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Introduction Tim O'Sullivan

Ofcom’s Strategic Review of Digital Communications

BT 

Ofcom’s Strategic Review of Digital Communications is currently looking at future challenges for ensuring continued competition and investment in digital communications. Here we look at how Openreach and BT ensure a vibrant, competitive market in the UK.

Openreach is the BT Group business that maintains the UK's local access network: the fibre, cables and wires that run from homes and businesses to local exchanges. Though part of BT Group, Openreach operates independently. The local access network was historically owned and maintained by BT, to ensure that all service providers had equal access to it as the market opened up, BT and Ofcom, came to an agreement to separate the BT’s network engineering division from the rest of BT to create Openreach. Openreach provides the same products, support and levels of service to all service providers, including BT.

Ofcom’s 10-year anniversary review is a good opportunity to consider what’s needed for the future and how the UK’s broadband lead can be extended even further through a thoughtful evolution of the regulatory framework.

It’s also just over ten years since Openreach was created through Ofcom’s 2005 review. It now works on behalf of over 500 service providers (such as Sky, TalkTalk, Gamma, BT and Daisy) to maintain the local access network that covers 30 million customers, supports 300 million telephone calls and 350 million internet connections every day.

But it’s not just about maintaining the current network: BT is investing £3 billion, via Openreach, to roll out fibre across the UK, commercially and in rural areas, in conjunction with the government through its Broadband UK (BDUK) scheme. The roll-out, one of the biggest and fastest in the world, is helping the government achieve its aim of reaching 95 per cent of UK premises with superfast fibre broadband by the end of 2017. More than 24 million homes and businesses already have access to fibre broadband, with around 60,000 being added each week. Thousands of engineers work every day to plan and install the equipment needed to make this possible. The scale of our fibre programme is massive; it’s one of the UK’s biggest ever civil-engineering projects. But we know we still have more to do.

Openreach briefing 

 

 

In 2005 Ofcom oversaw the creation of Openreach as an ‘arms-length’ BT business. Ofcom decided this was the best way to maximise investment and competition in telecommunications.

  • Ofcom requires Openreach to allow BT’s consumer and business rivals equal access to the BT/Openreach network.
  • All communications providers (CPs) can sell phone and broadband services under their own brand names, using the Openreach network and BT’s investment.
  • To stimulate strong competition, almost all Openreach prices are set by Ofcom.
  • Ofcom ensures no discrimination by BT in favour of its own retail operations.

10 years on independent studies repeatedly show the plan worked.

  • The UK’s telecoms market is one of the world’s most competitive, with Sky, TalkTalk and hundreds of others providing phone and broadband services over the Openreach network.
  • This approach has delivered the widest broadband and superfast broadband coverage of the largest five EU nations1; according to Ofcom’s August 2015 Communications Market Report, 90% of UK premises have access to fibre broadband with 83% able to get speeds of 30Mbps or more, on course for 90 per cent by the end of 2015, then 95 percent soon after, with ambitions to go further.
  • The UK has seen dramatic increases in average speed (367% over the past four years)2.
  • Independent broadband news and information site thinkbroadband.com says that 86.9% of UK premises have access to speeds of over 30Mpbs and 87.7% can get over 24Mbps.
  • The UK has achieved this, along with the lowest prices of the major EU nations3.

1European Commission Digital Agenda Scoreboard June 2015.
2 SamKnows measurement data for all panel members with a connection in Nov 2014.
3 International Communications Market, December 2014, Ofcom.

Driving economic growth

Deploying the infrastructure that supports and drives an information and communications technology (ICT)-based knowledge economy is key to economic growth. It is also one where the UK compares very favourably with major economies across the EU and indeed the globe. Whilst there is still more work to do in achieving a near ubiquitous superfast network, the June 2015 EU Digital Agenda Scorecard shows superfast coverage in the UK now stands at over 88% of premises, the highest of any of the big five EU economies and some 8% higher than Germany, its nearest rival. There are also firm plans, funding and delivery contracts in place to take this to 95% by 2017. The UK is therefore already well placed to realise the ICT infrastructure the economy needs to remain competitive.

Digital communications is a British success story, and one that is no accident. For the past five years, the UK has had the largest digital economy in the G20, by percentage of GDP. It has been driven by massive investment, principally by BT, and the most competitive broadband market in the world, with hundreds of competing retail service providers, as well as competing infrastructure providers, working across large parts of the UK in both consumer and business markets. This vibrantly competitive landscape, supported by appropriate regulatory safeguards, has stimulated innovation, low pricing and take-up of communications services.

BT’s investment in fibre of over £3bn has so far ensured that the UK is a world leader. But we’re not stopping there: we will aim for a new universal minimum broadband speed of 5-10 Megabits per second (Mbps) for every home and business, as long as Ofcom and the government make it commercially viable. And we plan to extend fibre broadband coverage beyond government’s 95% of premises target thanks to ‘success dividend’ clauses in contracts covering rollout co-funded by BT, Whitehall and local councils. 10m homes and businesses will receive ultrafast broadband with speeds of 300-500Mbps by end of 2020 through ‘G.Fast’ technology, building on the current fibre network, with the majority of homes covered by 2025, and a 1Gbps service will be provided for those that want even faster speeds. A new KPMG report, Delivering Britain’s Digital Future (September 2015), values these BT pledges as worth a £20 - £30bn contribution to UK economy as a whole.

Barriers to further success would include constant reviews of regulation, including calls for fundamental alterations to the structure of BT. There have been calls from BT’s competitors for separation of BT and Openreach. BT believes that calls for Openreach to be split off are highly misguided as well as dangerous. The UK has the largest digital economy in the G20 as a percentage of GDP, thanks to the billions of pounds of investment from BT. Separation would put that advantage at risk.

Openreach should remain part of BT

Having Openreach within BT Group is in the best interests of the UK and of all the communications providers to whom it gives equal access, prices and service. Openreach benefits from the scale, investment and £500m annual research and development programme of BT Group. The wider Group gives Openreach the confidence to do things like move early on ultrafast. There is no guarantee an independent infrastructure operator would invest more and a genuine danger it would invest less. International experience of full separation is very limited but has not been a success.

 

Openreach as a BT business provides huge benefits for the UK...

  • If Openreach had been separate from BT Group, the UK would not now lead the large EU states for services including fibre broadband. The investment pay-back period for BT Group’s £3bn fibre investment is 12-15 years , an extraordinarily long period of time to be approved by the Board of a plc.
  • Without the scale of BT or the Board guarantee that BT Consumer wanted to sell fibre broadband – the pay-back would have been over 20 years. That would have slowed down or even endangered investment.
  • BT Group enables over £1bn a year of investment by Openreach, more than a fifth of the division’s revenue, exceeding combined capital expenditure of Virgin Media, Sky and TalkTalk.
  • Not only that - Openreach investment has increased by 13% for the overall period from 2008/09 (£951m) to 2014/15 (£1,082m).
  • BT has invested £3bn in its superfast broadband network and £1.8bn in its Ethernet network (high capacity broadband lines for business) over the last decade.
  • Openreach benefits from the £500m annual research and development programme of BT Group.

In terms of broadband, the UK is an international success story. We will continue to do all we can to ensure it stays that way.



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