Some Equinox 2 offers will be assessed on a case by case basis, but the decision won’t be popular with altnets
Today Ofcom published its decision to allow BT Openreach to introducing its new pricing for fibre broadband, known as Equinox 2. However, Openreach must notify the regulator before making certain offers available and Ofcom will assess whether they can be introduced to the market.
This seems like something of a fudge given Ofcom extended the consulting period regarding Equinox 2 and the furore after it waved Equinox 1 through.
Openreach notified Ofcom about its proposed new pricing for other service providers last December It lowers prices to retail providers such as BT, Sky, TalkTalk and Vodafone if they agree to use mainly Openreach’s fibre products for new orders instead of its legacy copper infrastructure, which is being phased out.
Kester Mann, Director, Consumer and Connectivity, CCS insight comments, “With the UK full-fibre market firing on all cylinders, it would have been a major surprise if Ofcom had blocked Equinox 2. But the fact that the UK regulator delayed its initial decision on the controversial pricing mechanism for further assessment shows too that it is not prepared to let BT have everything its own way.”
He continues, “French billionaire Patrick Drahi will also be relieved; Ofcom’s announcement comes just 24 hours after the businessman upped his stake in BT to 24.5%.”
Danger of increasing the digital divide
Mann thinks this is good news for the retail service providers, but “a big blow” to the UK’s many altnets which will fear it could stifle efforts to challenge BT. “A backlash from companies like CityFibre is inevitable,” he says. “As discounts are being applied equally throughout the UK, we could see greater impact on locations where build costs are highest. This could hinder connectivity in some of the more rural parts of the UK raising concerns about the digital divide.”
USwitch’s website says, “There is a notable difference between urban and rural connectivity across the country. Average UK broadband speeds in UK rural areas tend to be considerably slower than in urban areas. As of March 2022, this gap has subsequently widened, with median peak-time download speeds of 39.4Mbps in rural areas and 62.1Mbps in urban areas of the UK – a 58% difference. In 2021, this figure was just 42%.”
Doubtful if it will lower prices for consumers
Paolo Pescatore of PP Foresight goes further, saying, “This will be a bitter pill to swallow for rival infrastructure suppliers like Virgin Media O2 and altnets [who feel the] prices are too low, squeezing them out of the market. In theory, by offering lower wholesale pricing this saving should be passed onto consumers resulting in lower fibre broadband packages.
“While this latest offer known as Equinox 2 feels more like tweaks it will and continue raise eyebrows. Rivals will feel that Openreach is trying to use its market dominance by locking in [retail service] providers for longer. If so this will squeeze their own margins, making it harder to rollout their own networks and compete at scale.”
He adds, “The market as things stand cannot support all players as there are too many chasing too few pounds. Consolidation is inevitable given the overbuild that is taking place. A more sensible approach should be adopted to ensure UK plc benefits from fibre broadband. This is further complicated by the cost of living crisis with all retail prices heading in the wrong direction.”
Greg Mesch, CEO of CityFibre issued a statement saying: “We are disappointed Equinox 2 has been approved and will be undertaking a thorough review of Ofcom’s decision. We are, however, pleased to see Ofcom’s pressure has brought about the end of Equinox, with a commitment from Openreach to make no further changes to its wholesale pricing until April 2026.
“We must not forget that while introducing price discounts to bind its wholesale customers and damage emerging competition, BT is at the same time significantly increasing prices for millions of its retail consumers. Ofcom must ensure that competition is effective and sustainable if consumers are to benefit.”
Ofcom says it considered the following in reaching its decision:
- Citizens and consumers and concluded thatEquinox 2 is consistent with promoting investment in gigabit-capable networks by Openreach and other operators and promoting network-based competition, ultimately delivering better consumer outcomes.
- Alternative networks – Equinox 2 means altnets are likely to face stronger competition from Openreach, but Ofcom concluded that the conditional terms in the offer do not create a potential barrier to using altnets, so Equinox 2 is consistent with network-based competition. This seems contradictory to our editorial eyes.
- ISPs will probably benefit from network-based competition so Ofcom concluded that ISPs will still to be free to use altnets as they wish.
- Openreach – Equinox 2 allows the BT subsidiary to engage in network-based competition which Ofcom sees as being consistent with promoting investment in gigabit-capable networks.
In short, its overriding objective is better broadband to people across the UK, by promoting competitive investment in high-speed networks and ensuring there’s a level playing field for all companies. Based on the evidence available, the regulator has decided Openreach’s new pricing discounts are not anti-competitive.
Ofcom says it is aware of concerns about Openreach’s practice of discussing and developing discounts with retail providers but says after investigation, it has no “concerns that warrant further investigation at this time”. This is because Openreach told it that it plans to make commitments regarding its future conduct – so that’s all alright then, no need to worry about the dominant player in the market as its will police itself in this regard.
Ofcom was also reassured by BT’s promise not to initiate further changes until at least 31 March 2026 which the regulator thinks “may provide further clarity for altnets and their investors. However, we have not relied on these commitments in reaching our conclusions.”