May 02, 2013

Ofcom Starts Probe into BT's Superfast Broadband


The telecommunications regulatory body in the U.K., Ofcom, has opened an investigation as to whether BT, the U.K.’s largest supplier of physical network services, is engaged in "abuse of a dominant position" in the price it charges other Internet service providers (ISPs) to use the BT fiber-optic network. BT competitor TalkTalk complained to Ofcom about the access charges it pays BT and accused BT of "margin squeeze" in providing superfast broadband connection to competitors.

Ofcom has the power to regulate prices and impose penalties for bad behavior. And, as several stories coming out of the U.K. have speculated, if TalkTalk's complaint is successful and Ofcom intervenes, obviously competitors would benefit and so would consumers. In fact, the speculation is that a price war similar to the one a few years back when Ofcom stepped in to regulate BT's copper broadband network based on complaints that were almost identical, could ensue.

"We have long maintained that there needs to be tighter regulation in superfast broadband to ensure a level playing field and therefore deliver real benefits for consumers and businesses," TalkTalk said in a statement. "We are pleased that Ofcom is taking this matter seriously and has decided there are reasonable grounds to investigate BT's wholesale fiber pricing."

BT said it was "disappointed" that Ofcom had opened the case. "We are confident there is no case to answer. It would be better if the industry's and Ofcom's focus was on investing in the future of the country rather than on spurious actions designed to hold up fiber in the UK."

We have seen all of this before

If all of this sounds like déjà vu’ all over again, it is. Regulators have had to assert themselves when market forces do not work and/or dominant carrier actions are seen as impeding competition. The history of service provider competition in the U.S., for example, going back to the days of SP Communications and MCI (two names that have passed into oblivion) back in the late 1970s, is replete with such complaints including major anti-trust cases, and an over-haul of the FCC’s old access charge regime. The gist is that competitors say incumbents don’t give them equal physical access and interconnection at the wholesale level like they do their own retail operations, or they price the use of access so high that competitors can’t make any money.

It is not just in the U.S. As noted, Ofcom stepped in to fix the problem of access to BT’s copper plant. In addition, the European Commission (EC) in 2007 hit Telefonica with a substantial fine for the abuse the TalkTalk complaint alleges of BT. As noted, this is an old problem. 

Reality is that regulators have always struggled with how to foster competition by giving competitors equal physical access at fair prices to incumbents’ pervasively deployed networks, while also allowing the incumbents the opportunity to make a little money in their wholesale business as well as be able to fairly compete on the retail level.  

The challenge is that investigations like this by their very nature take time. In this instance, Ofcom will now ask BT to open its books, but will not even decide whether to pursue the case until the end of this year. What this means is that a decision won’t be for several years. This unfortunately is more than enough time for market conditions to have changed and for players to have come and gone.

Finally, it should also be added that totally separate from the complaint, Ofcom will investigate whether BT's fiber network should have price controls in the future. This will be taken under consideration when the regulators commence their market review in June.

Is price regulation in the U.K. likely? Flip a coin. History says yes, but the speed at which markets are evolving says it might not be relevant by the time all of the votes are cast.   Regulator interest is one thing, regulator lag is another. 




Edited by Stefania Viscusi




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