BT Openreach told to pull ‘unfair’ broadband discount
Ofcom has moved to block a heavily discounted Openreach broadband offer after warning it could squeeze rival fibre networks out of the market, in the regulator’s first attempt to stop a commercial deal from BT’s network arm.
The telecoms watchdog said Openreach’s proposed discount for internet providers signing up new full-fibre customers was “not fair and reasonable” and risked harming competition.
The offer would have given internet service providers discounts of up to £9.50 per customer each month for up to 30 months when they connected more new customers to Openreach than their usual level.
“Openreach must be able to compete, but they cannot use their significant market power to drive other networks out of the market,” Natalie Black, Ofcom’s group director for infrastructure and connectivity, said.
If confirmed following consultation, it would be the first time Ofcom has blocked a commercial offer from Openreach.
James Robinson, senior equity analyst at Assembly Research, said Openreach had moved quickly to launch the discounts after Ofcom concluded its latest Telecoms Access Review, having previously held back from introducing new commercial offers during the regulatory process.
“Openreach moved so quickly to test the waters – and its proposals certainly did that,” he said.
He added that the company now faced “an uphill battle and a tight timeline” to convince Ofcom the discounts would not harm competition.
The regulator said the discounts targeted exactly the new customers that alternative fibre networks rely on to grow.
Rival providers might have to match the pricing despite being unable to recover their costs, undermining long-term competition and eventually leading to higher prices, it said.
Ofcom has provisionally cleared Openreach’s other planned wholesale discounts, including separate geographic offers and incentives for higher-speed broadband packages, saying they were less likely to distort competition.
Robinson said the regulator had at least provided greater clarity on the limits of Openreach’s pricing strategy.
“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”, said James Lowther, managing director for vommercial at Openreach.
“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.”
Rivals say regulator should go further
Virgin Media O2 welcomed the decision but argued Ofcom had focused too narrowly on a single offer.
“We agree with Ofcom’s decision to block one of Openreach’s most aggressive offers, but this still fails to recognise the full picture,” a spokesperson told CityAM.
“The interrelated nature of the offers and Openreach’s clear intent to ‘test the waters’ means Ofcom should be tougher in holding Openreach’s behaviour to account as it looks to entrench its dominant position and squeeze competition.”
The operator said Openreach had been “drip-feeding” new discounts into the market to discourage internet providers from placing customers onto rival fibre networks.
Rajiv Datta, chief executive of Nexfibre, also urged the regulator to widen its intervention.
“We welcome Ofcom’s proposal to block the most egregious of BT Openreach’s proposed offers, but it does not go far enough,” he said.
“The regulator should also consider the cumulative effect of the steady drip-feed of other offers, which form part of a wider playbook to prevent the emergence of scaled wholesale competition and entrench BT Openreach’s dominant position.”
Openreach’s geographic discount, which targets areas where Virgin Media operates, offers a one-off £50 payment for new full-fibre customers. Ofcom said it did not intend to intervene because the incentive was significantly smaller than the offer it is seeking to block.
The consultation runs until 27 August, with a final decision expected by the end of September. Openreach did not immediately respond to a request for comment.