Ofcom’s review of the digital communications market

Whether by coincidence or design (I leave you to draw your own judgement) the recent announcement by Ofcom of its intention to conduct a comprehensive review of digital communications is strategically timely. Whether fuelled by concerns over the landscape of mergers, acquisitions and joint ventures in the market or the fact that we, like all of Europe, are on the cusp of implementation of new regulatory rules to create a single telecoms market, it will certainly refocus the minds of all stakeholders in the TMT industry. There will be two camps: those who welcome it in the belief that BT Openreach isn’t doing its job and proactive regulatory intervention as the “boundaries between landline, mobile and broadband services continue to blur” is even more important. Then there will be those – likely the minority – who oppose it, in the belief that the industry needs stability, not uncertainty, plus the growth of new players, particularly the OTT players, is evidence that competition is doing its job.

Whatever the rationale and whatever your camp, the UK telecoms regulator believes that the timing is right to assess the effectiveness of the rules they instigated from their first strategic review a decade ago. Back then, with competition as its core focus, the 2005 review led to some fundamental changes in the market, with competing providers gaining access to the BT network on equal terms, thereby increasing competition in the sector. It was as a result of this strategic review that BT Openreach was born and the now infamous concept of “equivalence of inputs” (in broad lay-person terms, the right of communication providers to receive a product or service on the same timescales, terms and conditions (including price and service levels) as BT) established.
This new review will examine competition, investment, innovation and the availability of products in the broadband, mobile and fixed line markets. However it is not just about competition:  Ofcom state that they want to ensure that the incentives for private-sector investment in the telecoms sector are right.  Plus they want to make it “future proof”. Steve Unger, Acting Chief Executive of Ofcom, talks of wanting the new rules to work for years to come. What does this mean? Is it even possible to regulate given the pace of industry change and the astronomic rise of innovation in the market.

Despite the lobbying that has already started within industry and media, it is unlikely that Ofcom will just focus on BT and BT Openreach quite as hard this time round. Structural separation would no doubt be a controversial and difficult issue for it to implement. This time round the biggest debate is likely to be on Ofcom’s stated aim to look at de-regulation of the sector in specific areas. “Good outcomes” could be rebalancing the competitive disadvantage the telecoms operators suffer when compared to regulation of OTT players, or a re-examination of access to passive infrastructure. “Bad outcomes” could mean removing price caps too early, or relaxing rather than strengthening wholesale access from incumbents. What is good or bad depends on your perspective and position in the market. Irrespective of this, changes must be set against the backdrop that changes in regulation/de-regulation have to be business and not consumer led. If competition fails in the former, it inevitably falls in the latter.

The review comes with a credible timeline and two-stage approach; it starts by examining current and future markets that may affect the digital communications sector and consideration of the existing regulatory landscape. Then comes the input and lobbying from industry. Both of these are due to be completed by the summer.  Phase two i.e. what does this all translate into in real life – is set to be completed by the end of the year.

2015 is shaping up to be one of the biggest years of change the industry has ever seen.

First published on www.olswang.com in March 2015