Telecoms regulator Ofcom has blocked Openreach from offering a discount to broadband providers when they sign up customers who are new to its network in selected areas of the country.
The firm’s network is used by hundreds of ISPs to supply broadband and telephony services to end users across the UK.
However it and companies which resell its services are facing increased competition from so-called altnets which are building rival networks and selling direct to households and businesses.
In June Openreach published a series of discounts and incentives for companies selling its services in areas where other networks are present, billing them as a way for ISPs to “compete more effectively in an increasingly competitive market”.
The following month Ofcom signalled its disapproval of the planned discount which it said would “constitute unfair competition”.
It’s now formalised and confirmed this position, arguing that the discount is only viable due to Openreach’s size and market strength and that matching the offer “may not allow competing networks to recover their costs, particularly given the low prices they are already offering across their customers, as they seek to grow take-up and overcome Openreach’s incumbency advantages.”
It adds: “As such, there is a risk that the level of the offer prices could harm the development of network competition, to the detriment of consumers in the long term. We are therefore directing Openreach to withdraw this offer.”
As with its July interim position, Ofcom has concluded that it has no objections to Openreach’s other proposals.
Ofcom reached its decision following a consultation in which both altnets and companies which supply Openreach services both took part.
Companies which use Openreach, including Sky and BT’s retail arm, opposed the regulator’s intention to block the discount while the altnets supported its position.
In its response, Sky argued that the proposed discount was part of a complex pricing mix which was unlikely to reduce the price paid by end users for their broadband and argue this made it unlikely that altnets which retail their own services would have to cut retail prices in order to win new customers.
However rival network operators such as CityFibre agreed with Ofcom’s proposed ban, arguing that the discount “would inhibit the competition that is necessary to keep prices low in the long term”.
James Lowther, Openreach’s Managing Director for Commercial, said: “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.
“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.
“We’ll launch our other offers and continue to compete fairly, including our FTTP offer within the VMO2 footprint and an ethernet offer for businesses. We’ll continue to invest in the UK’s digital infrastructure, bringing growth in every postcode and helping our customers deliver for homes and businesses.”