Investing in the UK's telecoms networks: Ofcom's plans to encourage investment

Encouraging investment in the UK telecoms infrastructure is central to the UK’s Industrial Strategy. Ofcom recently published its consultation on plans to encourage investment in fibre networks

13 February 2020

The need for investment in the UK’s telecoms infrastructure

In 2017 the UK government launched its White Paper, ‘Industrial Strategy: building a Britain fit for the future’ (the Industrial Strategy). The Industrial Strategy sets out the governments four Grand Challenges designed to ensure that the UK is at the forefront of the fourth industrial revolution. As part of the Industrial Strategy, the government set out its policy to boost the UK’s digital infrastructure by “[building] a Britain that lives on the digital frontier, new 5G networks and smart technologies”.

This was followed by the ‘Future Telecoms Infrastructure Review’ (the FTIR) in July 2018. The FTIR made clear the need for investment in the UK’s fixed and wireless networks to ensure that these networks are fit for the future. In particular, the FTIR highlighted that full fibre and 5G are “the long-term answer” to ensuring a network capable of underpinning the UK’s ambition to lead the fourth industrial revolution. In the FTIR, the government set out its strategic priority “to promote efficient competition and investment in world-class digital networks” and identified a number of outcomes designed to achieve its strategic priority. These outcomes include the need for ‘greater regulatory stability and clarity’ and ‘regulation only where and to the extent necessary’. As the UK’s regulator for communications services, Ofcom plays a particularly important role in achieving the government’s strategic priority and this was highlighted by government in the FTIR by reference to Ofcom’s need to pay particular attention to the government’s strategic priorities and outcomes when exercising its functions. 

In late 2019, the government announced its intention to invest £5 billion to support the rollout of telecoms infrastructure, targeted at the most challenging 20% of the UK. This is recognised by Ofcom in its consultation which explores Ofcom’s plans for regulation of the fixed telecoms markets from April 2021.

What does the consultation say?

Ofcom’s consultation ‘Promoting competition and investment in fibre networks: Wholesale Fixed Telecoms Market Review 2021-26’, published in January 2020, highlights the need for investment in the UK’s telecoms infrastructure. It sets out Ofcom’s ‘four-point plan’ to:

  1. improve the business case for fibre investment
  2. protect customers from high prices and encourage competition
  3.  improve the network in rural areas
  4.  close the ageing copper network 

Improving the business case for fibre investment

Ofcom has proposed relaxing some of the regulation on wholesale line charges, which would reduce the cost for Openreach (the network division of BT) to build new fibre networks across the UK. The proposals permit Openreach to raise the wholesale charge on basic broadband packages delivered over full-fibre by between £1.50 and £1.85 a month, compared with the equivalent copper-based offering. This price increase would mean Openreach receives a greater return on investment and incentivises it to update the remaining network. Ofcom has not proposed pricing regulations on the fastest fibre services in order to maintain competition between network builders.

Protecting customers from high prices and encouraging competition

Ofcom is keen to ensure that broadband is affordable by preventing Openreach from increasing wholesale charges on its slower copper broadband services. In addition, Openreach would not be allowed to offer large discounts that could affect competition from rival providers. This approach, combined with the ability to charge more for the standard full-fibre package, would mean that Openreach is fully-incentivised to migrate customers over to a full-fibre network and encourage competition between telecoms companies. 

Improving the network in rural areas 

The consultation details Ofcom’s aim of supporting investment by Openreach into rural areas where there is no prospect of competitive network building – unlike in urban areas. Ofcom proposes to achieve this by relaxing the regulation of wholesale prices so the cost of building the new fibre network is reduced. BT could recover these investment costs by including such expenses in its prices upfront or after it lays the new fibre. Homes in the most rural 10% of the UK cost about 10 times more to upgrade to full-fibre internet connections than those in urban areas – and this is where the government’s proposed investment of £5 billion will support the rollout.

Closing the ageing copper network 

Ofcom acknowledges the current copper infrastructure does not measure up against the full-fibre option, but running two networks in parallel is also not realistic from a costs perspective. Instead, Ofcom have proposed plans to remove regulation on Openreach’s copper network in areas where full-fibre has been deployed with the regulation then applying to the fibre network. By doing so, Ofcom hopes this will help support the switch of customers from copper to full-fibre.

The consultation closes on 1 April 2020. Ofcom’s proposals are not due to come into force until 2021 but could be finalised much sooner.

For more information on this or on our telecoms practice, please contact Sarah Kenshall or Lucy Pegler

This article was written by Lucy Pegler and Olivia Ward.

Key contact

Sarah Kenshall 1

Sarah Kenshall Director

  • Technology and Communications
  • Fintech
  • Telecoms

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