Kitz Forum
Announcements => News Articles => Topic started by: Black Sheep on July 26, 2016, 01:37:58 PM
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Ofcom’s digital communications review
Ofcom have today announced their latest proposals with regard to their review of the UK’s digital communications markets.
As we have said all along, the UK benefits from Openreach being part of the BT Group, so we welcome Ofcom’s recognition today that structural separation would be a disproportionate move.
We have volunteered to make significant governance changes to further enhance the independence, autonomy and transparency of Openreach, whilst ensuring it continues to benefit from being part of the larger BT Group. We believe our proposals provide Ofcom with every benefit they’re seeking but without any of the substantial and unavoidable costs associated with their proposal. We believe these changes are the right thing to do to improve customer service and how Openreach works with industry.
Our proposals, which we have already shared with Ofcom, include:
• the creation of an independent Openreach Board, accountable for the business’s strategy and operational delivery. It will have an independent chair and a majority of independent members to be appointed in consultation with Ofcom. Clive Selley would be accountable to the Board and to me
• an enhanced consultation process with industry on substantial future investment decisions and the development of new products
• greater delegation of operational and budgetary control
• enhanced capabilities and resources to enable it to be more self-sufficient in decision-making
The UK is the most digitally advanced nation in the G20, but further investment is required if it’s to keep and extend that lead. That’s why we are poised to invest a further £6bn over the next three years, but we want the regulatory uncertainty to come to an end.
I know for colleagues, particularly those in Openreach, Ofcom’s review has been unsettling. We believe the changes we have volunteered are a bold and appropriate response to the concerns outlined by Ofcom and others. We believe our plans can deliver all of the benefits but without incurring substantial and unnecessary costs. And they enable Openreach to give customers better service, broader coverage and faster speeds, while remaining part of BT.
There are some differences between our proposal and Ofcom’s, however they have been clear they have not reached a definitive position and will consult on the proposals. We will now discuss how we conclude this with Ofcom and industry over the coming months.
Gavin
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Ya, Gavin conveniently ignores that that £6bn includes EE's capital expenditure.
I've been doing some research and it does indeed look as though BT Group have been spreading the risk of their investments in content across the group, including onto Openreach, at the expense of investment in infrastructure. This, alongside the frankly absurd way Openreach have been deploying FTTP, will have been a big reason for the shift from a mixed technology deployment to basically FTTC everywhere other than a few trials and taxpayer subsidised areas.
BT Group should absolutely keep hold of Openreach, however Retail should be gotten rid of. If BT think spending hundreds of millions on content rights and production is such a great idea it can live or die on its own merits, not have its risk mitigated at the expense of Openreach's customers.
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Yes, well I agree this is the best way forward for all of us. It needs keeping an eye on.
BT need to focus on what made them in the first place. People complain about things that should be easily done by BT. I think being the carrier for content programmes in the long term will be a better investment than being in the position of sky who would then have to rely on that network.
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I think everyone is agreement things need to get better, but the sheer size and scale of the business dictates it will take time.
OR's CEO (Clive S) has also mailed his employees basically mirroring the comments Gavin made above, and also pointing out that our quarterly KPI's are available to be viewed here ..............
https://www.homeandwork.openreach.co.uk/OurResponsibilities/our-performance.aspx
.............. and show how progress IS being made. Continued focus is crucial.
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The invesrtment figures in openreach are a pittance, and at first I thought an extra 6 billion ok its a start, until ignition clarified its a misleading statement from the CEO.
I cannot help but feel ofcom have been had here, it makes no sense to me why they have been having meetings with BT the company they supposed to be regulating, as those meetings are obviously an opportunity for BT to manipulate the regulator. I get the feeling ofcom wanted to split openreach off but BT made it clear to them if they attempt it they will be stubborn and make it difficult hence we got this solution. But this I feel is useless if there is not a hard investment target set by the legislator otherwise BT can and probably will continue to dupe everyone.
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Lets leave these things to the big boys ....... until we have a proven Captain of Industry commenting on here, it's just ones opinions. Be that mine, Ignitionets, yours ...... whoevers.
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I agree that this outcome is probably the best we could hope for, however unless real investment targets are set and achieved the I believe OFCOM will have no alternative but to go for complete separation. We simply cannot go on like this with BT calling the shots as I feel they have here. Lets hope OFCOM put their false teeth back in and really enforce change and increase investment.
@BS I dont think it needs a Captain of Industry to see what has happened here, everyone is entitled to their view but it is obvious that BT have yet again managed to get the best deal for the company and not necessarily the best deal for customers. However we have what we have and as I said OFCOM now MUST show their teeth and force more investment and far better customer service because the latter is woefully inadequate for the 21st century.
Stuart
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Last time I looked, this whole website is full of opinions. Why should this one thread be different?
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Yeah ..... I suppose it is. I think BT have bent over backwards for Ofcom.
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With all this news being a headline on BBC news what does all this mean to Mr/Mrs average broadband users will we get faster broadband or more FTTP will we get better qualified OR engineer support or a new All in One Cabinet no more than 300 meters to any premises in the UK ???
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I think if there had been a viable alternative to the current situation then BT would have been under more pressure. Ofcom can't really pressure the situation because if they did split it up, someone else is going to have to take a lead role and so far the other big player sky have been vocal but not actually committed to anything itself. It could easily setup a proper small scale version of OR and give a working example to ofcom. But it doesn't. It's half hearted attempt in York I think give them second thoughts.
I do think as the years ago on that the other smaller companies than sky, like cityfiber, hyperoptic might be in a situation to attempt a smaller scaled version. But until then with sky not giving ofcom real world alternatives then if ofcom did split we'd be jumping in to the unknown and who knows how long it would 1. take to sort out, and 2. how long current technology advancement would be delayed.
I think this situation goes back to the 'what happens when a nationalised industry goes private'. Someone as to own the network so they are always going to be at an advantage until an alternative network appears. Currently I think the only serious challenge to BT/OR is VM. I think it'll end up being a battle between BT and VM that drives investment forward for the next few years.
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A long time ago, I think I pointed out that my stance was: Whatever got the best investment for the future.
I haven't reached a conclusion from today's 2 announcements as yet, so I won't say more about how I'm favouring things.
Ya, Gavin conveniently ignores that that £6bn includes EE's capital expenditure.
I think I was pointing this out on the day of the last results. Most people seem to ignore it, but I doubt that Gavin does.
at first I thought an extra 6 billion ok its a start, until ignition clarified its a misleading statement from the CEO.
Is it misleading? I don't think so: it is a nice, round, headline-grabbing number, and the constituent parts were never hidden. Anyway, I've now gone back and thought about it a little more deeply...
Looking back at EE results, it seems to show their CapEx has been running at £600m per year.
Until last year, Openreach CapEx had a few years of being around £1100m (I'll dig out a graph on that) - those figures being net of BDUK grants (which means Openreach spent more CapEx than the £1100m, but that extra capex was paid for by the BDUK grants). Last year the Openreach CapEx had jumped to £1450m, mostly because BT needed to report extra capex to offset the BDUK clawback being refunded (for that year, plus backdated clawback).
So should we expect BT to have a standard CapEx, for EE and Openreach combined, excluding any BDUK offset, of £1700m per year? £1100m + £600m per year, or a total of £5.1b over 3 years? That would continue an allowance of £300m-400m per annum in Openreach for NGA and/or commercial G.Fast funding.
It looks like Gavin's announcement of £6bn represents an increase of £300m per annum, or a 17.5% increase.
That's not huge, but its not to be sniffed at either. It would fund a doubling of the rate of the NGA rollout, for example.
We just don't know how much is destined for better commercial G.Fast coverage through Openreach, or for better NGA coverage through Openreach (via increased BDUK offsets, or USO funding), or for better 4G coverage with EE. We do know it isn't for TV rights.
I'll have a think about what I think this might mean, at best, for the investment in the planned (G.Fast & FTTP) rollout.
I cannot help but feel ofcom have been had here, it makes no sense to me why they have been having meetings with BT the company they supposed to be regulating, as those meetings are obviously an opportunity for BT to manipulate the regulator.
I don't see a conspiracy here.
While the threat of a significant change in regulation hangs over BT, they can't go ahead with *any* significant new investment. That will include the G.Fast rollout too.
It is in BT's interests as a business for them to reach a fast negotiated agreement - whether that agreement is with Ofcom alone, or with Sky and TalkTalk, or with all 3 and dragging VM in. It is in Ofcom's, and the government's, and the country's best interests too. Negotiation is how Openreach came to life, and is so much better than falling into the legal defensive pathway.
The skill in negotiation is, after all, trying to figure out a win-win situation for all sides. Why *wouldn't* you have meetings?
After they've figured that out, we can lend the negotiators to the Brexit team...
a misleading statement from the CEO.
Another aspect to this same issue...
Why would BT's CEO suddenly decide to add together the CapEx figure for two components of his empire, and headline it?
Is it just a way to combine the capex on the parts of the mobile & fixed-line network that subscribers normally see?
Or is it an indication of network convergence to come? Certainly BT have chosen to integrate EE in a way that *never* happened with Cellnet/O2.
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Right, I found the graph I mentioned in the previous post.
The first one was published somewhere that I totally fail to recall. It shows the Capex for Openreach for each financial year, and splits it into an "NGA rollout" component, and an "everything else" component. I guess it demonstrates the "flat" total, but also highlights that the "everything else" category is, under Ofcom's guidance, meant to be dropping.
The second graph has been augmented by the additional capex for the BDUK rollout that is offset directly by grants (ie is capex paid for by BDUK).
The whole graph pre-dates the 2015/16 results, and doesn't include anything about the "deferred BDUK grants" - which will become extra BT capex (ie increased grey boxes) at the expense of less BDUK capex (smaller green boxes).
I've been doing some research and it does indeed look as though BT Group have been spreading the risk of their investments in content across the group, including onto Openreach, at the expense of investment in infrastructure.
In terms of these graphs (capex for each financial year) what kind of amount do you think Openreach has suffered?
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I reckon the skewed risk has resulted in Openreach seeing 20-25% less investment than it should have.
Those numbers - when you put them in real terms how do they look?
I'll help - the 1.108 billion in CapEx from 2006/7 would be 1.446 billion now.
The way Openreach is being run is nuts. They are hiring engineers to maintain an obsolete network rather than trying to replace it. I just don't get the thinking on this. Surely with borrowing being so cheap across the board they should be investing heavily into capital expenditure in order to lower operational expenditure going forward, not hiring engineers to get the KPIs on their copper network up?
I'm obviously not privy to the behind the scenes regulatory discussions but surely if BT were making an effort to take the FoX project beyond the trial stage we'd have heard more about it, if nothing else through BT's PR machine?
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Yeah ..... I suppose it is. I think BT have bent over backwards for Ofcom.
Indeed they have.
Ofcom have been a joke. They've completely messed up pretty much everything they've touched and their latest hair-brained scheme for cross-platform switching is just going to make things worse.
However I temper my sympathy for BT with the thought that, for the price of a single year of Champion's League rights, BT could increase their commercial FTTP coverage by a factor of 5.
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I still have verizon's CEO comments in my head when he mentioned the savings on maintenance from ditching copper were so big that it almost in itself funded their fibre rollout.
The answer to your question ignition is sadly BT are thinking only short/medium term, I still remember your payday loan comment and still think it has a ring of truth to it. :)
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I reckon the skewed risk has resulted in Openreach seeing 20-25% less investment than it should have.
I doubt it's that great. Ofcom often produce 'interesting' figures but they are usually based on economic theory and the assumption that BT is an (economically) efficient operator which is virtually impossible to be in real life.
As such, I doubt the extra CapEx expenditure would be much higher if Openreach was independent- in fact, if I put my mind to it, I could easily make a case tha CapEx would fall if Openreach was separate.
I know BT has previously also made the statement that the CapEx figures are misleading as you can now buy much cheaper and capable kit than previously- so the spend goes further and is not directly comparable- make of that what you want.
The way Openreach is being run is nuts. They are hiring engineers to maintain an obsolete network rather than trying to replace it. I just don't get the thinking on this. Surely with borrowing being so cheap across the board they should be investing heavily into capital expenditure in order to lower operational expenditure going forward, not hiring engineers to get the KPIs on their copper network up?
It's being run in order to meet the targets it's regulated against with the prices/return fixed by Ofcom. It might be crazy but it's perfectly logical - and as a company they always have to remember the pension deficit - in fact it's often joked that BT is a pension fund with telecoms sideline.
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We just don't know how much is destined for better commercial G.Fast coverage through Openreach, or for better NGA coverage through Openreach (via increased BDUK offsets, or USO funding), or for better 4G coverage with EE. We do know it isn't for TV rights.
Not sure why I have formed the impression from but I think that in the early years the investment will be more around 4G and meeting the requirements of the emergency services communications contract.
This will expand the reach of EE's 4G network, thus having a commercial benefit as well - I suspect the spend will then change to g.fast as the technology will be more mature and demand will hopefully have been proven.
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It's being run in order to meet the targets it's regulated against with the prices/return fixed by Ofcom. It might be crazy but it's perfectly logical - and as a company they always have to remember the pension deficit - in fact it's often joked that BT is a pension fund with telecoms sideline.
I'd have thought carrying lower operating costs going forward would've been better for the pension deficit than taking on a bunch of new staff who will, in time, be wanting retirement benefits too.
Over 90% of the UK is passed by FTTN now, with zero prospect of any exchange lines being retired.
Of course these conversations may have gone on in the background as I said, but I'm very surprised there wouldn't have been any kind of leak or PR.
Speaking with a CTO of a firm in the sector the ideal would be getting shot of BT Retail from the group, getting rid of LLU and replacing with bitstream-based VULA products and a PIA+ product.
Sadly this is probably beyond the wit of Ofcom to contemplate.
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I suspect that they wouldn't be significant cost savings until fibre largely replaced the copper network - until then BT would need to maintain the copper network while hiring lots of staff to install fibre in the interim - for little immediate gain.
We also have to face the fact fact of the 500 odd Openreach customers customers only a subset retail fibre products. Having said that I understand BT have said that ISDN and PSTN should be switched off in 2025 and have previously spoken about wanting a sunset clause for things like copper LLU.
I haven't studied the figures in detail but it looks like the current NGA investment is effectively only replacing the revenue that Openreach lose elsewhere due to price controls on other products.
One pensions the problem is historic - the current schemes will be much less generous and based on more realistic life expectancy..
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ofcom would implode if we killed LLU, it is their baby.
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I reckon the skewed risk has resulted in Openreach seeing 20-25% less investment than it should have.
Those numbers - when you put them in real terms how do they look?
I'll help - the 1.108 billion in CapEx from 2006/7 would be 1.446 billion now.
Does that take account of the fact that Ofcom have a built-in reduction of investment in the older networks, and a built-in escalator (downwards) of regulated income to match?
Or are you calculating primarily from the cost of capital to Openreach vs the rest of BT?
I tend to think that the "growth factor" perhaps applies only to the unregulated side of the investment. So far ... more to read though.
The way Openreach is being run is nuts. They are hiring engineers to maintain an obsolete network rather than trying to replace it. I just don't get the thinking on this. Surely with borrowing being so cheap across the board they should be investing heavily into capital expenditure in order to lower operational expenditure going forward, not hiring engineers to get the KPIs on their copper network up?
I'm obviously not privy to the behind the scenes regulatory discussions but surely if BT were making an effort to take the FoX project beyond the trial stage we'd have heard more about it, if nothing else through BT's PR machine?
If BT had something to gain from fibre, we might see more action. As things stand, they'd have to supply VULA, so limiting income, and offering no particular spur. And there's be no reduction in expenditure, as they have to keep the copper network fully up and running anyway. There is no "savings from maintenance" - the USO and all that malarky.
There is talk of BT wanting to kill of the PSTN as we know it in 2025, but doing so likely needs a lot of USO adjustments - what service(s) will they be required to provide? How, technically? What quality? The impact on copper for the service itself, and for quality assurance/testing? With the answer to some of these, you can start to ask the knock-on questions for LLU supply.
I don't think there's a coincidence in the new USO negotiations being slated to trigger regulations from 2020, and BT's switch-off date of 2025 - a five year notice period to LLU companies.
Once BT get approval to lose copper where they see fit, then you might start to see fibre being rolled out in such places as a direct consequence of the reduced maintenance. Until then, the threat of demands from TalkTalk etc hold it at bay.
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Not sure why I have formed the impression from but I think that in the early years the investment will be more around 4G and meeting the requirements of the emergency services communications contract.
I think I reached the same conclusion.
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Speaking with a CTO of a firm in the sector the ideal would be getting shot of BT Retail from the group, getting rid of LLU and replacing with bitstream-based VULA products and a PIA+ product.
I agree with you/him about the LLU and PIA+ parts. I worry that cheap/regulated VULA products detract from the prospect of real fibre - from either BT or from some entity making serious use of PIA+.
No comment though, on splitting retail out.
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If there was any splitting off to do.. I still maintain retail is far more logical than Openreach. It would also put a stop the the BT sport argument.
iirc then BT'r profits were 2nd to Openreach. If you looked closely at the figures, a stonking big chunk of Openreach's profits came from BTr
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I agree with you/him about the LLU and PIA+ parts. I worry that cheap/regulated VULA products detract from the prospect of real fibre - from either BT or from some entity making serious use of PIA+.
No comment though, on splitting retail out.
I shouldn't have used VULA there really, as what I'm thinking of is quite different from unbundling, however I had a more 'flexible' service model in mind than fixed tiers. VULA was completely the wrong term though
With Retail gone BT Group merge Openreach and Wholesale and we can follow a Japanese model where people pay the telco for the access line and the ISP for the Internet access.
In Japan people pay NTT directly for flets, so a charge levied by the telco depending on whether they are served by FTTP, FTTB or VDSL, and bring that flets service to the ISP.
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Makes too much sense ignition, ofcom are obsessed with the idea that openreach do no deal direct with the consumer.
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In Japan people pay NTT directly for flets, so a charge levied by the telco depending on whether they are served by FTTP, FTTB or VDSL, and bring that flets service to the ISP.
Having lived in Japan for several years, the situation there isn't as simple as you suggest/may appear from here. There is a lot less competition in Japan, much higher prices and they have much weaker regulation.
I was however interested to read that BT said recently:
Today, customers get a telephone line as a pre-requisite to having a broadband services. With single order broadband, customers will no longer get a telephony service with their line, they will get a physical line over which broadband is delivered. From 2018, we expect on the BT network that if the customer also wants a telephony service, there will be a pre-requisite of having a broadband line and that by 2022 we anticipate that the PSTN voice service will be withdrawn.
Edit: which is a few years earlier than I expected
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Makes too much sense ignition, ofcom are obsessed with the idea that openreach do no deal direct with the consumer.
To be honest I tend to agree with them to an extent.
The ISP's act as triage for BB and phone faults to weed out the dross/nutjobs/forgot to turn it on types.
So BTOR only focus on the "real faults".
If BTOR had to deal with this lot they would have to set up a full customer "handling" as I might put it(!) systems in place.
All of which will cost at lot....and all of which would be past on to the consumer as higher bills.
Then there is the pass the parcel problem already happening now where voice blames BB and BB blames voice when your voice and BB supplier are different.
Were it not for the above I'd also be an favour of the 3 monthly payments sort of thing. One to the network operator, one to your voice service provider and one to your data provider for your BB service.
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I was however interested to read that BT said recently: [ snip ]
Edit: which is a few years earlier than I expected
I expected that kind of start date, but the finish date is a long way in advance of what I thought. My timing was based on the change of USO (from voice to broadband) plus a minimum of 5 years ... hence 2025.
Interesting that VM don't think we've reached the point of needing a broadband USO at all, while I suspect that BT consider it mandatory so as to get rid of the old voice one.
Do you have a full link to that quote?
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I expected that kind of start date, but the finish date is a long way in advance of what I thought. My timing was based on the change of USO (from voice to broadband) plus a minimum of 5 years ... hence 2025.
Yes, it was the end date which surprised me as well. I also thought 2025 on the basis that is the date which BT have said they will withdraw ISDN by.
The quote was included in BT's submission to Ofcom re: the USO - on page 3 of http://stakeholders.ofcom.org.uk/binaries/consultations/broadband-USO-CFI/responses/BT.pdf
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To be honest I tend to agree with them to an extent.
The ISP's act as triage for BB and phone faults to weed out the dross/nutjobs/forgot to turn it on types.
So BTOR only focus on the "real faults".
If BTOR had to deal with this lot they would have to set up a full customer "handling" as I might put it(!) systems in place.
All of which will cost at lot....and all of which would be past on to the consumer as higher bills.
Then there is the pass the parcel problem already happening now where voice blames BB and BB blames voice when your voice and BB supplier are different.
Were it not for the above I'd also be an favour of the 3 monthly payments sort of thing. One to the network operator, one to your voice service provider and one to your data provider for your BB service.
Or to put another way.
You have isp's who dont understand what they doing attempting to filter out faults, whilst adding a big premium to the price paid by end users for the line rental.
Openreach could add £1-2 a month to the line rental to pay for the customer service team and the line would still be £5 or so cheaper than what people pay now to the CPs.
Also Openreach's own CS team would still be that triage anyway. Just low paid phone rep's following a script and only raising faults when the computer agrees or if the line i so blatantly bad its hard to argue otherwise.
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Let's not forget that Openreach previously proposed that its staff should have more direct contact with the end user in order to fix faults etc but several ISPs objected killing the idea.