UK Communications Regulator sets out plans to drive fibre roll-out and 5G connectivity

On 17 March 2021, Ofcom also announced the results of the principal stage of its latest auction of the 700 MHz and 3.6 – 3.8 GHz frequency bands which will support 5G connectivity. The first phase of the negotiation period for these bands began on 25 March 2021 and will end on 16 April 2021.

Wholesale Fixed Telecoms Market Review

In the WFTMR, Ofcom reviewed six markets that had previously been the subject of individual market reviews in 2017, 2018 and 2019, moving to a five-year review period for all of them. Ofcom’s focus in this consolidated market review is on the promotion of competition and investment in gigabit-capable networks, with both private and public investments seen as key to ensuring the availability of high-speed networks in the UK:

• Private – Ofcom’s approach to supporting investment in gigabit-capable networks is focused on encouraging competition between different networks (e.g. Virgin Media, Cityfibre, Gigaclear, Hyperoptic and Openreach and other providers) where viable, in order to provide high quality services, choice and affordable broadband for consumers throughout the UK. Ofcom therefore intends to incentivise network investment by providing regulatory certainty and by allowing providers to make a fair return, whilst ensuring consumers continue to have access to affordable broadband.
  
  
• Public - Ofcom noted that the UK Government is investing at least £1.2bn between now and 2024/25 to subsidise fibre rollout in the hardest-to-reach areas across the UK as part of a £5 billion funding commitment (Project Gigabit), which Ofcom considers will extend coverage beyond the 80% of the UK that is expected to be achieved through commercial deployments.

Ofcom made a number of decisions as part of its WFTMR, including the following:

1. Openreach will continue to be required to grant access to its ducts and poles (Physical Infrastructure Access (“PIA”)) on regulated terms, conditions and pricing to allow network operators to lay their own fibre networks. This is designed to facilitate competition by cutting the upfront cost of building competing networks.

2. Taking a tiered approach to residential broadband:

• Area 1 - In competitive areas where there is already effective competition, Ofcom will not regulate Openreach’s broadband products. At this stage, Ofcom has not identified any such areas.
  
  
• Area 2 - In areas with the potential for material competition (70% of UK), Openreach will continue to be required to provide wholesale access to its network. Ofcom decided: (i) to set flat, inflation-adjusted, regulated prices for Openreach's entry-level superfast broadband service based on fibre-to-the-cabinet technology and not full fibre (up to 40 Mbit/s); and (ii) faster speeds are not price regulated.
  
  
• Area 3 - In the remaining areas (30% of UK) where Openreach is the only operator providing a large-scale network, Ofcom set a cost-based charge control which allows Openreach to recover the costs of both its existing copper network and its investment in a new full-fibre network.

3. Allowing Openreach to charge a premium for services delivered over full fibre to reflect the additional investment (£1.70 per month extra for the 40 Mbit/s service if it is delivered over full fibre).

4. To include measures to promote and safeguard competing network investment, Openreach will continue to be prohibited from offering geographic discounts on its superfast broadband wholesale services. Ofcom also extended this to Openreach’s full fibre products. It is also required to give at least 90 days’ notice of the introduction of certain commercial terms (such as volume discounts) with Ofcom assessing those deals before they take effect.

5. Ofcom decided to regulate Openreach’s leased lines (high-speed data connections used by large organisations, which form the backbone of the UK’s mobile and broadband networks) in a similar way to residential broadband products, i.e. by varying the approach geographically to reflect the level of current or prospective competition.

The WFTMR sets out Ofcom’s approach to regulation until March 2026, but Ofcom recognises that investments by all network operators in gigabit-capable networks have longer payback periods and it intends to reflect this in future regulation. Finally, Ofcom intends to support Openreach in retiring its old copper network as it lays a new full-fibre network to replace the ageing copper network.

5G spectrum auction

The latest spectrum auction for the 700 MHz and 3.6 – 3.8 GHz bands began in early March 2021. As part of this auction, Ofcom released 80 MHz of spectrum in the 700 MHz, and 120 MHz in the 3.6 – 3.8 GHz band, the latter being the primary band for 5G.

The UK’s four mobile network operators (“MNOs”) participated in this initial, principal phase of the auction. The auction included a 37% (416MHz) cap on the overall amount of spectrum that any one mobile operator can hold following the auction, which effectively limits the spectrum that some operators can acquire in the award. All four MNOs have invested heavily in their 5G networks and this latest auction will enable them to expand their networks further. The results published on 17 March 2021 were as follows:

• EE Limited paid a total base price of £452 million for six lots of the 700 MHz and eight lots of the 3.6 GHz spectrum;
• Hutchison 3G UK Limited paid £280 million for two paired frequency lots in the 700 MHz bands;
• Telefonica UK Limited paid £448 million for two lots in the 700 MHz and eight lots in the 3.6 GHz bands; and
• Vodafone paid £176,400,000 for eight lots in the 3.6 GHz bands.

Next steps

The next stage of the auction, the assignment phase, began on 25 March 2021 and will last until 16 April 2021. If a second phase of negotiations is needed, Ofcom has indicated that this would take place from 19 to 23 April 2021.

For further information contact Matt Buckwell and Nicholas Puschman

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