British telecoms regulator Ofcom has announced a strategic review of digital communications, which will include a reassessment of its stance towards competition and investment.
Ofcom plans to prepare a discussion document by the summer, with initial…
British telecoms regulator Ofcom has announced a strategic review of digital communications, which will include a reassessment of its stance towards competition and investment.
Ofcom plans to prepare a discussion document by the summer, with initial conclusions ready by the end of the year.
Industry experts predicted that fixed/mobile convergence and OTT would be addressed, while other topics resulting from M&A could be revisited later.
The study comes as the UK telecoms sector is in a state of flux, with a fixed/mobile tie-up agreed between BT and EE, as well as the proposed four-to-three merger that would see O2 combined with Three.
Ofcom said it would consider current and future potential mergers, acquisitions, joint ventures and partnerships in the sector in its regulatory review. It will also look at the major operators’ plans for network investments and at how telecoms services are increasingly operating over the internet.
But experts do not expect Ofcom’s review directly to address ongoing M&A, which is reviewed by the UK’s Competition & Markets Authority or the European Commission.
“I do not think the strategic review will concern M&A, though of course consolidation in the sector will inevitably be part of the landscape and developments that Ofcom takes account of in the review,” said Richard Eccles, partner at Bird & Bird.
Eccles said convergence of fixed and mobile technologies will be “at the heart of the review, against a background of increasing broadband speeds and increasing use of mobile broadband”.
Ofcom described its new regulatory framework as “designed to both promote competition and to support continued investment and innovation that can benefit consumers and businesses in the form of coverage, choice, price and quality of service”.
“Ofcom will no doubt consider whether or how competition policy may be adapted and what its priority areas should be, for example in relation to converged operators and bundled offers, as well as looking at how efficient investment in communications infrastructure can be encouraged,” Eccles said.
Matthew Howett, Ovum’s practice leader on regulation, said the review also presented an opportunity for the regulator to assess the impact of OTT services and if they could warrant further deregulation of operators.
“The regulator is attempting to focus on how the review could lead to further deregulation of the sector. This is where OTT comes in,” Howett said.
Ofcom cited the recent European Broadband Scorecard which showed that the UK “leads the EU’s five biggest economies on most measures of coverage, take-up, usage and choice for different kinds of broadband, and performs well on price”.
Ofcom’s new CEO, senior Treasury official Sharon White, is set to take charge later this month. She will replace acting CEO Steve Unger, who took the reins after Ed Richards stepped down after eight years in the post.
In an open letter to White, Berenberg analyst Barry Zeitoune called for the review to provide “multi-decade” clarity, given the long-term scale of investment required.
“The threat of governmental change and see-saw regulatory reform threatens the investor who needs to ensure that long-term returns are protected,” he argued.
“If Ofcom wants what is best for the UK, it should be providing regulatory clarity to BT to make the investment that is in the country’s interests, rather than forcing it to play the game of regulatory arbitrage.”
Various interest groups have lobbied for BT to be forced to sell Openreach, its separate and highly-regulated infrastructure division, as part of its takeover of EE.
Howett expects issues such as a further separation of BT and new wholesale access requirements “to be addressed as part of the proposed remedies” to get those deals approved.
“Ofcom’s wider strategic review could then be revisited once the dust settles following any eventual industry consolidation,” Howett said.
