Is Openreach a "Natural Monopoly?"

A study group anchored by U.K. members of Parliament wants full separation of BT Openreach, arguing that the current “functional” separation has not worked.

Since the functional separation from BT, Openreach “claimed in 2009 that 2.5 million homes would be connected to ultra-fast Fiber to the Premises (FTTP) services by 2012, which is 25% of the country,” the report says. “Yet by September 2015 they had only managed to reach around 0.7 percent of homes,” despite receiving £1.7billion in taxpayer subsidies.

That is perhaps not an uncommon problem. The report uses the term “natural monopoly” to describe Openreach, which is an accurate way to describe the supply of wholesale “telco access” capacity to retail partners for about half the U.K.’s homes.

What the report does not address at all is the face that cable TV operators are successfully taking market share and upgrading access speeds, using their own facilities, and able to reach about half the U.K. homes.

So Openreach is not, perhaps, actually a “natural monopoly” everywhere, where it comes to the supply of Internet access and other services. In fact, Openreach has a monopoly across perhaps half of all U.K. homes.

As early as 2006, the U.K. Internet access market was dominated by six companies, with the top two taking 51 percent. Virgin Media with a 28% share, while BT had 23 percent.

At the end of 2010 48 percent of U.K. homes were passed by Virgin Media’s cable broadband network, largely in the urban areas.

Virgin Media’s cable services are available to 30 percent of UK television homes, the company now says.

Virgin Media passes 12.7 million homes out of a total of 25 million homes. So Virgin Media can reach a bit more than half of all U.K. homes.

So Openreach functionally is a monopoly for access to about half of U.K. homes.

Making good policy always is difficult under such circumstances, where facilities-based competition already is a reality for half of U.K. homes, but the other half have no facilities-based choices.
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