The Competition Appeal Tribunal (CAT) has dismissed CityFibre’s appeal against Ofcom’s approval of Openreach’s Equinox pricing strategy

At the end of last week, the CAT announced that it had rejected CityFibre’s appeal against an Ofcom ruling that would allow Openreach to offer major discounts to its client internet service providers (ISPs).

In August year, Ofcom announced that it would allow Openreach to go ahead with its new pricing strategy, Equinox, which would see them reduce their wholesale prices by up to a third for ISPs taking out long term contracts. 

The ruling spurred outrage from the UK altnet community, who said that the discounts would make competing with Openreach in many locations unfeasible, thus making the market less competitive.

While the altnets could not launch a legal challenge against the Equinox prices directly, CityFibre quickly appealed against Ofcom’s methodology in reaching its decision, suggesting that it had not fully analysed the pricing’s potential impact. BT, Sky, and various altnets also tried to weigh in on the appeal, but only information from BT was ultimately admissible, since information from the others was judged “unlikely to add materially to information already available”.

CityFibre’s appeal rested on two major points: firstly, that the regulator’s conclusions surrounding the extent to which CityFibre and other altnets’ networks would overlap with Openreach’s networks “had no sound evidential foundation”; and, secondly, that Ofcom’s conclusions to this regard does not support their ultimate conclusion that Equinox’s Order Mix Targets (OMTs) will not dissuade ISPs from partnering with altnets.

These OTMs essentially obligate Openreach’s ISP customers to buy their fibre-to-the-premises (FTTP) products from Openreach in order to be eligible for the Equinox discounts. Ofcom had previously concluded that the OMTs would not be a barrier for customers looking to partner with altnets for FTTP. 

The Tribunal, however, rejected CityFibre’s claims on both Grounds 1 and 2, but urged Ofcom to keep a close eye on how the Equinox offer was impacting the market in the coming years.

“We unanimously reject both Ground 1 and Ground 2 of CityFibre’s appeal and dismiss the appeal in its entirety. In doing so, we note that Ofcom has reserved to itself the power to review its decision and to intervene if it considers that the Equinox offer is affecting competition in a way which Ofcom had not previously appreciated,” said the CAT in its ruling. “We would encourage Ofcom to maintain careful scrutiny of the market at this important time, to ensure that the judgements it has made in the Statement continue to be validated by the emerging evidence of actual competitive conditions.”

The ruling was somewhat critical of Ofcom’s methodology, though not enough to overturn the regulator’s ruling.

“While the consultation process could perhaps have been improved on, it was not so flawed as to be unlawful, and the Tribunal found that no prejudice was suffered by CityFibre in any event,” said the judgement. 

While this ruling is, of course, something of a loss for CityFibre, the operator seemed to accept that its chances of winning the appeal had been slim and noted the important criticism that the ruling had levelled against the regulator. 

“Whilst the CAT has dismissed the appeal, and we have always recognised that the threshold for a successful judicial review of a regulator’s decision is a high hurdle, the CAT has made significant criticisms of Ofcom,” said CityFibre CEO Greg Mesch.

In fact, challenging Ofcom’s decision-making processes is notoriously difficult, with some analysts suggesting the regulator is almost unassailable in this regard.

“Ofcom’s considerable discretion makes it very hard to successfully challenge its procedural decisions,” explained Gita Sorensen, founder of GOS Consulting. “As it is no longer possible to challenge the outcome of Ofcom’s decisions, only the process followed (as a judicial review), that gives Ofcom very strong powers and reduces its level of accountability below what I personally consider healthy. This has been demonstrated by the fact that Ofcom no longer publishes transparent reasoning for its decisions – a fact that again makes a successful challenge much harder.” 

“With regards to this particular decision, that CAT did find that Ofcom probably should have consulted specifically on the ‘overlap’ assumptions and also that Ofcom’s arguments had the ring of post-rationalisation, but that is not enough for a finding that Ofcom did not follow due process,” she added. “Whilst disappointing for Openreach’s competitors, the outcome was not a big surprise.”

For now at least, the UK’s altnet community will have to do their best to find their own answer to Equinox’s prices and hope that Ofcom will revaluate after the dust has settled a little more.

What impact will Openreach’s Equinox offers have on the UK’s altnet landscape in years to come? Find out from the operators at this year’s live Connected Britain conference