Monday, 22 February 2016

Sky plead for Openreach separation - FTTPR

[Work in progress, citations and links will follow]

Sky UK CEO Jeremy Darroch has written an apparently impassioned plea to Ofcom to separate Openreach from BT Group.

A superior digital infrastructure would indeed be great for the UK. Mr Darroch's passion for ultrafast broadband is good, although it doesn't quite seem to marry with his company's own broadband products - no reselling of Openreach's current FTTP footprint, and no 80Mb product that can be purchased online, if a customer wishes to purchase it from Sky they must call.

Their enthusiasm for superfast broadband seemed somewhat lacking, too. They were late to offering services higher rated than basic ADSL for a few reasons. Wanting more control over the service than the bitstream option could realistically provide, essentially wanting all the benefits of LLU, especially cost being the major ones.

Perhaps Mr Darroch would consider, if separation is such a simple, quick fix, putting some of his company's money where their PR is. Sky have given us plenty of Fibre to the Press Release, to the point of a trial in York that looks, more and more, like an extremely expensive lobbying tactic, but have thusfar committed in no way to investment in FTTP post-separation or indicated where all the post-separation investment will come from.

Sky purchased a national network from Easynet, which was used to collect data from BT exchanges. Sky rent links from the exchanges and rent the copper going into them. Their primary TV business does not use their own satellite network, they rent capacity from SES Astra.

Sky's record in the UK is not build networks; they seem more inclined to acquire them if the price is right, and rent them if that's impractical.

Mr Darroch notes the situation in countries elsewhere. He does not note that, for the most part, these conditions are as they are because either the state is heavily involved, New Zealand and Sweden being obvious examples, or in Spain and France where competitors to the incumbent put their money where their mouth is, dropped the FTTPR and set about building the FTTP.

Mr Darroch makes some statements that simply make no sense.

Sadly it is often not economically viable for other providers to roll out separate ultrafast networks. We are working with TalkTalk to trial fibre to the premises in York. While demand is encouraging, it is difficult to achieve a reasonable return on investment while BT Retail remains tied to Openreach. Freeing up Openreach would allow the right level of investment to be made.

BT Retail aren't the ones giving away free broadband, Mr Darroch. The low return on investment environment is one you and TalkTalk made. Your companies are the ones that historically treated broadband as a value added product, bundled in with line rental or TV. BT Retail are regulated to ensure they cannot undercut you.

Not to mention that yourselves and TalkTalk are able to keep this network to yourselves. How do you propose Openreach may deploy a network viably when they are required to wholesale it and may not keep all the revenue from the end customer?

Companies that actually spend their own money building the networks would dearly love to be able to charge more for access, it would allow them to invest more and deliver a higher return on investments. For those companies, such as Mr Darroch's, that do not pay the capital costs of the access networks but instead rent them at regulated prices, there are no such considerations.

Welcome, Mr Darroch, to the market yourselves and TalkTalk have created. The irony of the company that treats broadband as a freebie to be given away with their TV service complaining that people aren't willing to pay for it is tremendous.

He also said things I agree with.

A wise man once defined insanity as ‘doing the same thing over and over again and expecting different results'. With so many agreeing change is needed, Ofcom this week has the opportunity to lead the way. 

I agree. The current approach of regulating Openreach so heavily has allowed your company and TalkTalk to create the environment of low returns on investment, and hence made the UK unattractive to those who wish, unlike yourselves, to deploy more than FTTPR here.

Then sadly ruined it with the rest of the paragraph.

The industry, with much of the nation, will be ready and eager to support it.

Virgin Media who, unlike Sky, do not rely on Openreach and are instead spending money building out their network in competition with Openreach, disagree. I take the words of a company committed to spending £3 bilion on their network over those of a company that is more likely to spend £3 billion buying up sports rights as far as this matter is concerned.

What the UK needs is an environment that encourages risk taking, encourages investment and encourages strong competition. One that presents positive business cases to new entrants, lowers their barriers to entry, and, by producing more competition for Openreach at all levels, encourages them to invest more and to improve their quality of service.

An environment that allows Openreach to make the services and equipment that Sky and TalkTalk rely on to deliver free broadband redundant, and to replace the copper with fibre, improving the business case. It does seem strange given the apparent enthusiasm for FTTP that neither Sky or TalkTalk have reached out to Ofcom to indicate that they wouldn't mind having the equipment they have placed in BT's exchanges made redundant if it meant copper would be replaced with fibre.

I guess the willingness to sweat assets isn't exclusively a BT trait.

The environment that you would seem to want, Mr Darroch, is one where Sky reap all the rewards without taking on any of the risk, and reap all the profit without any concern over how viable the investment actually is.

Which is absolutely what you should be wanting - you represent shareholders and have a duty to deliver the largest return possible to them, regardless of the impact it may have on other companies, the UK as a whole, or your and other businesses' customers.

Wanting it both ways, socialism for yourselves, capitalism for others, rarely ends well.

1 comment:

  1. Well no point debating now on what ofcom should do, the decision has been announced, I partially but not fully agree with your comments regarding sky, but both companies are ultimately the same in your ending notes which is bT's CEO also works for his own shareholders in maximising their returns, and of course BT also cross subsidise services, they offer free sport TV to broadband subscribers. Both companies are guilty of using line rental + call revenue to subsidise other parts of their business.

    Ofcom seem to want to now regulate the QoS from openreach, but still without enforcing openreach to be liable to the end user directly, something which I think will be very hard to do, because end users cannot easily communicate directly with ofcom meaning ofcom will have a hard time of keeping data and enforcing its own rules upon openreach.

    If sky had their own way and openreach was split off, I dont understand how that would have given them a free FTTP network with no investment from themselves, because as a stakeholder they would have had to put money into the pot for the investment they said they wanted, since ofcom of course has not forced the split, we will never know what sky's true intentions were. But I do think you have painted a picture which is too one sided. Remember BT did not originally build their current copper network, they themselves purchased it from the state when it was privatised. The current FTTC program is their first local real network investment.