In it for the Internet: TalkTalk and Vodafone in legal action over BT’s ethernet controls

September 11, 2019

2 min read

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What's going on here?

Fibre broadband providers Talktalk and Vodafone have launched an appeal in the Competition Appeal Tribunal against Ofcom, the UK’s communications regulator. The appeal concerns Ofcom’s decision to soften regulatory controls in London of Openreach, a functional division of BT.

What does this mean?

Vodafone, who lead the appeal, are concerned by the degree of market power enjoyed by BT. Its grounds are as follows:

(1) Ofcom’s claim that Openreach does not have significant market power in Central London is false;

(2) replacing the current cost-based price cap with a flat rate price cap would only benefit Openreach, as the new price cap would not reflect Openreach’s falling costs of providing service; and

(3) loosening pricing regulations in anticipation of future competition is unjustified.

What's the big picture effect?

BT have a strong foothold in Central London, having connected the vast majority of business premises. It is therefore expensive and disruptive for their rivals to extend or build their own networks, and as such providers like Vodafone and Talktalk are reliant on wholesaling from Openreach for their networks. This imbalance gives BT competitive advantages; the current appeal is concerned with the fact that looser pricing regulations will allow BT to charge higher prices for providing these services. It is further argued that looser regulation could lead to higher charges for consumers of BT’s competitors, which may incentivise them to switch to Openreach and reduce the industry’s competitiveness. 

On the whole, Vodafone’s appeal aims to resist policy changes that could stifle competition and disrupt the growth of the broadband industry. The UK lags behind the rest of Europe in the development of its broadband industry and increasing competition is often touted as the route forward. Competition helps to spur development by encouraging industry players to create innovative products and adopt cost effective processes. BT’s purported market dominance may hinder industry development by creating a higher barrier of entry for new service providers and reducing any incentive for BT to innovate. 

Broadband availability has been improving in the UK in the past few years, with increasing investment in full-fibre broadband rapidly increasing coverage. The UK government initially aimed for full-fibre broadband to reach across all of the UK by 2033, but PM Boris Johnson has recently pledged to accomplish this by 2025. This accelerated reform agenda would require legislative change across various areas of law including tax, property and infrastructure. In this light, it will be interesting to follow the development of this case and whether the government can create opportunities for alternative providers to grow through its intended investments.

Report written by Rachel Tay

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