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UK watchdog still not ruled on Openreach wholesale fiber discounts

Rival network operators champing at the bit amid claims dominant former state firm's undercutting them

Britain's telco watchdog Ofcom is delaying a decision on Openreach’s proposed Equinox 2 wholesale pricing scheme for fiber broadband, with just weeks to go until the product aimed at internet service providers is due to hit the streets.

The move concerns discounts offered by Openreach, the infrastructure arm of the UK’s former state-owned telecoms monopoly BT, for ISPs that use its fiber network to deliver services to customers.

The issue has already proved controversial, with rival network operators complaining that Openreach is unfairly undercutting them. Despite this, regulator Ofcom had previously indicated that it was not minded to prevent Openreach from introducing Equinox 2.

Ofcom had planned to publish a final decision on Equinox 2, following a consultation process, by the end of March. But it has now announced that it received a number of detailed responses, some of which “raise issues which require further assessment.”

As a consequence, Ofcom said that it expects to take an additional two months to complete the extra analysis required and issue a final decision. However, the Equinox 2 offer was due to launch on April 1.

“To provide certainty and stability for industry, our view is that it would not be appropriate for the offer to launch until we issue our final decision,” Ofcom said in its announcement.

Further, Ofcom hinted that it was prepared to use its powers under the Communications Act 2003 to block the launch, unless Openreach voluntarily deferred it.

This would not appear to be necessary, as Openreach has issued a statement saying that it will defer the new pricing scheme.

“Whilst we continue to share Ofcom’s initial view that our offer isn’t anti-competitive, it’s important the regulator has time to consider all the feedback it has received fully and fairly, so our discounted Full Fibre prices won't come into effect on 1st April,” Openreach stated.

The company also said that if Ofcom's initial assessment is confirmed, it will ensure that customers benefit from Equinox 2 pricing backdated to April 1.

Equinox 2 is an extension of the original Equinox deal that came into effect in October 2021. This offered ISPs incentives over the next 10 years to get new subscribers to sign up for fiber-to-the-premises (FTTP) instead of legacy connections using copper cabling, part of moves to get more of the UK on fibre broadband.

Those incentives were largely discounts on wholesale access to Openreach's fiber network. This caused alternative network providers (altnets) to complain that it gave Openreach an unfair advantage, as ISPs had a financial incentive to choose it instead of them when signing up new subscribers onto fiber connections.

One altnet provider, CityFibre, went as far to take Ofcom to the Competition Appeal Tribunal over its decision to allow the original Equinox scheme, but its appeal was rejected.

Openreach’s position has perhaps not been helped by an article in the Financial Times in February, in which BT Group CEO Philip Jansen was quoted as saying that his company’s broadband network is an “unstoppable machine” and that the situation would “end in tears” for many rival networks.

Ofcom has taken the step of publishing its correspondence with Jansen regarding the issue, where he explains that his comments “have been taken out of context”, after Ofcom CEO Dame Melanie Dawes told him that the report had caused “significant concern.”

The delay in Ofcom’s decision therefore raises the prospect that the regulator may not give permission for Equinox 2, which was to include a mix of additional incentives to encourage the take-up of higher bandwidth services.

Media and telco analyst Paolo Pescatore of PP Foresight wondered whether Ofcom may now be having second thoughts.

“Is Ofcom having a change of heart towards rival infrastructure suppliers like Virgin Media O2 and other altnets that [Openreach] prices are too low, squeezing them out of the market?” Pescatore said.

The regulator now faces a difficult decision, he added, following earlier comments suggesting that it will not block Equinox 2, while there has been an outcry among the altnets about its effect on their ability to compete.

“Ofcom now has a tough challenge of assessing the impact of these new prices and whether it will negatively impact the market and choice,” Pescatore told us.

For its part, Virgin Media O2 declined to comment other than saying “Ofcom’s decision to delay is clear.”

Meanwhile, Openreach insisted that it is merely trying to do its part to help upgrade the country’s infrastructure to modern fiber networks.

“Our offer is a response to customers, who want lower prices and long-term certainty to help them switch to faster, more reliable broadband connections. It also supports our continued multi-billion pound investment to upgrade the UK’s broadband infrastructure,” the company said.

Responding to news of Ofcom's decision to extend its review of Equinox 2, Greg Mesch, CEO at CityFibre today told us: "Ofcom appears to be taking industry's concerns seriously. Taking more time to properly consider the impact of Equinox 2 is the right approach if UK consumers and businesses are to benefit from a healthy competitive market for the long term." ®

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