Superfast broadband regulation will differ from first generation broadband

At last week’s Westminster eForum conference on the future of Broadband in the UK, Stuart McIntosh, Ofcom’s Partner for Competition, explained how regulation for superfast broadband would be different from what we had seen before.

In the Telecoms Strategic Review, Ofcom was determined to press for infrastructure competition “at the deepest level possible”. It did this by encouraging Local Loop Unbundling, not least through massive reductions in the wholesale price. The higher levels of investment required necessarily led to a series of takeovers and mergers, and the result in the much-consolidated industry we see today. Ofcom argues that this has led to a much more competitive market, and that competition has led to greater investment.

For superfast broadband, however, they are taking a different view. Firstly, although there is no suggestion of regulatory “forbearance” for BT, Ofcom have said that wholesale prices can reflect risk. And because it sees the economics of fibre roll-out as being more challenging, Ofcom is putting more emphasis on “active” wholesale products , rather than “passive” ones – ie is expecting rather more service provider competition than infrastructure competition.

This leads to a series of interesting questions. How much margin will there be between the passive and active products (as this determines which is the better investment) ? What happens to the deployment of first generation LLU – are these now stranded assets ? If infrastructure competition was so successful first time round, but is not encouraged by favourable pricing this time, does this mean that we will get a less competitive market in superfast broadband ?

Speaking later, Andrew Heaney of TalkTalk insisted that unbundling was still the way to develop competition. It will be interesting to see to what extent he can persuade Ofcom of this.

But, anyway, to what extent will regulation will make a difference to BT’s FTTx investment. Isn’t it far more likely that BT would start blowing fibre very quickly indeed if it saw a big takeup of Virgin Media’s superfast broadband or saw the mobile operators bringing forward their LTE investments. However, neither of those yet seems to be happening in any market-changing way.