UK regulator Ofcom has blocked a £9.50 (US$12.60) monthly rental rebate that Openreach, the semi-independent network access arm of BT, planned to offer ISPs for each new full-fiber customer, concluding the discount would risk harming the development of network competition to the long-term detriment of consumers.

The rejected Incremental New to Openreach offer formed part of a package of five new pricing proposals from the incumbent. It would have given ISPs a £9.50 monthly rebate per new full-fiber customer brought onto the Openreach network for up to 30 months, plus a £35 ($46.60) connection rebate. Ofcom allowed the other four offers to stand.

The regulator's reasoning was economic as much as competitive. Prices in the wholesale access market are already very low, Ofcom noted, and a "reasonably efficient operator" would not have been able to recover its costs at the resulting margins. "The discounts are targeted at customers which are important to altnets' ability to maintain and grow their customer base, while leaving prices for other customers unchanged," it said.

A decision months in the making

Ofcom had signalled its intent from the outset. When it launched a consultation on the pricing scheme in July, the regulator stated it was minded to block the Incremental New to Openreach offer. Competitors had criticized the package from the start, pointing to Openreach's position as a dominant player and former monopoly.

CityFibre, the wholesale altnet, led the opposition. Earlier this month its CEO Simon Holden accused the incumbent of "taking oxygen out of the economics of the system deliberately to try and make it, of course, harder for the challengers to compete."

Nexfibre — a joint venture between VMO2 owners Liberty Global and Telefónica and investment firm Infravia — went further in its consultation response, arguing the offers "pose an existential threat to the development of an effectively competitive market." Its CEO Rajiv Datta recently told an industry event that Openreach remains dominant and should be ready to cede more wholesale market share before being allowed to introduce special offers.

Openreach pushed back. It argued Ofcom's analysis was wrong and that competitors could recover costs if they matched its prices, based on calculations including "all available revenues." Its parent BT added that blocking the offer would distort retail competition by reducing BT retail's flexibility to win customers. Openreach has long maintained it is merely competing and passing on its economies of scale to customers.

A partial win for altnets

The decision will not entirely satisfy Openreach's rivals. Nexfibre said it had hoped the regulator would have gone further. "Openreach's tactic of drip-feeding price changes via special offers needs to stop at a time when competition remains nascent," it said in emailed statements. "Ensuring alternative networks have the incentives to invest, grow and achieve scale will be critical to creating credible, sustainable competition."

The offer that survived poses its own risks for the altnets. The Geographic Incremental New to Openreach Customer Offer gives ISPs a one-time £50 ($66.30) rebate for new full-fiber customers in areas where VMO2 is active. Ofcom acknowledged the discount is also available in areas where altnets have yet to establish themselves as sustainable competitors, but judged the risk of long-term harm insufficiently plausible to justify blocking it.

The Independent Networks Cooperative Association (INCA) opposed that offer in its consultation response. It warned the rebate would "almost inevitably cause material harm to the ability of urban Altnets to attract and retain customers and become sustainable competitors to Openreach."

Fragile timing

The ruling lands at a difficult moment for UK altnets. Investors are increasingly reluctant to extend funding and debt is piling up. Airband entered administration in the summer and was recently sold to Voneus — the only bidder — for £4.6 million ($6.2 million). Toob, meanwhile, was recently denied further funding by its investor INPP, according to media reports.

For Openreach, the blocked rebate removes one instrument from its competitive toolkit against VMO2 and the altnets, but the four surviving offers keep pressure on rivals in overlapping territories. Whether Ofcom intervenes again will likely depend on how the altnet sector's finances hold up as the remaining discounts take effect.