BT universal broadband offer risks hurting competition

Credit: chrisdorney/Shutterstock.com

The offer comes as the Government consult on their plans for the Universal Service Obligation (USO), which after much wrangling previous to the General Election has once again been settled on a minimum of speed of 10Mb rather than 30Mb.

According to BT, ensuring that (virtually) every premise in the UK could access at least 10Mb would cost them £600 million, yet as generous as the offer may seem, it isn't without its downsides.

That's because BT have essentially attached it to the condition that Ofcom withdraw from their plans to limit the wholesale charges Openreach can charge BT's rivals, something which would make it more difficult for competing providers to offer customers greater choice.

More customers

BT's offer comes as the provider announces its results for the second quarter of 2017, which like the previous quarter saw a reduced number of new broadband customers.

In Q1, this figure was an already modest 29,000, yet the succeeding quarter saw BT take only 53% (or 19,080) of the 36,000 new customers that were added to the UK broadband market.

This low figure of 19,080 would serve to reinforce beliefs among certain industry analysts that the broadband market is struggling to expand, yet it would also suggest that BT's offer is part of an attempt to secure additional customer additions at a time when these appear to be drying up.

It would see BT (or rather Openreach) extending their broadband network to the remaining areas of the UK that haven't been covered by the usual Broadband Delivery UK expansion, which is aiming to serve 97% of Britain with superfast (24Mb+) speeds by 2020.

According BT CEO Gavin Patterson, such an extension would "involve an estimated investment of £450m - £600m depending on the final technology solution".

Cost per premise of delivering USO

Source: Department for Digital, Culture, Media & Sport, USO consultation

And given that this would guarantee over one million premises access to broadband of at least 10Mb (a speed which can't always be obtained by those with superfast connections), such an investment would arguably provide good value for money.

Drawbacks

At the very least, the Government are certainly taking BT's offer seriously, with the Department for Digital, Culture, Media & Sport (DDCMS) stating, "The Government will now work with BT over the coming months to develop the proposal - which, if it is accepted, will be legally-binding".

That said, while an upgraded USO (the current one stands at 2Mb) is long overdue, BT's proposal has some drawbacks.

Certain news sites have already noted that it may take Openreach until 2022 to fully deliver, rather than 2020, while others (e.g. The Daily Mail) have even been so dramatic as to suggest that it will add £20 to the monthly bills of customers.

However, the biggest worry is its likely effect on competition and choice in the broadband market.

As the DDCMS reveal in their press release, the proposal notes that BT would fund their investment "through the charges for products providing access to its local access networks. The approach to recovering these costs will be considered in Ofcom's current wholesale local access review".

In other words, it's likely that BT want Ofcom to reconsider their plans to impose a cap on the wholesale price Openreach can charge ISPs (e.g. Sky, TalkTalk, Vodafone, etc.) for their 'up to' 40Mb broadband service.

As BT write in their Q2 report, they "are working with Ofcom ... to ensure that investments can earn a fair return and charge controls reflect the costs of improved service delivery".

Competition and Choice

Yet the scrapping of a cap would defeat Ofcom's main purpose, which as outlined in the regulator's 2016 Digital Communications Review (DCR) is to "promote investment and competition" in telecoms.

By allowing BT to charge greater wholesale prices in exchange for providing the USO, those rivals who rely on Openreach would be less likely to invest in broadband, and less able to offer customers competitive prices.

As such, choice would be reduced, something which would ultimately be to the disadvantage of customers.

And more narrowly for those customers in those areas where the USO will be most relevant, the fact that BT alone will be providing broadband of at least 10Mb would also limit their choice.

Ofcom stated in their DCR that "We will look to ensure that there can be competition to provide the USO, with the right technology deployed for local circumstances".

However, if the Government accept BT's proposals - which are to a large extent about helping customer additions and avoiding a wholesale price cap - then there clearly won't be competition to provide the USO, which will mean that (mostly rural) customers will benefit and suffer at the same time.