Jonathan Oxley - OFCOM

Jonathan Oxley - OFCOM

• 1.
  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 2017 INCA Conference Jonathan Oxley - Ofcom 16 November 2017
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 2 We recognise the importance of investment in improved infrastructure • People and businesses need fixed and mobile connectivity that is widely available, high performance, reliable and predictable, and affordable. • This requires significant investment in existing networks, next generation FTTP fixed and 5G mobile networks. • We have been explicit in our DCR that we want to encourage large-scale deployment of new ultrafast networks, primarily using fibre to the premises. • Consumer take-up also matters – hence we need to ensure prices are not out of reach for regular working families. The regulator’s job is to lay the foundations for companies to compete and invest
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 3 We believe that competition remains the best means of driving investment and innovation We recognise that there are multiple FTTP investment models could coexist and are being explored by telecoms providers. Openreach FTTP wholesale to retail ISPs Self-build FTTP wholesale to others (e.g. CityFibre) Co- Investment Geographic swaps and sharing (e.g. Mobile) Self-build FTTP retail (e.g. Virgin Media)
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 4 Our immediate interventions lay the foundations for companies to compete and invest Our WLA pricing review seeks to balance encouraging competitive fibre investment with protecting consumers of more basic services from excessive prices. Duct and Pole Access will make access to BT’s ducts and poles cheaper and easier. Legal separation of BT and Openreach to ensure it treats all customers equally and makes investment decisions that meet the needs of the whole industry, not just BT. A further set of interventions are being proactively pursued by the government.
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 5 £0 £100 £200 £300 £400 £500 £600 All self-build 50% DPA 75% DPA Illustrative potential impact of duct and pole access on capex required to pass each home Fibre / active equipment Civils Effective DPA is transformative, potentially cutting the upfront costs of laying fibre by around 50%... Potential upfront cost savings from DPA Assumptions for the purposes of this illustrative calculation: • Total cost to pass when self-build = £500 per home passed. • Upfront civils costs without PIA = £350 per home passed. Assumed to scale according to the proportion of PIA used. • Fibre/active equipment upfront costs = £150 per home passed. • Capex required to pass each home excludes cost of installing the final drop.
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 6 (£1,000) (£800) (£600) (£400) (£200) £0 £200 £400 £600 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18 Y19 Y20 Millions Illustrative potential impact of duct and pole access on cumulative discounted cash flow All self-build 50% DPA 75% DPA …and reducing the peak funding requirement and halving the payback period Assumptions for the purposes of this illustrative calculation: • Deployment to 2.5 million homes over 4 years. • Upfront cost to pass each home as per previous slide. • Cost to connect premises = £150 per home connected. • Operating costs: PIA rental = £10 per home passed per annum; ongoing network costs = £10 per home passed per annum; ongoing retail costs = £60 per home connected per annum. • Retail revenue = £360 per home connected per annum, excluding VAT. • Penetration = 25%; Churn = 15% • Discount rate ( pre tax real WACC) = 7.5%.
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 7 Our challenge is to ensure Telecoms Providers can access Openreach’s ducts as easily as BT itself • Level playing field – access to Openreach’s ducts and poles as easily as BT itself: using the same processes, systems and digital map data • Relaxation of usage restrictions – leased lines together with fibre-to- the-premises (FTTP) where primary purpose is broadband • Simplified and less costly processes – e.g. more autonomy for access seekers, allowing them to undertake civil works themselves • Lower pricing – e.g. incremental costs of remedy pooled and spread across all services using ducts and poles • Openreach bears costs for in-scope adjustments to ensure ducts ready for use with costs spread across all users of infrastructure
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  PROMOTING CHOICE •SECURING STANDARDS • PREVENTING HARM Classification: CONFIDENTIAL 8 Although early in the investment cycle we are seeing positive signs in the market • Virgin’s Project Lightning £2bn investment will extend ultrafast broadband 4 million additional premises, extending Virgin’s footprint to over 60% of the UK. • CityFibre deploying FTTP to 1m homes with Vodafone anchor tenant. • Hyperoptic raised £100m in last 12 months to fudn FTTP build. • Openreach plan to deploy FTTP ultrafast broadband to 2m premises. • Openreach investment up 50% to £1.5bn p.a. since DCR commenced. • We are aware of advanced plans for several other confidential FTTP projects. Commercial announcements by operators indicate the deployment of FTTP to around 6m homes by 2020. To recap, we believe competition drives investment and innovation leading to positive outcome for consumers and companies.