'We will prioritise promoting sustainable competition,' regulator Openreach ruled

BT-owned Openreach, which maintains the largest broadband network nationwide, could be forced to withdraw a heavily discounted offer aimed at onboarding new customers to its full-fibre cables — and it could have serious consequences for the discount and deals designed to tempt you to switch brands.

Ofcom has ruled the offer from Openreach was "not fair and reasonable" and could damage competition from other broadband network providers. The watchdog said it provisionally found the "New To Openreach" offer was unfairly targeting new customers with its "aggressive discounting".

New customers are a vital component that enables so-called altnets to grow their customer base.

Openreach – which is owned by BT, but run as a separate company – builds and maintains a vast telecommunications network across the UK, including copper cables, fibre optics, and telephone poles.

It does not sell broadband contracts to customers, but instead provides the infrastructure used by the likes of BT, EE, TalkTalk, Vodafone, Plusnet, and Sky Broadband, to name just a few. If any of these brands is available at your address, you'll be able to switch between any of the Openreach-connected suppliers.

The "New To Openreach" offer is an incentive to all of these Internet Service Providers (ISPs), offering them a monthly discount for every new full-fibre customers brought onto the Openreach network. It offered up to £9.50 per new full-fibre customer for up to 30 months — a serious saving.

That incentivised the likes of Sky Broadband, Plusnet, Vodafone, EE, and others to put their effort into onboarding new subscribers who had never been connected to full-fibre broadband before.

Broadband suppliers always reserve the best discounts and free gifts for new customers, something the discount from wholesale supplier Openreach only further incentivised.

Ofcom said the offer comes at a time when competition in the wholesale market is still developing, with smaller full-fibre rivals — known as alt-nets — still building out the infrastructure to attract new subscribers, and Virgin Media O2 hoping to scale up to become a true competitor to Openreach nationwide.

In its ruling, Ofcom said: “Matching these discounts may not allow competitors to recover their costs, given the low prices they are already offering to all of their customers. Sustainable competition is fundamental because it means people having a choice between different networks. That choice drives companies to compete for customers through affordable prices and higher quality services.”

It is proposing blocking the deal on the grounds it could hurt competition and drive up prices in the long term. Such a move would be the first time Ofcom has used its powers to step in and stop a commercial offer from Openreach, which is BT’s wholesale network arm.

“With around half of households that could access full-fibre broadband yet to sign up, it is vital that different networks can compete for these customers fairly,” according to the regulator.

Ofcom will now consult on its proposed action until August 27, with a final decision expected by the end of September.

Natalie Black, Ofcom Group Director for Infrastructure and Connectivity, said: “Openreach must be able to compete, but they cannot use their significant market power to drive other networks out of the market.

"In reaching our final decisions on their planned offers, we will prioritise promoting sustainable competition, which is fundamental to keeping prices low in the long term and bringing better broadband to people across the UK.”

Openreach said it was “disappointed” at Ofcom’s proposed action to intervene.

Openreach Managing Director for Commercial, James Lowther said: “We’re disappointed that Ofcom has expressed concerns about one of our four offers, which we put forward in good faith at a time when many households are watching every bill. In such a competitive market, we don’t believe that regulation should protect poor business models and we disagree with Ofcom’s analysis.”

But Virgin Media O2 called for tougher action from Ofcom against Openreach.

A Virgin Media O2 spokesperson said: “This still fails to recognise the full picture of the incumbent’s tactics, the interrelated nature of the offers and Openreach’s clear intent to ‘test the waters’ with the aim of continuing to disrupt emerging competition in future. Ofcom should be tougher in holding Openreach’s behaviour to account as it looks to entrench its dominant position and squeeze competition.”

Rajiv Datta, chief executive of Nexfibre, added: “The regulator should also consider the cumulative effect of the steady drip-feed of other offers, which form part of a wider playbook to prevent the emergence of scaled wholesale competition and entrench BT Openreach’s dominant position.”

Additional Reporting By Holly Williams, Press Association Business Editor