Ofcom’s Strategic Review of Digital Communications

Making digital communications work for everyone

Steve Unger, Strategy Group Director Jonathan Oxley, Competition Group Director 25 February 2016

A plan for the next ten years

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Communications keeps changing. Networks, services and usage continue to evolve. Today’s announcements contain decisions for today, together with a long-term strategy for tomorrow, where: • Everyone in the UK will enjoy fast, reliable broadband

• We will move to a fibre future: widespread, competing networks connected directly to homes and businesses, taking us from ‘superfast’ to ‘ultrafast’

• The latest mobile phone technologies will be rolled out across the UK

• Competition will drive innovation and affordable prices

• Vulnerable people will be protected through effective, targeted intervention

• UK will be a world leader for quality and coverage of its telecoms services, ensuring consumers and businesses enjoy strong competition and fair prices for years to come

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Good progress, but much more to do

Speeds have risen. Fastest

broadband up from 10Mbit/s in 2005, to 200Mbit/s Prices have fallen. Cost of typical broadband down from £17.99 in 2005, to £7.50 today Superfast broadband has reached 83%, and 36% of connections are superfast. Both measures are highest in the EU5 Two thirds of adults have a smartphone, and more than half own a tablet. Half of homes (48%) are now served by all four 4G networks

Next challenge. Achieving widespread, ultrafast speeds of 300Mbit/s and above Line rental concern. All major landline providers have imposed rises far above inflation over last five years Coverage gaps. 2.4m homes (8%) still lack good broadband above 10Mbit/s, including 1.5m in rural areas Mobile not-spots. Coverage by all four operators in 99% of urban areas, but only 72% in rural areas

Today’s announcements

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• Fundamental changes to the whole UK communications market • Openreach is important, but only one part of the picture • Our strategy covers six areas …

OPENREACH REFORM

A new governance

structure, and greater independence from BT

NETWORK CHOICE

Major shift to promote new fibre networks, using BT’s

infrastructure

CONSUMER EMPOWERMENT

Better information, performance tables and

easier switching

BETTER COVERAGE

Helping Govt. deliver universal fast broadband,

and boosting mobile

QUALITY OF SERVICE

A step-change in quality across the industry, and automatic compensation

CAREFUL DEREGULATION

Easing burden of regulation where no longer required or

competition is strong

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Better coverage

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Coverage: the current picture

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Telephone Mobile (all operators) Fixed broadband

BETTER COVERAGE

BETTER COVERAGE

Better broadband BDUK aiming for superfast broadband to reach 95% by 2017 Government committed to min. 10 Mbit/s broadband for all by 2020. Ofcom working to help make that happen Better mobile Ofcom rules mean 98% of homes and offices must get indoor 4G mobile next year Mobile operators must reach 90% voice coverage of UK geography next year

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Network choice

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NETWORK CHOICE

A choice of how to receive broadband

• New strategy to promote large-scale ultrafast networks. Major operators have stressed importance of fibre; this gives them the tools

• Reducing the country’s reliance on Openreach, and providing greater choice of technology and provider

• Openreach must open up its tunnels and poles, and provide comprehensive data on its network – a ‘digital map’ of the UK

• Competition will incentivise Openreach to improve its network

• Protecting investment incentives – setting prices that encourage network investment by all, for example through pricing flexibility for risky new investments

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NETWORK CHOICE

How infrastructure access works

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Openreach reform

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OPENREACH REFORM

Openreach now

• Company is part of BT Group, but must treat all customers equally • Structure has delivered benefits since 2005, but our review has identified problems:

◦ Governance lacks independence ◦ BT Group control over strategic decision making ◦ Inappropriate cost allocations ◦ Insufficient consultation on investment

Openreach in the future

• Reformed governance • Taking its own decisions on budget, investment and strategy, in the interests of all

telecoms companies and customers • Must consult all customers on investment plans • More transparency over how costs are allocated

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OPENREACH REFORM

Next steps

• Ofcom will prepare detailed proposals later this year to implement change, working closely with the European Commission

• The new model might require Openreach to become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members

• If necessary, Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders

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Quality of service

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QUALITY OF SERVICE

Coverage and speeds are improving, but quality of service has not been good enough. We will introduce a step-change across the industry, through:

Naming the best and worst performers. We will publish simple, clear tables of service

quality among mobile and fixed operators, on a range of performance measures Tougher minimum requirements on Openreach. ‘Service floors’ to rise over time,

taking account of customers’ expectations. May extend to fault rates Regulatory incentives. Using our price regulation to reward outstanding performance,

while also penalising poor performance Automatic compensation. We intend to ensure consumers and businesses receive

money for loss of or reduction in service, without having to ask. This offers a further incentive for providers to improve

Protections for vulnerable customers – such as prompts at the end of a contract

All providers need to do better

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Empowering consumers and businesses

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EMPOWERING CONSUMERS AND BUSINESSES

New technologies and bundles make services more complex. Consumers need clear, accurate information to shop around. Ofcom will bring about:

Better buyer information. Strengthening the Code of Practice on broadband speeds,

and extending same principles to mobile coverage Clearer pricing information. An end to misleading prices, and measures to make price

comparisons easier (e.g. a standard cost measure)

Fairer rules. We are working to make it easier to cancel contracts and switch mobile provider, following our recent work on landline and broadband switching

Advanced tools. Enhanced Ofcom services such as coverage maps and speeds reports Protections for vulnerable customers – such as extending telephone protections to

broadband

Competition relies on empowered customers

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Careful deregulation

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CAREFUL DEREGULATION

Ofcom intervenes only where necessary, regulating where the market does not serve consumers and businesses well enough. Opportunities for deregulation:

• Traditional voice telephony. Boundaries blurring between landline, mobile and internet

voice and text services. Protection still required for vulnerable landline users. Next steps in the Narrowband Market Review

• The ‘General Conditions’. Review of the rules governing all communications providers to make them clear and relevant, and reduce cost of compliance

• Ultrafast networks. May require flexible rules on pricing

• Possible future network deregulation – where competition is effective

Simplifying and removing regulation

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Next steps and implementation

Wholesale Local Access Review:

ducts/poles, QoS and Openreach standards

(consultation)

Narrowband Market Review

(consultation)

Business Connectivity

Market Review (statement April)

New USO for broadband

98% indoor 4G coverage

Connected Nations Report: new tools

(December)

700 MHz release (est. 2020)

First annual QoS report (early 2017)

Automatic compensation: proposals and consultation

(2016 consultation)

Triple-play switching (2016 consultation)

Review of GCs completed (spring)

Note: actual dates to be confirmed

Openreach structure proposals to EC

(second half 2016)

Mobile switching (consultation

March)

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Questions