Gosh, what a huge shock: Ofcom shies away from BT Openreach split, calls for reform UK Communications regulator Ofcom waited until late February to shy away from recommending spinning off BT's Openreach, instead saying BT must open up its network to competitors and reform Openreach. The initial conclusions of Ofcom’s Strategic Review of Digital Communications said BT must open up its network of telegraph …
Why no Universal Service Obligation recommendation?
Some time in the last century a telephone went from a luxury to an essential. Around that time the Post Office, as it was then, was placed under an obligation to connect a telephone for anyone who wanted one, anywhere in the UK, for the same flat rate everywhere.
Broadband (say 8Mbps) has gone from a luxury to an essential. So why not extend the telephone obligation to specify a network connection capable of supporting broadband at a speed of no less than 8Mbps, anywhere in the UK?
Sure, it'll cost. Everyone else will be subsidizing the remotest locations. But that probably translates more into a reduction in the rate at which prices fall, rather than any rises.
Market forces will never accomplish this. It will never be in the interests of anyone to provide broadband to the last <5% if doing so incurs a competitive disadvantage recruiting or retaining the other >95% of customers. So they'll be stuck forever with 56K modems or impossibly expensive high latency satellite broadband.
Sigh. (Counting myself lucky: 8Mbps when it's dry, 3Mbps when its raining, fiber coming "soon")
"Why no Universal Service Obligation recommendation?"
The last 10% costs the same to cover as the first 90%. Assuming all sorts of things remain true that would result in everyone's cost doubling.
It's not quite that simple though. Virgin cover over half the country - almost all of that in urban areas. USOs only work if the urban customers subsidise the rural ones - but where there's an urban competitor the urban customers jump ship and the subsidy is lost.
I think that unless you made Virgin contribute to the USO all that would happen is that Virgin pick up more customers at the expense of BT and rural broadband would remain unaffordable.
an obligation to connect a telephone for anyone
Firstly, subject to the Treasury making funds available to expand the network. Which they usually didn't, which is why there were long waiting lists and you were lucky even to get a "party line" between the 1950s and 1980s.
And I'm sure there was some sort of "reasonableness" test - I remember having to dig a trench beside a long access road because, as I vaguely recall, the distance from the public highway was greater than the GPO's limit.
I think you can be fairly sure that if the Treasury was still funding building out the network they would long ago have decided that 56kbps was enough for anyone.
"Firstly, subject to the Treasury making funds available to expand the network. "
BT have been given funds to roll out broadband, which was promptly spent on other items.
Note that when New Zealand forced the split of the telco/lines stuff, that decision was made by the ministry of commerce, not the telecommunications regulator. They'd run the numbers and worked out the economic damage that the telco has done (and was doing) to the country.
If you want to force the split then try and approach it from this point of view. Ofcom is a captured regulator.
> an obligation to connect a telephone for anyone who wanted one, anywhere in the UK, for the same flat rate everywhere.
Yes and no. They had to connect anyone who wanted connecting, but it wasn't a flat rate. There is a standard connection charge for a line, but if you have something that needs extra engineering then they'll charge you for that - and boy do they know how to charge ! I recall I used to take an interest in such things many years ago, but I've not seen prices for over a decade, and back then they charged £1,000 per 100m for trenching (I think that was in a street, open country might have been cheaper). Similarly there is a charge per pole for running a line of poles to fit you a phone line in Middle-of-Nowhere Manor.
So yes, there is a universal service in that you can have a phone just about anywhere - but realistically there are plenty of places you would not be prepared to pay for it.
Much the same applies to the argument about "but we've allowed it for years" regarding access to ducts and poles. Yes that's true, and the complaint from those that aren't using that facility is "it's too darned expensive" - ie BTOR charge a third party a lot more than any notional internal charge for using it themselves.
Even ignoring this, economics of scale still apply - if BTOR have a 500 pair cable up the duct from the exchange to my local PDP then that's going to be fairly well utilised and each active line will take a fairly small amount of space in the duct (ie the size of the large cable divided by a fairly large number of active lines running through it). If Lower Uppem Community Telco want to rent duct space, they may be starting off with only one or two users - and they'll have to pay substantially more per line because they'll have a smaller cable with fewer pairs, and even fewer active connections. The size of a (say) 50 pair cables is far far more than 1/10th of the size of a 500 pair cable, and I assume part of the pricing is the duct space used.
But back to the article, the decision is disappointing - BTOR is still owned by BT, and it doesn't matter what rules are put in place, a business tends to make the decisions it's owners want them to make.
You ask 'Why no Universal Service Obligation recommendation?'
That's because its not Ofcom's job - the Government have already decided on a new 10MB USO and plan to consult on it later this year..
Why the consultation? Well as the other replies to your post point out - someone has to a) pay for it and b) implement it - the question is who or what combination of parties..
BT shares up 11p already today also tells it's own story.
That's a little over 2.2%, with a market movement on the day of 2.4%.
I'm not suggesting the regulators decision isn't a cop out, because it is, only that the share price movement of BT didn't happen for the reasons you expressed.
All the profitable bits taken by others, the post office left with universal service obligation and then denounced for being unprofitable.
Not a particular fan of Openreach but unless we want most of the country to turn into a not-spot there is really a need to enforce a USO on all the participants, not just BT.
" there is really a need to enforce a USO on all the participants,"
No, there's a need to force it on the outfit supplying the lines. BT and the others can then all buy service from it.
If BT want to take USO money then they need to separate dialtone operations from lines operation entirely.
Err... I thought that was the normal round of things.
What do you expect from a regulator which allows the vested conflict of interest when spouses are allowed to work for the subjects being regulated.
I can point to names, but that is frankly unnecessary - you can fish 'em off linked in and facebook.
So screwing is definitely happening and it is part of the day to day, actually night to night operations.
@msknight
Screw you, Ofcom.
I thought that too.... then I started wondering what defines a competitor? Specifically I'm wondering what stops me from setting up "14 Acacia avenue cable company" with just the one client, me. Then run the fiber from my house direct to the xmas tree.
OpenReach can and will remain utterly hopeless and devoid of competency, but even allowing for that, dumping the copper should make my... clients... speeds significantly faster.
Gavin Patterson said:
“We are happy to let other companies use our ducts and poles".
I'm not sure if String Fellows still operate but I'm sure he would find a use for them (Splinters dependent).
This could make my drive to work far less boring and it would have the added benefit of keeping those poles from rotting away with the copious amounts of baby oil lashed up them.
Not sure what kind of business would buy into the 'ducts' though?
And there was me expecting demands for Openreach to be completely independent. Which would actually result in it being bought by AT&T, DT, FT of Telefonica after a few years. Not that BT won't sell itself off when the right opportunity arises anyway.
With technology moving as fast as it is, and customer demands ever increasing you can bet that no matter who owns OpenReach, the bulk of the investment will go where the return is, and cities are where most everyone lives these days. Investments pay off quickly in cities, not so much outside, I'd bet some small villages still haven't paid back the cost of their first exchange lines.
> Not that BT won't sell itself off when the right opportunity arises anyway.
No, BT won't sell them off for the same reasons they've been fighting this. Owning OpenRetch gives them control - it means that when OR are making strategic decisions, they'll make them in a way that's beneficial to their owners (BT). For example, when deciding what services to provide at any location and at what cost, they can tilt the field in favour of BT.
For example, for a long time, we had no FTTC round the office (even though almost all other cabs in the town were enabled) because the cabinet didn't serve many (if any) residential customers - an effect reported on from around the country. This forces businesses to either make do with ADSL or buy "more expensive" options. Even if those other options aren't from BT, it makes BT's leased lines business more competitive without having to slash prices.
In the past, you only have to look at the features they left out of ISDN-2 to see how this was designed to not damage their leased lines business.
Without control of OR, BT becomes "just another provider" - ripe for having it's services picked off by more nimble competitors.
> We are happy to let other companies use our ducts and poles
If you've seen the bureaucratic nightmare of how this works in practice, you'll understand why people don't. For poles at least, permission has to be booked by an entirely manual process involving sending a *fax* for each customer you want to connect.
There is a vicious circle here. Presumably, Openreach say they won't invest in automated APIs for using passive infrastructure because nobody is using it. But people don't use Openreach's passive infrastructure because it's such a painful process, and because they suspect OR is purposely making it difficult.
Who wants to build a business plan which is based on competing with BT but being wholly dependent on part of BT?
"Who wants to build a business plan which is based on competing with BT but being wholly dependent on part of BT?"
Nobody with a clue. Some have tried, few have succeeded (I'd say none). Not just recently but going back a decade and a half, more if you count ventures like Ionica:
http://www.ionica.co.uk/ (yes it's still there)
We are happy to let other companies use our ducts and poles
In my experiences with BT, if there's even a sniff of a non-BT cable in a BT duct, they throw their toys out of the pram and cut all the suspected cables. (What makes this fun, is that BT don't actually know what cables they have in the ground, so they could end up cutting their own cables!)
of BT being told to do this and told to do that... why? Just straight out, why? Did the Government not decide that the country was better off with a competitive market rather than a state owned megalith? So it sold it off. Cut the cord. "Go forth and profiteer!" they were told. Ah, but you can't do that, can you? No, because the very creed of greed says that you go for maximum profit for minimum expense - hence high density living in cities = maybe 1 reasonably well to do subscriber paying £100 per month for every 10m of cable & ducting that you need to lay to get to them. Compare that to Eimaer O'Donnell who is 10km from the nearest cabled main road and makes a living manufacturing Argyle hand knits from her own flock and is almost living hand to mouth and can maybe afford £20 a month as a business overhead... No company in a free market is EVER going to sign her up because there's a net loss when you factor in the repairs to the infrastructure that's now your responsibility.
So you can't have it both ways unless you are really, really clever and impose some form of additional ring fenced taxation or service obligation on every provider. And we don't want to upset the big firms now, do we?
If BT had been forced to spin off Openreach, how long would it have been independent for though? I'd expect bids within days from all the usual suspects (EE / Vodafone / Telefonica / AT&T / even Sky) and then we'd be back to square one. Or it gets bought by an investment group, profits are milked, and the entire thing ends up falling over in a decade.
If it's deemed that Openreach needs to be independent of the operators, then maybe it should be nationalised. Bearing in mind it's Openreach, it's hardly likely that it can become more inefficient and expensive than it already is, despite the normal complaints of nationalised entities.
If not, well sometimes we have to choose the least worst option, which sometimes (even rarer), means we have to choose BT.
"Or or could be run as a not for profit mutual, with the owners being the users. Like the nationwide building society is run."
The problem with that is that it ruins the businesses of Virgin, Gigaclear, Hyperoptic and so on.
if Openreach get cheaper and expand faster broadband to more places, those guys have to lower their prices or lose all their customers. Their investors will not make the returns they expected and will jump ship.
If Openreach don't get cheaper or rollout to more places as a not-for-profit, what the heck was the point? That ignores as well the difficulty they'd have with funding - investors want to make a return. No profit, no investors. Openreach's ability to continue any kind of investment would cease if they were not-for-profit.
"if Openreach get cheaper and expand faster broadband to more places, those guys have to lower their prices or lose all their customers. "
You are assuming that Openreach "competes" with Virgin and friends.
An independent Openreach will as happily sell service and duct access to Virgin as BT - and more importantly, will sell _much_ cheaper backhaul to them. Once it's not owned by BT there are no restrictions on selling to BT's competitors.
So: Yes they'll be able to lower their prices AND keep the investors happy.
The model for this is New Zealand. Remember they forced the telco/linesco split after the telco aped the BT model in an effort to stave off regulation of monopoly abuse - the NZ _commerce_ (not telco) regulators looked at BT's ongoing market abuse and forced the two newly created divisions to be split up to prevent the same thing happening in NZ (bear in mind they'd already faced 20 years of extreme monopoly abuse. so were far less inclined to roll over and play dead)
"Bearing in mind it's Openreach, it's hardly likely that it can become more inefficient and expensive than it already is, despite the normal complaints of nationalised entities."
Look to New Zealand. The handbrake on Openreach is BT, not Openreach.
They should have spun out BT retail from BT Group as a separate company, that way everyone who sells broadband or phone services on the BT network would be in the same boat without a paddle.
Then BT group and Openreach could the be forced to treat everyone equally as they do not provide retail services at all and BT Group/Openreach can be beaten up over decent services for everyone without accusations of favouritism or discrimination.
"At the very least make it a co-opreative or non-profit entity."
That would need the government to find a very large sum of money to buy it from the pension funds that mostly own it today.
Then you'd need to think about how Liberty Global (Virgin's owners) get compensated for having the profitability of their network business wiped out by government regulation - that's going to cost tens of billions to resolve.
It sounds simple but in practice it would be incredibly expensive and long-winded with unintended consequences everywhere.
Generally a well-regulated but profitable business will deliver better stuff more quickly because its in their financial interest to do so. If market failures occur - rural broadband for instance, that's then the job or the regulator to address.
"That would need the government to find a very large sum of money to buy it from the pension funds that mostly own it today."
And that's only the start. The government would have to find funds for all Openreach's investments. After a while all the whiners presently calling for it to be nationalised would then be wanting some further change on account of the lack of investment.
Those who can't remember the past are condemned to repeat it. In this case, queue up for your party line. And that's not a political term.
"Then you'd need to think about how Liberty Global (Virgin's owners) get compensated for having the profitability of their network business wiped out by government regulation"
Why would being able to get access to the last mile almost everywhere without having to dig up roads reduce the value of their networks.
This post has been deleted by its author
Gee, I wonder why that is. No point at all for small setups. Last time I looked into this:
1) You had to pay a £10,000 deposit before Openreach would talk to you. If you didn't do enough business in the first year, then this was "retained".
2) You had to pay some £350 (each) to repair any duct collapses affecting your installation, even though you were being charged rental to use them.
3) Minimum rental period was 2 years. There was no automatic right for an extension at the end of this.
4) Duct charges were unlikely to be affordable unless you got most of the customers in an area to use your service.
5) You paid extra for each spur to a property. Something like £15 (can't recall if that was yearly or monthly).
Pole access was similar.
Who in their right mind would accept that lot on the risk register?
I can't wait for those keen telecoms companies to knock on my door offering to run 500m of their own wet string to my house instead of using BT lines and ducts ... I love the smell of flying bacon in the morning ...
Fundamentally, Openreach needs nationalising (ie the infrastructure is secure and owned by the state) and those that use it can fight over customers on the end of the lines. Much like Railtrack and the rail companies because that works well ... sort of. It would mean that when the state says "we're investing in high speed roll out" it would be the state investing in actual infrastucture, not big institutional shareholder's wallets. Oh, sorry I've just found the glaring error in my thread ...
It's been 12 years since the last time they last made a fuckup of this (from the user perspective - clearly not the shareholders), and apparently nothing has changed, other than the bloke responsible for the decision last time now has a plump little job at BT, and nothing whatever has been learned. So now we can look forward to plenty more nothing, as BT gets on with the serious business of doing it in spades, sitting on its hands and whining about the difficulty of doing X, Y or Z until the government hands it yet another regulatory advantage, or just a huge wad of public money - the acquisition of which seems to be BTs primary business these days.
I wonder who gets the golden ticket to go through the VIP revolving door this time?
" the bloke responsible for the decision last time now has a plump little job at BT"
Stephen Carter was a senior exec in NTL before he took the Ofcom job and went from there into a government role, finally ending up back in the industry in a job with Alcatel-Lucent.
Who is it you're claiming was rewarded with a job in BT?
"apparently nothing has changed"
That's right. Stuff which costs a lot of money still costs a lot of money. Stuff which requires a lot of manpower still requires a lot of manpower. Nimbys who want services are still Nimbys. Brookes law hasn't been repealed.
... and pondering allowed ?
I wonder if about 2 or 3 or more weeks ago OFCOM sent BT a draft of its findings or draft rulings to be?
BT cribbed with formal reply that now, in the main, forms the gist of OFCOMs revised plans?
Of course those speculated revised OFCOM plans are now almost in entirety BT plans?
And if so if rest of UK telecoms were invited for a response to the draft and revised draft?
Just wondering and pondering allowed aloud that's all.
This would have been the ideal opportunity on bringing BT to book over their broken promises to run Openreach as an arms length organisation and finally spin it off as a truly separate business. Instead they've been given the green light to carry on the same as usual.
Particularly galling is not a thing was said about BT forcing everyone to fund their acquisition of EE via the hikes in the wholesale broadband prices (The Reg), regardless of who your ISP is (except for a tiny few that don't use the last mile).
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