Ofcom Archives - IT Support

UK communications regulator Ofcom has announced that it will soon be launching a market study under the Enterprise Act 2002 into competition in the UK’s cloud sector and its ‘hyperscalers’.

What Is The Enterprise Act 2002?

The Enterprise Act 2002, which came into force on 20 June 2003, reformed competition, and consumer law enforcement in the UK to empower consumers, and to give competition authorities, e.g. the Office of Fair Trading (the OFT) a stronger role in ensuring that markets work well.

What Are ‘Hyperscalers’ And What’s The Issue?

‘Hyperscalers’ is the term given to the three companies which collectively generate the vast majority of revenues – around 81 per cent – in the UK public cloud infrastructure services market, namely Amazon Web Services (AWS), Microsoft, and Google.

It could be argued that with cloud services now an essential part of how products are delivered to telecoms users (and viewers and listeners of TV, radio, and audio content), with those users not able to manage the services themselves, and with those services apparently dominated by just 3 big players, consumer choice may be limited. Also, other consequences for businesses and consumers of a cloud market dominated by just a few big players could include higher prices, lower service quality, and reduced innovation.

Market Study

Ofcom’s impending market study will, therefore, examine the causes of why the £15bn public cloud infrastructure services market may not currently be working well in the interests of consumers.

Looking At What?

Ofcom says its study will look at:

– How the market is working today and how it’s expected to develop in the future. Ofcom’s study is also intended to identify any potential competition concerns early to prevent them becoming embedded as the market matures and will invite views from interested or affected parties.

– Following the investigation, Ofcom says it will consult on its interim findings and publish a final report within 12 months.

What If The Market’s Found Not To Be Working Well For Consumers?

If the investigation finds that the market is not working well for consumers, steps Ofcom may take include:

– Recommendations to government to change regulations or policy;

– Take competition or consumer enforcement action;

– Make a market investigation reference to the Competition and Markets Authority (CMA);

– Accept undertakings in lieu of making a market investigation reference.

WhatsApp, Zoom and Smart Speakers In Ofcom’s Sights Too

Ofcom says that, over the next year, it will also examining other digital markets, including online personal communication apps and devices for accessing audio-visual content.

Areas of interest will be, for example:

– How services like WhatsApp, FaceTime, and Zoom are affecting the role of traditional calling and messaging.

– How competition and innovation in these markets could evolve over the coming years.

– Trying to understand whether any limitations on their ability to interact with each other raises potential concerns.

What Does This Mean For Your Business?

It’s unlikely to come as a surprise to Amazon (AWS), Microsoft, and Google, who, between them, generate around 81 per cent of UK public cloud infrastructure services market revenues that a market competition study was on the cards soon. The study and its findings, however, are going to take at least a year so there’s no threat to the dominance of the ‘hyperscalers’ in the very near future. If it’s decided at the end of the study that action needs to be taken by Ofcom, this could be good news for business customers in terms of greater choice, lower prices, and perhaps better, more innovative services. It could also be good news for smaller players too, who may be struggling to compete against the dominance of the hyperscalers at the moment. The meteoric rise, particularly over pandemic lockdowns, and fast market share gain of apps like Zoom, plus the apparent dominance of big players like Amazon in the smart speaker market also mean that an investigation of these apps and services is also no surprise and probably overdue. This could be good news for other smart speaker and chat/comms apps makers as well as more traditional calling and messaging service operators, and, of course, consumers who may benefit from greater choice.

Independent broadband network providers (altnets) have been angered by Ofcom’s decision to take no action over anti-competition concerns about (BT) Openreach’s “Equinox” offer.

What Is Equinox?

The Equinox Offer from BT’s Openreach essentially proposes that big ISPs can buy discounted wholesale Fibre-to-the-Premises (FTTP) broadband products. Openreach’s Equinox Offer gives ISPs (e.g., TalkTalk or Sky) cheaper/discounted prices for Openreach FTTP products, so long as they largely stop making new sales of legacy broadband products where Openreach FTTP is available, and switch to selling mainly FTTP products instead. The offer also includes free bandwidth upgrades and discounts on GEA Cablelink (which ISPs require to offer Openreach FTTP). The Equinox Offer Scheme runs from 1 October 2021 to 30 September 2031, and Ofcom has said that it expects that the main ISPs will sign up.

What’s The Problem?

After a consultation with stakeholders by Ofcom, altnets raised concerns about the impact of the Equinox Offer on competition and disagreed with key aspects of Ofcom’s position in the Consultation.

For example, the Independent Networks Co-operatives Association (INCA), which represents the interests of alt-nets is concerned that Openreach may simply be using its market power to persuade ISPs to move to its fibre networks, thereby strengthening its already dominant market position. INCA is also concerned that Equinox could reduce wholesale competition, leading to higher prices and lower standards of service.

Could Harm Altnet Build Too

Ofcom’s report on the outcome of its consultation also highlights how The Joint Consultation Response submitted that the Equinox Offer could significantly reduce the benefits that Openreach claims the offer will deliver, and that altnets including CityFibre, the Common Wholesale Platform (‘CWP’), Dolomite Solutions, Fern Trading, Gigaclear, KCOM, VMO2 and others are concerned that the Equinox Offer will harm altnet build. Their argument is that the magnitude of the discounts available under the Equinox Offer will encourage take-up of Openreach FTTP and act as a barrier to entry for altnets.

Altnets have also said that Equinox could place downward pressure on wholesale and retail FTTP prices, thereby weakening the business case for altnet investment, especially in areas with higher deployment costs. This, in turn, could mean delays to fibre deployment in rural/hard to reach locations.

Beneficial, Says Openreach and ISPs

Openreach and the big ISPs who took part in the Ofcom consultation, however, say that Equinox will bring a number of benefits for homes and businesses across the UK including:

– ISPs getting long-term (price) certainty, thereby enabling them to compete in a highly competitive market.

– ISPs may also benefit from the simplicity of a single national rental price will for the entire Openreach FTTP footprint.

– Ultrafast full fibre technology can become the default choice wherever it’s available (GEA-FTTP becomes the preferred technology).

– CPs can create their own offers and can create a modest premium on GEA-FTTP.

– UK consumers will ultimately benefit from ISPs being incentivised to use FTTP, thereby supporting investment in FTTP networks.

– Sky, TalkTalk, and Vodafone have agreed that lower FTTP prices will benefit consumers and encourage take-up of FTTP, and Vodafone has said that the ten-year duration of the Equinox Offer will allow ISPs to provide price certainty to consumers.

Ofcom’s Decision

Despite the concerns of the altnets, Ofcom has concluded that, following its consultation about Openreach’s Equinox Offer, it does not raise competition concerns requiring ex ante intervention, and Ofcom will, therefore, not be taking any action at this time.

What Does This Mean For Your Business?

Ofcom’s decision not to take any action is a blow for UK altnets who clearly feel that the already dominant Openreach is being allowed to use its market power even more to use lower prices to squeeze altnets out, weaken the business case for altnet investment, increase the barrier to entry for altnets, all of which in a way that may not offer great benefits (such as choice) to the consumer. Openreach obviously appears happy with Ofcom’s decision, as do the big ISPs who can look forward to the discounts and price certainty that Equinox appears to offer. Although Ofcom is taking no action now, it is still early days, and it remains to be seen whether any intervention will be necessary a little further down the line, although this is of little comfort to altnets now. For consumers, home, and businesses, it’s also a case of waiting to see what benefits are passed-on to them with the scheme.

Tag Archives: Ofcom

Tech News : Networks Angered By Ofcom’s Openreach Decision