Ofcom blocks Openreach fiber discount over competition concerns

Regulator says 'Incremental New to Openreach Customer Offer' could harm rival altnets

By LineZotpaper
Published
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Ofcom has blocked Openreach's plan to offer discounted fiber connections to internet service providers, ruling the pricing could prevent rival network operators from fairly competing. The regulator's decision, made permanent after a provisional block in July, is the first time it has rejected an Openreach commercial offer.

The blocked offer, known as the "Incremental New to Openreach Customer Offer," was part of a package of pricing changes due to take effect on October 1. Openreach, BT's functionally separate network division and the UK's largest fixed-line infrastructure provider, notified Ofcom of the plans in June.

The rejected scheme would have rewarded internet service providers (ISPs) for connecting more new fiber-to-the-premises (FTTP) customers to Openreach than an agreed baseline. It proposed a £35 connection discount and a monthly reduction of up to £9.50 for as long as 30 months, applying only to customers above each ISP's normal level of new Openreach signups.

Ofcom concluded the charges were "not fair and reasonable" because a reasonably efficient rival might be unable to match them while recovering its costs. The regulator was particularly concerned about alternative network operators (altnets), which need to attract customers to grow and compete with Openreach.

Ofcom allowed other Openreach discounts to proceed. These include a one-off £50 rebate for connections above an ISP's usual number of new Openreach customers in areas served by Virgin Media O2, and a free connection offer for net new Ethernet demand exceeding 90 percent of historical run rate. Ofcom judged the geographically targeted offer unlikely to harm long-term competition, and the Ethernet offer raised no "prima facie concerns."

Reaction to the decision was mixed. Wholesale fiber operator nexfibre called it a positive step but said the regulator could have gone further. "Openreach's tactic of drip-feeding price changes via special offers needs to stop at a time when competition remains nascent," nexfibre said. Virgin Media O2 also welcomed the intervention, though a spokesperson told us: "Although we believe the regulator could have gone further, we welcome Ofcom's move to clip Openreach's wings on its most aggressive offer."

Openreach appeared sanguine. James Lowther, managing director for commercial, said: "We put this offer forward in good faith to help our customers compete and deliver better value for households. While we continue to believe the offer would have benefited customers and competition, we'll review the decision carefully and continue to engage constructively with Ofcom and our customers."

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Analysis

Why This Matters

  • The ruling affects competition in the UK broadband market by limiting the dominant incumbent's ability to use aggressive pricing to lock in customers.
  • It influences whether altnets can gain enough subscribers to sustain their network investments, which ultimately affects consumer choice and prices.
  • The decision signals Ofcom's willingness to intervene when discounts threaten nascent competition, setting a precedent for future offers.

Background

Openreach controls the vast majority of the UK's fixed-line broadband infrastructure. In recent years, altnets have built out fiber networks in many areas but face a challenge attracting customers away from Openreach. Ofcom previously allowed Openreach's Equinox and Equinox 2 discount schemes, which were designed to migrate customers from copper to fiber. This rejection marks a tougher stance on pricing that could harm long-term competition.

Key Perspectives

Openreach: Argues the discount was intended to help ISPs compete and deliver better value to households, and it will engage constructively with Ofcom. Ofcom: Concerned that the offer was not fair and reasonable because it could prevent reasonably efficient rivals from recovering their costs and building customer bases. Altnets (nexfibre, Virgin Media O2): Welcome the intervention but believe Ofcom should clamp down harder on Openreach's tactics, warning that repeated special offers undermine investment incentives.

What to Watch

  • Whether Openreach proposes a modified discount that might satisfy Ofcom's concerns.
  • How altnets' customer acquisition rates change following the blocking of the offer.
  • The outcome of Ofcom's ongoing monitoring of the broadband wholesale market and any future interventions.

Sources

Zotpaper

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