Never mind the cost, feel the bandwidth
Partner Ted Mercer’s perspective:
“I want to put together two news items from last week’s press.
Both concern BT. The first is the lifting of price caps on what is charged for fibre connections. Effectively Ofcom are removing price restraints enabling BT to charge what it likes to those who would like to provide service by means of its infrastructure. That can of course include itself because BT has a split personality as a network provider and service provider. The two halves of the company are joined at the hip but supposedly not joined in the accounts department. BT says this will cause it to build like fury because it will be able to obtain a return on its investment in new fibre to the home that it deserves. It will be incentivised to build fast and furious.
Link this story to announcements concerning rural broadband - that is to say the Government handing over substantial amounts of cash (about £1.2billion) to see remoter areas given the advantages of faster broadband. This would involve installation in places where BT at the moment thinks it is not really economic to do it. I do, I suppose, find it surprising that BT is at the forefront of those seeking to provide services in rural areas. There are other fibre optic cable providers in existence but the economics of things mean that they are pretty urban centric in their construction plans. There have from time to time been some very notable local projects to improve internet connection but nothing on a substantial scale. Why is this? Well BT are right about one thing. The cost of construction of effectively new build fibre optic systems is extremely expensive. I know, because I was involved in the roll out years ago of the cable TV systems in urban areas and since have been involved in all kinds of cabling from FTTH to under sea and international. There are indeed very many companies in the United Kingdom who have the Electronic Communications Code applied to them and who can therefore use the same kinds of rights as BT to build systems. Building systems is not the end of the matter. Smaller systems say, in rural areas have got to connect with back haul cable to interconnection nodes. That means major road works utilising existing ducting of guess who? You have got it, BT.
So at the moment for a company that still very much has a foot in both camps of infrastructure provider and service provider in - which latter case it is in considerable competition with a number of other operators - has been allowed to charge what it wants to its competitors who use its fibre to the home and in £1.2billion worth of cases essentially having those connections paid for by the Government. It is not, you might say, a situation which is where you would find inherent competition.
Neither am I afraid is it possible to say that BT is free of allegations of each side of its business trying to help the other. Take for example the way in which the wholesale division deals what it regards as artificially inflated traffic (“AIT”) which some would say is used to put a brake on innovative services which are inimical to BT the service provider’s business.
So where do we all go from here? It is not that long ago that Ofcom conducted a substantial review into whether or not BT should be split in two. For reasons I have not ever fully understood it was decided not to split BT into two halves but to let it continue to be one company although it operates separate accounts for different parts of the business etc.
With the present situation one might say there is even more reason than before to split out the two businesses. One part of BT – known as OpenReach – is an infrastructure provider and therefore would work very probably on a different internal rate of return on capital employed from the service industry business. It needs to become a national infrastructure carrier over which it is clear that lots of companies of which it is former provider twin leave but just one.
There are many in the industry who might say that this is a battle that has been decided and won by BT but in the name of competition and therefore of the consumer it is an issue that should be looked at again given that we are removing price controls on BT at the same time substantially as subsidising their new build in rural areas.”
Ted Mercer is a Partner in Maddox Legal’s Litigation department, with an expertise in telecommunications and technology start-ups.