The Battle For The Future Of UK Communications

The next 12 months are shaping up to be pivotal ones for the UK communications industry as providers and authorities wrestle with the trend towards convergence, new technologies and – most likely – new legislation and regulatory frameworks.

It’s rare that a day goes by without a new controversy emerging in the press or one of the major players in the market engaging in a war of words with one of its rivals, but what is causing this upheaval and why are communications providers so desperate to air their views?

Ofcom’s once-in-a-decade review

The most obvious cause is Ofcom’s communications market review, a once-in-a-decade evaluation of the whole communications market. The last such review concluded in 2005 and resulted in the creation of Openreach, so the potential for seismic change is there.

Ofcom’s published its issues document last week, outlining which areas of the market it will look at to see where regulation can be strengthened or reduced and where it might introduce entirely new regulatory frameworks.

The central issue here appears to be the future of Openreach and whether it should be made independent.

BT’s rivals believe it is too dominant in the superfast broadband market, both in terms of market share and its ability to negatively impact rivals’ services, and want separation. Sky has even gone so far as to demand Ofcom refer the situation to the Competition and Markets Authority (CMA).

Naturally, BT opposes this, and has suggested it would meet any such move with “ten years of litigation”. It claims the current system works well and without a combined entity, its multi-billion investment in fibre would not have been possible. The company has also been on the offensive, alleging Sky’s complaints are merely attempts to distract from its own dominance of the Pay-TV sector.

Competitors argue that as the first stage of fibre rollout comes to a close and the market looks towards ultrafast technology, a breakup would not affect UK consumers and businesses. TalkTalk, in particular has cast doubt on BT’s claim investment in infrastructure would be reduced, arguing on BBC Radio 4 that an independent Openreach would immediately become a FTSE 100 firm.

Ofcom says breakup is just one of a number of measures it is considering and that it could also choose to either keep the current system, strengthen it or remove regulation entirely and allow all companies to deploy their infrastructure. Analysts believe breakup is unlikely and an alternative courses action will be selected when Ofcom announces its conclusion early next year.

Investigation into BT-EE merger

Running parallel to Ofcom’s review is an investigation by the CMA into BT’s £12.5 billion takeover of EE. BT believes the merged entity will be able to better investment and research next generation networks comprised of both fibre and mobile infrastructure.

However opponents say the deal will combine the UK’s biggest fibre and LTE networks, providing BT with an incentive to discriminate against fixed broadband rivals by restricting access to the EE network on a wholesale basis or reduce quality of service.

EE provides Mobile Virtual Network Operator (MVNO) services to Virgin Media among others, but should it refuse to serve rivals, it would harm the likes of Sky and TalkTalk’s negotiating position with other operators.

Operators also fear BT would be able to discriminate against EE’s rivals with regards to mobile backhaul, which although regulated, does not cover new innovations such as small cells. There are also concerns about the amount of spectrum the new entity would hold.

Finally, BT-EE would enjoy significant advantages in the creation of hybrid networks comprising fixed and mobile infrastructure. BT said recently it believes the UK need a champion for this new kind of architecture, but Sky told the CMA the merger would gift BT a ‘first mover’ advantage that would harm competition.

The Future of the BBC

Ofcom has also been drawn into the future governance of the BBC, which will have implications for the communications industry.

The corporation and the government have reached a deal which will see the BBC cover the cost for free TV licenses for over-75s and end the practice of top-slicing the licence fee to cover superfast broadband – possibly to be replaced by a levy on the industry.

Although the majority of players declined to comment on the speculation, it is likely any such levy would be unpopular.

It has been suggested Ofcom could assume more regulatory responsibility for the BBC, but the watchdog’s CEO Sharon White has ruled out taking any role in governance. She told a Parliamentary committee last week that Ofcom would work with any future ‘OfBeeb’, but warned the union of media and communications regulation should not be “reversed”.

Rumbling on

All three processes are likely to be resolved by next year by which point Ofcom’s review and the CMA investigation will be concluded and the BBC charter renewal process will be well underway.

What is clear though is the ever-growing convergence between media and communications is impacting the way both industries operate.

Over the past few years, broadcasters, ISPs, landline firms and mobile operators have encroached on each other’s territory, while the BBC’s influence in the sector has grown, not least with the licence fee top-slicing and the growth of digital services like video streaming.

With all major players looking to retain market share in their traditional areas of strength and steal customers away in other sectors, the war of words is unlikely to cease for now.

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