Ofcom has signalled its intent to block Openreach from offering internet service providers a discount when they sign up a customer who is 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. However it and companies who resell its services are facing increased competition from so-called altnets who are building their own 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”.
Ofcom, which sought views from stakeholders on the proposals, has now published a “provisional” view that one of the incentives would constitute unfair competition and should be withdrawn.
It says the prices which would be available to ISPs benefitting from the ‘Incremental New to Openreach Customer offer’ “are not fair and reasonable, because they result in margins that may not allow a reasonably efficient operator to recover its costs.”
It adds: “We consider that, because of its [Significant Market Power], Openreach is uniquely able to make such a targeted low-price offer.
“The discounts are targeted at customers which are important to altnets’ ability to maintain and grow their customer base, while leaving prices for other customers unchanged.
“Matching these significant targeted discounts 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.
“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 proposing to direct Openreach to withdraw this offer.”
Despite being minded to block that incentive, the regulator says it’s not proposing to stop any of the other proposed discounts and incentives from going ahead. Its final decision is subject to a consultation.
In response to today’s announcement James Lowther, Openreach’s Managing Director for Commercial, said: “We’re disappointed that Ofcom has expressed concerns about one of our four offers, which we put forward in good faith at a time when many households are watching every bill.
“In such a competitive market, we don’t believe that regulation should protect poor business models and we disagree with Ofcom’s analysis. We’ll continue to engage constructively via the consultation to help our customers compete.”