Ofcom to allow telecoms companies to keep fibre investment profits

BT will be allowed to keep excess profits on its investment to upgrade the country’s broadband networks, after the telecoms regulator unveiled a regulatory regime designed to stimulate greater investment in full-fibre lines.

Ofcom’s market review, which will govern the industry for the next five years, is critical to determining the competitive landscape in the telecoms market and what returns BT can make on its £12bn plan to upgrade its ageing copper lines to a full-fibre network covering 20m homes by the end of the decade.

The regulatory regime is key to the government’s longstanding pledge to rapidly upgrade Britain’s broadband speeds, particularly in suburban and rural areas.

Crucially for BT, Ofcom said that it would “honour the fair bet principle” in the future that would allow BT to “keep the upside” — returns in excess of its cost capital — over the whole fibre investment cycle if price controls were to be introduced.

The regulator also confirmed that it did not expect to introduce price controls until at least 2031 and said it expected commercial and state-funded investment in new fibre networks across the UK to that point.

BT, which owns the only national telecoms network in the form of Openreach, had lobbied for a longer commitment by the regulator to waive price controls on fibre lines owing to the long payback on the investment in sparsely populated areas of the country. Instead, Ofcom said that if competition and investment are “still in the process of emerging” beyond 2031 then it would expect to continue to regulate in a manner that would encourage those trends.

The Ofcom review should provide certainty for BT in determining how fast to expand its upgrade plan and will provide a firmer view on the future valuation of Openreach as the company weighs up its strategic options.

Ofcom said that it would allow Openreach to charge an additional £1.70 a month for wholesale access to full-fibre lines compared with older copper-based infrastructure, a charge that could potentially be passed on to consumers in the form of higher prices.

The review also aims to enshrine competition in the broadband market at the infrastructure level by improving access to BT’s ducts and poles for smaller rivals looking to build their own lines.

Companies including Virgin Media, CityFibre and smaller ‘alt-nets’ plan to build fibre networks to rival Openreach across the country but had looked for certainty that the regulator would balance the need to stimulate investment with the protection of competition.

Greg Mesch, chief executive of CityFibre, said the new regulation would “promote and protect” infrastructure competition. “It will inspire confidence and unleash a decade of innovation and investment from competitors like CityFibre, rebalancing market share away from incumbents and driving better services and prices for wholesale customers and consumers,” he said.

Ofcom said it would prohibit Openreach from offering geographic discounts on both older copper-based products and new fibre packages that could hinder its rivals.