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The regulator fears the offer would squeeze the already struggling altnets out of the market, making Openreach an even more dominant player
Today, Ofcom has a released a statement banning Openreach from implementing a proposed wholesale deal that would cut prices for retail ISPs.
The deal would have given broadband ISPs and new customers a £35 connection rebate and a £9.50 monthly rental rebate (for 18, 24 or 30 months depending on performance).
In a statement, Ofcom said the offer was “not fair and reasonable”, suggesting it was primarily aimed at drawing away customers from alternative network operators that could not hope to match those rates.
“We consider that, because of its SMP (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,” explained Ofcom in a statement. “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 directing Openreach to withdraw this offer.”
Openreach announced its intention to introduce a range of broadband price cuts aimed at new customers joining their network in June last year. The following month, Ofcom delivered its initial ruling on the proposed offers, giving most of Openreach’s deals the green light but proposing a ban on the rebate offer detailed above.
While it might seem counterintuitive for the regulator to take action to prevent prices being lowered for retailers – and therefore potentially passing on savings for consumers – Ofcom’s concern is around ensuring long term competition for the sector. The highly fragmented altnet ecosystem is already beginning to implode and consolidate, with Ofcom wary that Openreach’s ‘unfair’ offer will drive these smaller players from the market.
“Consumers rely on real market choice. Independent providers operating outside the Openreach footprint frequently lead the way on speed, pricing, and customer service compared to well-known providers,” noted Alex Tofts, strategist at Broadband Genie. “The key challenge now, is ensuring this intervention doesn’t inadvertently drive up bills during a cost-of-living squeeze. History shows that Ofcom’s interventions can easily backfire on the very customers they’re meant to protect.”
The decision is also good news for Openreach’s larger rivals, such as Virgin Media O2, CityFibre, and Nexfibre, all of whom expressed their approval.
“Ofcom’s decision today is a positive step towards protecting competition in the UK fibre market, although we would have liked to see the regulator go further,” said Nexfibre in a statement. “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 also took the opportunity to plug their proposed acquisition of Netomnia, currently under review by the CMA, saying it would help “drive competition, investment and greater choice for consumers.”
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