Ofcom outlines fibre regulatory approach

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Ofcom outlines fibre regulatory approach Tuesday 3 March 2009


UK regulator Ofcom has presented its proposals for regulating the burgeoning fibre-optic services market. The proposals mainly affect incumbent BT and its investments in next-generation broadband services, as well as other fixed-network operators planning to roll out FTTx. Ofcom has agreed to consider changes in existing wholesale regulations, including BT's undertakings dating from 2005, in order to encourage investment and allow operators to achieve a suitable return on the risky new investments while ensuring access to the new network infrastructure for other service providers. The regulatory approach is based on flexible wholesale pricing, ensuring regulatory price caps allow a rate of return that reflects the cost of deployment and the associated level of risk, minimising inefficiencies in network design and build as a result of regulatory policies, and encouraging coordination between BT and other network operators to promote competition based on physical infrastructure where possible. Ofcom said recent consultations with operators found support for a flexible pricing approach to wholesale active network services, ensuring standardised products for resale, while regulation of passive network access would involve more cost-based price caps, in which associated investment risks are factored. Ofcom will implement the policies as part of its regular market reviews and reviews of BT's undertakings. Specifically, the regulator plans to support ongoing industry development of active products, including the
characteristics, technical requirements and standards for these products; conduct further market reviews, including the wholesale local access market review; ensure BT's undertakings remain suitable to support super-fast broadband;
further work to understand the prospects and role of duct access in delivering faster broadband investment and competition; monitor prospects for shutting down the copper network and moving to fibre access; and work with the industry on extending broadband services beyond where the private sector plans investment.

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Green light for faster broadband
BT plans to plug some homes straight into the fibre-optic network

Regulator Ofcom ruled on Tuesday that it will present "no regulatory barriers" to the development of super-fast broadband infrastructure.

The ruling will allow BT to proceed with an investment of £1.5bn in the network, giving up to 20 million UK homes access to high-speed internet.

BT made clear it only wanted to make the move if regulator Ofcom allowed a fair return on that investment.

Ofcom said that hands-off regulation would lead to higher involvement.

"Our message today is clear: there are no regulatory barriers in the way of investment in super-fast broadband," said Ofcom chief executive Ed Richards.

"We want to promote investment but also ensure that there is fair and effective competition for the future."

The network would see the installation of fibre-optic cables to street-side cabinets, offering speeds of between 40 and 60Mbps, with about 1 million homes having fibre to the home and speeds of 100Mbps.

In a statement, Ofcom said that "Recent announcements of investment and planned investment, including Virgin Media's launch of a 50Mbps service, are very positive for consumers. Consumers will benefit even more from increased choice and wider availability."

However, the regulator has "a central role to play in enabling both investment and competition", it said.

That includes allowing wholesale pricing flexibility to allow BT to sell access to their network as a fair return on their investment.

Ofcom also suggested it would "minimise unnecessary inefficiencies" in the design and build of new networks, while "continuing to protect the consumer interest".

BT chief executive Ian Livingston welcomed the move, saying it "set expectations for the whole UK industry as the market evolves into a fibre-based world".

"Today's announcement gives us the green light to push ahead with our 1.5 billion pounds superfast broadband investment plans to reach at least 40 percent of UK households by 2012," Mr Livingston said in a statement.

'Limited options'

BT in the past has urged Ofcom to nurture a "supportive and enduring regulatory environment" which includes removing current barriers to investment and making sure that anyone who chooses to invest in fibre optics can earn a fair rate of return.

The communications company hopes to lease access to its new network to third-party Internet Service Providers and be given pricing freedom in order to earn a financial return on its investment.

Currently Virgin Media is the only other provider of a fibre-optic network to a large number of people in the UK. Its fibre-to-the-cabinet offers speeds of up to 50Mbps.

Andrew Ferguson, editor of ThinkBroadband.com, said: "The options for Ofcom were limited since if it refused BT then the only next generation like network approaching national coverage would be Virgin Media who currently offer no form of wholesale access."