Ofcom has blocked an Openreach discount for bringing customers onto its fiber network, warning that rivals might be unable to match the price and recover their costs.
The "Incremental New to Openreach Customer Offer" was one of several pricing changes due to take effect on October 1. It is the first Openreach commercial offer the regulator has rejected; the others can proceed.
Openreach, BT's functionally separate network division and Britain's largest fixed-line infrastructure provider, notified Ofcom of the pricing plans in June. The rejected offer would have rewarded internet service providers (ISPs) for connecting more new fiber-to-the-premises (FTTP) customers to Openreach than an agreed baseline.
Ofcom provisionally decided to block the offer in July and consulted the industry. It has now made that decision permanent.
The watchdog concluded that the charges were "not fair and reasonable" because a reasonably efficient rival might be unable to match them while recovering its costs. It was particularly concerned about alternative network operators, or altnets, which need to attract customers to grow and compete with Openreach.
Openreach proposed a £35 connection discount and a monthly reduction of up to £9.50 for as long as 30 months, applying only to customers above each ISP's normal level of new Openreach signups. Ofcom said the scale and targeting of the discount could impede altnets' efforts to build their customer bases.
Ofcom allowed Openreach's other proposed discounts to proceed. These include a one-off £50 rebate for connections above an ISP's usual number of new Openreach customers in areas served by Virgin Media O2.
Altnets also operate in some of those areas, but Ofcom judged the smaller discount unlikely to harm long-term competition. It said the offer's geographical targeting therefore did not amount to undue discrimination.
Another offer gives communications providers a free connection when net new Ethernet demand exceeds 90 percent of their historical run rate. Ofcom concluded its conditions would not impede the use of rival networks and the pricing raised no "prima facie concerns" requiring further investigation.
Ofcom previously declined to intervene in Openreach discount schemes including Equinox and Equinox 2, which were intended to encourage ISPs to migrate customers from copper to FTTP.
Reaction to Ofcom's decision was mixed. Wholesale fiber operator nexfibre called it a positive step toward protecting competition in the UK market, but said the regulator could have gone further.
"Openreach's tactic of drip-feeding price changes via special offers needs to stop at a time when competition remains nascent. Ensuring alternative networks have the incentives to invest, grow and achieve scale will be critical to creating credible, sustainable competition," nexfibre said in a statement.
Virgin Media O2 also welcomed the intervention, despite Ofcom allowing the geographically targeted offer aimed at areas where it operates.
"Although we believe the regulator could have gone further, we welcome Ofcom's move to clip Openreach's wings on its most aggressive offer and looking ahead it is crucial the dominant incumbent's behaviour is fully kept in check as meaningful wholesale competition emerges," a spokesperson told us.
Openreach appeared sanguine about the ruling.
"Ofcom's decision not to approve our incremental FTTP new to Openreach offer is in line with their consultation position. We put this offer forward in good faith to help our customers compete and deliver better value for households," said James Lowther, Openreach managing director for commercial.
"While we continue to believe the offer would have benefited customers and competition, we'll review the decision carefully and continue to engage constructively with Ofcom and our customers." ®