Which equilibrium will prevail?

 

By Pete Farmer

Simwood’s views on the recent BT Openreach FTTP pricing (called the Equinox Offer) will be known to regular readers. Our response to Ofcom’s consultation on it is here and Simon mentioned it to Parliamentarians today.

Today, the Competition Appeal Tribunal, one of the judicial bodies with the ability to overturn a decision by the UK regulator, Ofcom, published a Notice of Appeal by CityFibre. The altnet is challenging Ofcom’s refusal to issue a direction to BT to withdraw (yes, that’s a double negative, but strictly speaking, Ofcom declined to intervene, instead of giving ‘permission’) its Equinox offer.

Very broadly, Equinox gives a discount to networks consuming BT final mile products, in this case, FTTP, to certain properties or in certain cases (i.e. those that don’t have a current BT connection, or have not had for 6 months or in return for achieving an order mix target). The altnets allege this is a barrier to entry into the market, and that BT’s wholesale pricing, we assume, should be constrained at a higher point.

Of course, that summary doesn’t do the nuances of the full case justice; but of immediate interest is that the Notice of Appeal appears to duck the major elephant in the Appellant’s room –  that Ofcom found the Equinox pricing to be in excess of the costs incurred by an efficient operator (i.e. is not a classic margin squeeze). Instead, the Grounds of Appeal are focussed on order mix targets and the overlap between BT’s footprint and the altnets’. 

On the former, it is interesting to see that CityFibre, a full fibre operator, is making assertions about the impact these have on ISPs. The order mix targets relate to an aspect of the Equinox offer that requires a Communications Provider (CP) commits to limit its legacy copper v fibre order mix – a problem that CityFibre doesn’t have by definition. What we don’t yet know is whether TalkTalk and Sky will cheer for either team. If they decide that a discount on BT’s fibre that they are going to consume anyway (and affords some further ability to target Virgin customers) and support Ofcom, then CityFibre may have a David and Goliath fight on their hands, especially if they are relying on assertions about what ISPs like TalkTalk and Sky will experience. 

In the alternative, a coalition of The World v Ofcom and BT may be the best chance for the needle to move towards the conclusion the altnets want.

What we do know is that, in reality, Equinox has caused at least one potential new entrant (Simwood) to avoid entering the market. Also, the average time, I am told, between Notice of Appeal and judgement is 13 months – and in this case, I also expect the CAT to refer questions to the Competition and Markets Authority (i.e. ask the CMA to do maths) which may prolong matters.

If anyone wanted pricing certainty for the short-term, that’s the only real conclusion we can make today – it isn’t happening soon.