After some recent public criticism of the regulator, Ofcom defended taking on more responsibility and restated its commitment to promoting competition
Background
On 5 October 2023, Ofcom held an in-person briefing for analysts and investors on the UK telecoms sector. A format that hasn’t been run for about five years, and which used to be slide-heavy, has been reincarnated as a more Q&A-based event. Brief opening remarks were given by Melanie Dawes (CEO) before handing over to Lindsey Fussell (Group Director, Networks and Communications) and David Willis (Group Director, Spectrum) for updates on developments in their respective areas.
Ofcom defended its role, remit, relationship with Government, and staffing levels
In her introduction, Dawes outlined Ofcom’s role as a converged regulator, with a remit spanning telecoms, post, media and online safety. Her view was that this multidisciplinary duty makes a lot of sense, with being able to see “across the piece” particularly beneficial. Dawes highlighted the conclusion of Ofcom’s cloud market study, published the same day, as an example of the regulator thinking ahead and thinking broadly. She rebuffed a later suggestion that Ofcom had been softer in its oversight of BT given its expanded remit (and particular focus on online safety), stating that it has not diverted resources from traditional areas to new responsibilities. To a question on the impact on Ofcom of a potential new government next year, Dawes replied that any change to the regulator’s remit would require primary legislation, involving some time and stakeholder consultation. Until then, “you will always get a commitment to competition from Ofcom, and decisions that give stability.”
Wholesale broadband regulation will remain staunchly pro-investment
Most of Fussell’s remarks were dedicated to fixed broadband. In early 2024, Ofcom will kick off the next Wholesale Fixed Telecoms Market Review (WFTMR) for the period 2026-2031. Fussell noted that while Ofcom’s long-term framework for encouraging fibre investment is very likely to remain unchanged, this review will have specific issues to tackle, including the copper switch-off and the potential for some areas to be deregulated. Questions largely focused on the current altnet landscape, BT and Sky only buying from Openreach, and take-up of fibre services. We were reminded that it’s not Ofcom’s job to go in and fine tune the market, that they don’t regulate retail ISPs, and that we’re only 2.5 years into a long journey – so sit tight and allow that to happen. Commenting specifically on the sustainability of overbuild, we were told that “investment in infrastructure that rots in the ground is not a good outcome.”
Consumer issues: In monitoring mode – but stand ready to intervene
Ofcom’s consumer interventions have mostly focused on helping users navigate the market and supporting the vulnerable. Reiterating what was said in Ofcom’s future approach to mobile markets, Fussell stated that Ofcom is in “monitoring mode” and should not be expected to introduce any significant new regulation in the foreseeable future. When questioned on the impacts of CPI+ price rises, Fussell echoed previous comments from colleagues that the concern is more with the transparency of recent increases, rather than the scale of them. Fussell also clarified that Ofcom is not seeking to regulate retail prices, but instead wants to ensure consumers have the information they need at sign-up (with many often not fully understanding how inflation affects their bills). On the sustainability of recent pricing mechanisms (i.e. inflation plus), Ofcom wasn’t convinced that operators will enjoy with premium – instead expecting it to be competed away.
Competition still seen as the driver of investment in mobile
Attention next turned to mobile, but with just one slide and largely a repeat of the contents of the mobile market review, little new was said. While the proposed Three/Vodafone merger was off-limits, Fussell acknowledged both operators have struggled to consistently earn their cost of capital, that Ofcom is not against consolidation per se, and that it still sees competition as the primary driver of investment. Willis followed with an overview of the work Ofcom is doing to promote flexible spectrum management. He highlighted mmWave and 1400MHz as the regulator’s top spectrum priorities, as well the upper 6GHz band, which will be a central feature of the upcoming WRC-23 that begins in November. Nothing was given away in terms of what to expect from the review of ALFs, other than something is due in the next couple of months.
The approach to net neutrality was positioned as an area where the UK was ahead of the (EU) curve
Finally, on wider policy issues, Fussell acknowledged the ‘fair share’ debate that is playing out in several markets, particularly the EU, but echoed the preliminary view in the net neutrality consultation that Ofcom wasn’t looking to pursue a charging mechanism at this stage. The regulator remains fairly constrained in its ability to change the rules on net neutrality, and can really only focus on interpretation and enforcement of the rules. As per the consultation, there is scope for improvements to allow more innovation and efficient management of networks, and conclusions will be published shortly. This review was signposted as a good example of how Ofcom has diverged from the EU in light of Brexit, and was ahead of the curve since regulators elsewhere in Europe haven’t revisited the framework in quite the same way.
