The communications regulator in the UK, Ofcom, has begun a consultation to look at the regulatory issues associated with next generation broadband access. What is the purpose of such a consultation? While the deployment of next generation access networks will be very positive for consumers, Ofcom wants to see investment take place in an efficient manner and wants to remove any unnecessary regulatory barriers that may delay such investment.
As a result, it wants to move quickly to clearly set out the options for regulating new broadband networks, defining where ex ante regulation may be appropriate.
Ofcom provides insight into its considerations in the executive summary of its consultation paper. It begins by describing the principles that have guided its approach to broadband services to date.
The regulatory approach to broadband has had an important role in shaping how the market developed. … The most relevant aspects for the broadband market have been:
- contestability: making the opportunity for entering the market accessible to a wide range of companies;
- innovation: allowing the maximum scope for innovation by the promotion of competition at the deepest level at which it will be effective and sustainable; and
- equivalence: the requirement for operators with market power to make the inputs used by their downstream businesses available to their competitors on the same basis.
But it considers that Ofcom needs to adapt these principles and add two additional considerations in order to appropriately recognize the level of new capital investment required for next generation networks.
The five principles underlying our proposed approach are:
- contestability: we think that timely and efficient investment will best be achieved by making the investment contestable, allowing any operator who considers that there is a business case for deploying next generation access infrastructure to invest, as soon as they wish;
- maximising potential for innovation: as we recognised in the Telecoms Review for current networks, we believe that the scope for innovation and differentiation is essential for competition in next generation access, and that infrastructure investment is helpful in achieving this. We are consulting on an approach which maximises the potential for innovation, while allowing for the current economic and technical uncertainty around next generation access;
- equivalence: strong competition in current generation broadband has been helped by ensuring that all operators are able to buy exactly the same wholesale products, with the same processes and at the same price, as operators with market power. We propose to apply this principle to next generation access, supported by approaches such as functional separation, essential to reduce incentives for anti-competitive behaviour while retaining incentives for efficient investment;
- reflecting risk in returns: we recognise that anyone who makes investments in next generation access is likely to face significant commercial risks. Regulation should reflect these risks in order to provide appropriate incentives for investment in the first place. We are consulting on a range of approaches to reflect such risk such as anchor product regulation, and risk-adjusted returns; and
- regulatory certainty: It is also important that the regulatory regime we adopt is clear and in place for a reasonable period of time, to allow investors the clarity that they need to invest with confidence. We are publishing this consultation and establishing a program of seminars and meetings supporting it to provide this clarity.
Ofcom does not appear to be especially concerned that the UK lags other countries with fibre network deployment.
It may therefore be that the efficient deployment of next generation access is simply earlier in some other countries than in the UK. We do not yet see evidence that the UK will be significantly disadvantaged economically or socially as a result. It is important that we continue to monitor the situation closely for any new evidence that would change this view. However, we continue to think that promoting investment which is timely and efficient in the context of the UK market is the correct approach.
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