It’s significant for a regulator to be quite so explicit about how they expect to regulate for a decade and beyond
Not a lot of change from the last consultation: In what has been a long journey to this point, Ofcom has not strayed significantly from the approach set out during the consultation process. More detail has been provided on the copper switch-off (volume 3), and what’s largely new is how clearly future regulation and fair bet are set out. It was already a first for Ofcom to look at a five year time horizon (rather than the usual three), and really quite unusual to have been so explicit about how it expects to regulate over the next decade and beyond. In having given BT the regulatory enablers they asked for, Ofcom’s hope is for a turning point and move forward on broadband investment. The regulator is buoyed by the appetite for demand in more rural areas and the interest to invest by others to Openreach, and seems confident that there will be at least 70% commercial build by 2030.
Long term certainty is essential for BT but great for other builders too: While today is largely about incentivising investment from BT, it’s also about attracting others into the market, and so the competition aspects of the review are just as important, for instance duct and poles. Ofcom’s Chief Executive has been personally chairing the working group here, and while there will always be work to do, said she is pleased with the real progress that’s been made. The early response from other fibre builders suggests the regulator has set a completely different tone to previous reviews, and gone further than expected on addressing anti-competitive practices, with a ‘golden competition thread running throughout’.
What does this mean practically for the future? Market conditions will be the trigger for how Ofcom will regulate in the future – i.e. the prices and services available to consumers, rather than the number of infrastructure builders in each area. Should it need to regulate, Ofcom said it would go back and look at when the investments were made, what the WACC was at the time and what the risk was like. But Ofcom clearly has the mindset of not wanting to regulate price in the future and is keen to look for anything to avoid going down this road. Volume 4 (section 1) deals with this and sets out the desire to be lighttouch in regulating after this market review period and with a bias against intervention. If, at the end of this period there isn’t established competition, but there is ongoing investment, Ofcom has signaled it will regulate in a way to support this. If investment has dried up, it wouldn’t automatically go back to price controls. In practice this suggests not intervening if customers in non-competitive areas were getting the same deals and prices as those in competitive ones.
Source: https://www.ofcom.org.uk/about-ofcom/latest/media/media-releases/2021/rollout-full-fibre-broadband
