good faith to help our customers compete and deliver better value for households.
“While we continue to believe the offer would have benefited customers and competition, we’ll review the decision carefully and continue to engage constructively with Ofcom and our customers.”
Rivals respond
Rival providers welcomed Ofcom’s decision, but argued the regulator could have gone further against Openreach.
A Virgin Media spokesperson said: “Although we believe the regulator could have gone further, we welcome Ofcom’s move to clip Openreach’s wings on its most aggressive offer and looking ahead it’s crucial the dominant incumbent’s behaviour is fully kept in check as meaningful wholesale competition emerges.
“More broadly, these repeated tactics show why consolidation in a fragmented, unstable fibre landscape is needed so that the sustainable, scaled challenge Openreach clearly fears fully materialises, leading to better outcomes for providers and consumers.”
This was echoed by Nexfibre, who said the blocking of the offer was a “positive step in protecting competition in the UK fibre market”.
“Openreach’s tactic of drip-feeding price changes via special offers needs to stop at a time when competition remains nascent. Ensuring alternative networks have the incentives to invest, grow and achieve scale will be critical to creating credible, sustainable competition,” a spokesperson said.
Other proposals
Openreach, which is the UK’s largest full fibre network, also put forward additional commercial schemes alongside its main offer.
This included a £50 connection rebate for signing up new full-fibre customers in areas overlapping with Virgin Media O2’s network base as well as a cap on the average monthly wholesale costs ISPs pay Openreach when upgrading customers to higher-speed packages.
Openreach also proposed waiving the £90 upgrade fee for ISPs moving customers to higher speed broadband boxes. It also wanted to waive the £1,000 setup connection fees on new Ethernet orders placed upon a business surpassing its previous order numbers.
Ofcom said it would not intervene with these proposals as they “do not raise competition concerns”.
“This is largely because the effective discounts they contain are far less substantial so would be unlikely to undermine competition,” the regulator said.
Lowther said Openreach will launch its other offers and “continue to compete fairly” while investing in the UK’s digital infrastructure.