04 Dec Ofcom plans no fiber pricing controls for 11 years | Light Reading
UK telecoms regulator Ofcom said it would not introduce price controls on full-fiber-optic services for at least 11 years, signaling support for companies building fiber networks in the coming years, including BT’s Openreach.
Melanie Dawes, CEO of Ofcom, told the annual FTTH Council Europe conference that investors in expensive fiber-to-the-premises (FTTP) networks needed certainty of a fair return for their investments.
“We recognise there must be a compelling investment case. Shareholders and fund managers have plenty of choices over where to put their money,” she said. “At a minimum, an investment in fiber networks should offer three things: clear demand, scalable growth, and a healthy and fair return.”
As part of its efforts to support fiber investments, Dawes said Ofcom does not “expect to introduce cost-based prices for fibre services until at least 2031.”
“We recognise that full fiber is a long-term investment, taking more than a decade if not two to pay back,” she added.
Full fiber networks currently reach only about 14% of UK homes, but Dawes noted that this is set to change in the coming years.
“Openreach, the network arm of BT, aims to connect 20 million homes in the next few years. CityFibre wants to reach up to 8 million and the cable provider Virgin Media plans to have its whole network covering 15 million premises capable of gigabit speeds by the end of 2021,” she said.
She also pointed to the emergence of specialist fiber providers including Hyperoptic in towns and cities and Gigaclear in rural communities.
Dawes emphasized that Ofcom will be keeping a close eye on Openreach, including making sure it meets its commitments such as opening up access to its ducts and poles; offering fair pricing; and treating its retail customers the same.
“If network competition fails to materialize and Openreach emerges as dominant in more parts of the UK, with the earnings that go alongside that, we would of course ensure those returns were regulated fairly,” she said. “But Openreach would retain the benefits of its investment, and earn a fair return over the course of it.”
Jefferies analysts said Dawes’ emphasis that Ofcom understands investors “need confidence to back fiber projects carrying risk and long-dated returns” is of particular interest.
Not everyone was happy about Ofcom’s plan to remove price controls: Trista Harrison, the CEO of rival TalkTalk, told the Financial Times (subscription needed) that BT had been handed “almost total pricing freedom for a decade or more,” and described it as “an unnecessary multibillion-pound giveaway to BT.”
Fiber to date
Openreach is investing 12 billion (US$16.1 billion) in building an FTTP network to around 20 million homes by the mid-to-late 2020s. It has so far passed 3.5 million premises, building at an average run rate of 40,000 premises passed per week.
It has previously trumpeted its contribution toward meeting a UK government target of achieving “gigabit-capable broadband” nationwide by 2025. However, the government has since revised down this target to a “minimum of 85%” gigabit-capable coverage by 2025, citing factors such as the coronavirus pandemic and the decision to ban operators from using Huawei equipment.
Meanwhile, cable operator Virgin Media recently switched on a gigabit-speed service for about 3.7 million UK homes. Technicians at the British cable operator now see a way to double those speeds in what they are calling “Gig 2.”
UK altnet CityFibre also plans a 1.5 billion ($2 billion) investment in its full-fiber rollout and aims to reach around 3 million premises. CityFibre expects to launch the second phase of its ongoing build-tender program before the end of the year, which will cover another 3 million premises.
Gigaclear said it has connected communities across 22 different counties to its network, which currently covers 130,000 rural homes and businesses. Hyperoptic is targeting 5 million homes by 2024.
In April this year, the FTTH Council Europe identified the UK as one of the five fastest-growing markets in Europe, behind Belgium, Ireland and Switzerland but ahead of arch-rival Germany.
In its forecast for 2020-26, the lobbyist for full-fiber technologies also said the UK would be among three countries to experience outstanding growth in the number of homes passed in 2026 compared with 2019, at 548%. The other two are Germany and Italy.
Anne Morris, contributing editor, special to Light Reading