Friday, February 26, 2016

Ofcom Decides Not to Fully Separate Openreach from BT

The U.K. regulator, Ofcom, has concluded, after a review of U.K. communications structure, that it is not best to fully separate fully separate BT from Openreach, the wholesale services division of BT, as a way of promoting innovation and investment in U.K. fixed network communications.

In Australia, New Zealand and Singapore, full separation exists as the current framework for access services.

Inevitably, disagreement will continue, as the present structure might not satisfy competitors or regulators  over the long term. Wherever wholesale access is provided, there are never-ending disagreements between retail buyers and facilities owners about the appropriate prices and policies for allowing such access.

A number of other approaches to robust  wholesale access already have been taken by a number of other countries, though without embracing the full “divest the network” approach taken by Australia, New Zealand and Singapore.

In Belgium, Germany, the Netherlands, Sweden and Spain, wholesale access to “bitstream” services is the framework.

In France, wholesale access to access fiber is the wholesale framework. In the Netherlands and Sweden both bitstream and fiber access products are available.

In most cases, the objective has been to encourage further investment in next-generation access networks, in addition to fostering competition.

All those efforts revolve around ways to encourage--or force--incumbent telcos to invest, while also encouraging immediate competition.

The problem, some would note, is that the two objectives might be mutually exclusive, to a large extent, in the absence of significant facilities-based competition.

Incumbents virtually always complain that the huge upfront capital investments they must make place the risk squarely on the incumbents, while competitors are able to avoid the investments, yet still reap the rewards of using the networks.

Other competitors, of course, are quite able to model the financial impact on their own businesses of building their own facilities, instead of leasing access. Those competitors nearly always conclude that they are better off renting access, rather than building and owning.

Granted, there are differences in legacy market structure and business thinking in the United States and Canada. There, there already are two broadband access networks ubiquitously deployed.
And though many policymakers would disagree, the U.S. emphasis on creating facilities-based competition is made easier since two fully-deployed networks already operate, virtually nationwide.

Recent investments by Google Fiber, third party Internet service providers (Sonic and Ting, for example), as well as a growing number of municipal and now some dark fiber networks suggest a growing number of actors believe they actually can build their own networks.

There still seems to be no single “right framework” for encouraging both rapid investment and robust competition.

The other huge issue is market context. In few countries can mobile alternatives be discounted. Nor, in most countries, can risk and reward in the fixed network business case be ignored, either.

Always a hugely capital-intensive undertaking, financial returns from new next-generation fixed network investment now are tougher to justify as most markets have gotten more competitive, anchor product categories have reached maturation and begun declining, and fixed wireless, mobile and other possible platforms make the return part of any business model less certain, and smaller than in the past.

Regulators have been studying and debating the merits of structural and functional separation for decades. Wholesale obligations, functional separation, structural separation or a reliance on new facilities competition all remain ways to promote investment or competition, or both.

But it seems nothing is definitively settled, for Ofcom or most other regulatory authorities.

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