CityFibre loses appeal against Openreach discounts for ISPs

Tribunal says broadband company failed to show it had been treated unfairly by regulator's decision

British broadband outfit CityFibre has lost its appeal against an Ofcom decision that allowed Openreach to offer discounts for internet service providers (ISPs) to access its fiber-to-the-premises (FTTP) products.

In its ruling published on July 15, the Competition Appeal Tribunal (CAT) unanimously rejected CityFibre's appeal against the UK comms regulator.

However, the panel noted that Ofcom has the power to review its decision and can intervene if it considers that the so-called Equinox offer is affecting competition in a way the regulator had not previously appreciated.

The Equinox Special Offer involves discounts for ISPs such as Sky, TalkTalk, and Vodafone to purchase wholesale access to the Openreach broadband network. The offer also applies to BT, Openreach's parent company. Specifically, it covers Openreach's FTTP service, where subscribers access the internet via a fiber connection to their property.

This is intended to boost the rollout of FTTP connections by incentivizing ISPs through a discount based on the proportion of orders they place with Openreach that are for an FTTP connection, rather than broadband connections using the legacy phone cabling.

The offer was open to acceptance by ISPs between 1 October 2021 and 30 March 2022 and is valid for 10 years.

Because of BT's position as the UK's former state-owned telecoms monopoly, Ofcom has a duty to ensure that the company is not taking actions that might stifle competition. The regulator had already imposed requirements on the Openreach subsidiary to provide 90 days' advance notice of any conditional pricing arrangements to be offered to ISPs.

CityFibre's appeal was based on an argument that Ofcom had failed to consult or properly investigate the extent to which the networks of CityFibre and other alternative network service providers (altnets) would overlap with Openreach's FTTP infrastructure.

In other words, Ofcom may have failed to consider whether the Equinox offer would discourage ISPs from using the services of altnet providers with fiber networks in the same localities where Openreach offers fiber.

Ofcom started its consultation process at the beginning of July 2021 with a call for input from stakeholders to raise initial concerns. CityFibre responded, along with others including Openreach, Sky, TalkTalk, and Vodafone.

CityFibre's response noted that it was much easier for ISPs to get customers to switch to an FTTP service from an altnet provider if there was no existing FTTP available, and therefore altnets would prefer to build their infrastructure where Openreach did not have an FTTP network.

In August, Ofcom published a Consultation Document setting out its provisional view on the Equinox offer, which was that it did not warrant intervention and that Ofcom should take no action at that time.

CityFibre responded to the Consultation Document, disputing Ofcom's provisional assessment, and claiming the Equinox offer would confer a substantial advantage to Openreach in winning new customers as it would dissuade ISPs from using altnets in order to hit the right proportion of Openreach FTTP subscriptions to secure their discounted pricing.

However, it appears that most ISPs supported Ofcom's provisional view about the Equinox offer so the regulator allowed it to become effective in the market from October 1, 2021.

CityFibre's appeal centered on two conclusions reached by Ofcom, one being that in the next 12-24 months, the overlap between altnets and Openreach's FTTP footprint was likely to be limited, and that ISPs placing orders with an altnet while continuing to purchase legacy products from Openreach would not have a material impact on the ISP's mix of Openreach orders.

But, as noted by the tribunal, the argument largely centered on the overlap question – i.e. that the potential for overlap between Openreach and altnets was inadequately investigated and/or consulted on, and that in allowing the Equinox offer to go ahead, Ofcom had failed to apply its own analytical framework and therefore misdirected itself in law.

For its part, Ofcom argued that there had been adequate consultation that the decision was "within the margin of appreciation for a reasonable regulator," and, importantly, that CityFibre had not shown that it had suffered any prejudice.

The tribunal ruled that any failure by Ofcom to ask CityFibre (or other altnets) about their expectations for overlap with Openreach's network in the short term "falls short of establishing unfairness to CityFibre." While the consultation process could perhaps have been improved on, it was not judged to be so flawed as to be unlawful.

For example, the ruling notes that the short-term overlap of Openreach and altnet FTTP networks was an important piece of the puzzle which Ofcom was analyzing, and expresses surprise that the regulator did not inquire about this.

"It is therefore surprising, on the face of things, that Ofcom did not ask CityFibre for an estimate of this short-term overlap," wrote tribunal chair Ben Tidswell.

The conclusion seems to be that Ofcom blundered in not asking the right questions of stakeholders when it carried out its consultation on Openreach's proposed Equinox offer, but not so much that it failed in its duty. The appeal was therefore dismissed.

In a response to the ruling, CityFibre CEO Greg Mesch said that while the tribunal has dismissed the appeal, it made significant criticisms of Ofcom and said that its consultation process could have been improved.

"Ofcom failed to appreciate that infrastructure competitors would have had information highly relevant to its assessment despite that information being important for the purposes of securing investment," he said.

"The CAT has also criticized Ofcom for its failure to provide clear and consistent guidance to those making very significant investment commitments on the basis of Ofcom's policy decisions."

Mesch added that Ofcom must now be proactive in scrutinizing any future Openreach offers if it is to sustain and protect competitive investment in infrastructure. ®

Bootnote

CityFibre happens to be suffering a "major" outage today. Here's the main details from the latest advisory:

Current Impact: Impacting a number of Leased Line, Broadband and Consumer circuits.

Exact numbers unknown

Incident Start Time: 22/07/2022 11:57:59

Major Incident Raised: 22/07/2022 12:25:43

Engineering attendance has been requested to CityFibre Slough Datacentre to carry out a reseat of the card. Once reseated they will remain on site for at least 30 mins to confirm success. If the issue manifests again then engineer will proceed with a Card Swap out.Currently awaiting an ETA for engineers attendance to Slough.

By card, they mean "a line card situated within a core network device," which has been identified as "the origin point of the issue." A soft and full remote restart of the line card has failed to bring service back to normal, so now physical action is needed to ensure the card is fitted properly.

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