On 22 March, the European Commission adopted a decision agreeing with proposals by the UK telecoms regulator, Ofcom, outlining how it intends to regulate wholesale access to the UK's incumbent operator's (BT Openreach) broadband network.

The Commission particularly approves of the intention of Ofcom to make it more attractive for alternative operators to use Openreach's physical infrastructure, such as through improved and cheaper access to ducts, which should help rolling out their own optical fibre networks.

In addition, the Commission welcomes Ofcom's proposal to continue to allow Openreach a degree of pricing flexibility for very high-speed virtual solutions to access Openreach's broadband network, which should allow for a strengthened business case for what is expected to be a difficult and important decision to invest in very high capacity networks.

In this respect, the Commission accepts Ofcom's intention to move the price anchor for lower-speed access, which is expected to provide the necessary price constraint in order to safeguard the proposed pricing flexibility for higher-speed access, from the legacy copper infrastructure to a lower-speed hybrid (copper/fibre) access product. Such a move goes hand-in-hand with deregulatory measures concerning the copper-based broadband-only product (Shared Metallic Path Facility or SMPF). As a result, the proposed measure should avoid higher regulatory intensity and rather shift the regulatory focus to more performant services, in line with the increasing move of customers to fibre-based broadband solutions, while still rewarding capital investments and risk-taking in relation to very high capacity networks.

Following the Commission's decision, Ofcom may now adopt its proposed measures.

Background

The market for wholesale local access is still considered by the Commission to be susceptible to ex ante regulation (and, thus, mentioned in the list of markets to be regulated in accordance with the Commission's 2014 Recommendation on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation). Where one operator is found to have significant market power (SMP) in the market for wholesale local access, regulators can impose obligations, which allow alternative operators to gain access to the SMP operator's access network.

In the UK, British Telecom has separated its access network, to be run by a legally and functionally separate business unit, called Openreach. Openreach is required to grant alternative operators access to the broadband network on the same conditions and to the same prices it allows BT's downstream units to access the respective network parts.

In 2013, the Commission adopted a Recommendation on Costing and Non-Discrimination Obligations, in which it set out under which conditions it would expect regulators to allow for pricing flexibility for fibre access products in order to foster fibre investment. The Commission stated that such flexibility should be accompanied, as a competitive safeguard, by a strict non-discrimination obligation (based on equivalence of inputs) and a cost-oriented copper-based access product (a 'price anchor'), which would act as a constraint on the access provider to abuse its increased pricing flexibility. However, the Commission already foresaw in 2013 that such a copper price-anchor may over time – with the evolution of technology and the move by end users to higher bandwidth products – become too weak to constrain the fibre-based access product sufficiently to provide an appropriate competitive safeguard. In such a scenario, the Commission acknowledged at the time, that the price anchor could be moved by the regulator from the copper-based access product to a basic hybrid access product. Ofcom, in its present proposal, sets out why it considers, that – based on the market conditions prevalent in the UK – such a move of the price anchor is now appropriate.