Tim Cowen’s article “Ofcom strategic review of digital communications: from baby steps to giant leaps?” has been published on the June 2016 issue of Communications Law, the Newsletter of the International Bar Association.
Here below an extract of the article. The full issue of the Communications Law Newsletter is available here.
Ofcom strategic review of digital communications: from baby steps to giant leaps?
Tim Cowen – Preiskel & Co, London
Ofcom’s strategic review of digital communications
In March 2015, the Office of Communications (Ofcom) announced its Strategic Review of Digital Communications. It was billed as being the first review in ten years. Careful short steps were announced toward a change of direction.
Casual observers might be forgiven for thinking that constant monitoring and reviewing market developments is, and assessing whether the strategy needs to be reviewed or changed is, or should be, the stuff of daily work for Ofcom. Nevertheless, the review was intended to be a new policy vision, and an indication of a new policy direction that Ofcom will be taking in the future. So, Ofcom has since then been provoking thought and managing expectations for some time. It first started getting the attention of all stakeholders with a discussion document published in July 2015. The conclusions were announced on 25 February 2016. For a swift-footed regulator already attuned to the fast moving technology industry, that may have been thought to be enough time to reach definitive conclusions.
However, Ofcom is still not being definitive and the strategic review indicating only ‘interim conclusions’ and next steps. In summary, the strategy focuses on five areas:
- the guarantee of universal broadband availability at a sufficient speed to meet modern consumer needs;
- support for investment and innovation in ultrafast broadband networks (such as fibre to homes or businesses) by giving BT’s competitors improved access to its infrastructure;
- improvements in the quality of service delivered by the whole of the telecoms industry, including Openreach, BT’s access network division;
- increased independence of Openreach from BT so that it is more responsive to all of its customers; and
- consumer empowerment so that people can understand the array of choices available to them and are able to switch to the best value deal easily.
This is close to saying that Ofcom needs to be very careful not to change existing regulation and undermine investment, indicating that Ofcom’s proposals could well affect investment by BT and others. The problem here is that it’s attractive to suggest that BT should supply everyone with high quality fibre at low prices, but there are different ways in which that can be done and different companies, whether using fibre or mobile technology, are already busy building alternative networks to BT’s. So, forcing BT to provide more, particularly in those areas that are competitively supplied, could in fact reduce the amount of competitive supply and cause investors, and investing, to freeze up. However, as we shall see below in relation to its review of business connectivity markets, recognising this as important in a high level policy sense does not necessarily mean that Ofcom properly understands the issue when it comes to maintaining business confidence for investment.
The strategy document also claims to set out how Ofcom will step back from regulation where consumers and businesses no longer need it. Industry is understandably sceptical of regulators claiming they will regulate less.
One of the central issues that has come out of the strategic review has been whether to break up BT or not. One side of the argument was that break up was needed to secure better quality of service. Much discussion was created over BT’s quality of service, particularly when supplying its competitors. Various industry players claimed that break up would improve things, while others pointed out that changing the structure of BT would not on its own be a cure for quality of service problems. Huge debate took place over ‘BT Break Up’. Shortly before the announcement of the February conclusions on the strategic review, amid press reports that BT would indeed be broken up, further press reports suggested that Gavin Patterson, BT’s CEO, was offering to invest a further £1bn on Openreach if he was allowed to keep it, provoking questions about why the money had not been spent before.
Sharon White, who heads Ofcom, was clear that while ‘BT Break Up’ was, and remains on the regulatory agenda, it would not be required any time soon.
BT’s response was to focus on ‘Investment Incentives’ and argue that Pay TV customers should enjoy the same benefits as telecoms customers when it comes to non-discriminatory access, pointing out the lack of a level playing field for BT in access to content, with a clear dig at Sky. BT stated: ‘We want the Ofcom regime extended to pay TV so that it covers Sky more fully and brings down prices in pay TV. We would like to see government help to ensure access to premium TV content on a regulated wholesale basis in the same way that other operators can access BT’s network. BT has invested in sports rights with BT Sport. This has been funded entirely from the free cash-flow of the BT Consumer business.’ BT is also seeking to ensure that: ‘People can switch services away from Sky and Virgin as easily as from BT and TalkTalk.’
BT’s share price rose on the day, presumably showing an increase in confidence that the shadow has passed across the sun and the regulatory forecast is now all sunshine and clear skies. In fact, there may be dark clouds ahead and, as ever with communications regulation, the way forward is far from clear. For example, the European Union is looking at its Digital Single Market proposals, which are likely to significantly alter the regulatory position.
Sky used the announcement to emphasise three main points:
- the increasing dominance of high speed broadband services by BT, which risks unwinding the benefits of years of strong competition in broadband services;
- the inadequate quality of service delivered by Openreach – and its significant impact, every day, on large numbers of UK consumers and businesses; and
- the level and type of investment in the United Kingdom’s fixed line communications infrastructure.
In particular, it is evident that, at a time when fibre-tothe-premise (‘FTTP’) networks are being rolled out around the world – in places like Sweden, Lithuania, New Zealand, Spain and Portugal – BT’s focus is on incremental upgrades to the old copper network. There are real questions to be addressed about whether the UK risks being left behind in terms of 21st century connectivity compared to other countries around the world.
Read the full article in the June 2016 Issue of the Communications Law Newsletter, available here.