- Watchdog minded to direct dominant provider Openreach to withdraw its ‘Incremental New to Openreach Offer’
- Regulator concerned that aggressively discounted pricing limited to certain customers is not fair and reasonable, and could harm competition necessary to keep prices low in the long term
- Ofcom not proposing to intervene in relation to other offers notified by Openreach
- Sustainable competition between networks vital for affordable, better broadband and economic growth in the long term
Ofcom has today launched a consultation on its provisional views on a set of commercial offers that Openreach intends to introduce.
As Openreach has significant market power, it must give Ofcom and the wider industry advance notice before introducing certain types of commercial offers.
Openreach’s offers
In June, Openreach notified us of its intention to roll out a range of offers, including:
- ‘Incremental New to Openreach Offer’. This offer gives Internet Service Providers (ISPs) a monthly discount for bringing new full-fibre customers onto Openreach’s network. It applies only to new customers above an ISP’s normal number of new sign-ups. The discount could be very substantial – up to £9.50 per customer for up to 30 months.
- ‘Geographic Incremental New to Openreach Offer’. In areas where Virgin Media operates, this offer provides a one-off £50 discount on new full-fibre customers to Openreach, above the usual number of an ISP’s new sign-ups. Altnets also have significant presence in some of the areas covered by this offer.
- ‘Frontbook ARPU Share Offer’. When a household wants a higher-speed broadband package, they'll typically pay more to their provider, who in turn will also pay more to Openreach. This offer will cap what an ISP pays on average for new high-speed connections at £19.32 per month. In practice it would make getting people onto higher speed packages more commercially attractive to ISPs.
Alongside these, Openreach also plans other offers, including specifically for high-capacity business connections.
Our provisional views
Our role is to review the offers and identify any competition concerns that would constitute grounds for regulatory intervention.
Having carefully considered responses to our Call for Inputs published last month and, guided by our overarching objective to promote sustainable competition wherever possible, we have today reached our provisional views on Openreach’s notified offers.
We propose to intervene to direct Openreach to withdraw its ‘Incremental New to Openreach Offer’, as we consider the charges are not fair and reasonable and could harm the development of network competition. This would be the first time that Ofcom has stepped in to block a commercial offer from Openreach.
The offer comes at a time when, in most of the UK, competition in the wholesale market is still developing. And with around half of households that could access full-fibre broadband yet to sign up, it is vital that different networks can compete for these customers fairly.
Under this offer, Openreach is targeting significant discounts at new customers that are key to altnets’ ability to grow their customer base, while leaving prices for other customers unchanged.
We are concerned that this could undermine sustainable competition. In particular, matching these discounts may not allow competitors to recover their costs, given the low prices they are already offering to all of their customers.
Sustainable competition is fundamental because it means people having a choice between different networks. That choice drives companies to compete for customers through affordable prices and higher quality services.
Without sustainable competition, over time prices could rise. And firms competing to deliver affordable, ever better broadband helps underpin economic growth.
Separately, we have also examined the other offers planned by Openreach. Our provisional view is that these do not raise competition issues that warrant regulatory intervention.
Primarily, this is because the effective discounts they contain are much less substantial and would be unlikely to prevent other reasonably efficient networks from competing with Openreach.
Next steps
We welcome responses to our consultation from interested parties by 27 August. We will then carefully consider these and expect to make a final decision by the end of September.
Natalie Black, Ofcom’s Group Director for Infrastructure and Connectivity, said: “Openreach must be able to compete, but they cannot use their significant market power to drive other networks out of the market”.
“In reaching our final decisions on their planned offers, we will prioritise promoting sustainable competition, which is fundamental to keeping prices low in the long term and bringing better broadband to people across the UK.”
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