The cost of living crisis continues to bite, as prices for certain essential services keep moving in the wrong direction. Utility bills in the UK, for example, are making a hefty and unwelcome thud on doormats around the country as gas and electricity prices reach eye-watering levels.

Broadband has become an essential service, especially in this era of hybrid and remote working. Any indication that prices are being cut should be welcomed. That would certainly be the case for UK broadband retail prices, but not so much when it comes to wholesale prices.

Indeed, alternative fiber providers in the UK are now hopping mad that BT's network unit, Openreach, finally confirmed plans to offer discounted wholesale fiber broadband deals to Internet service providers (ISPs) that run their services over its network. Vodafone, TalkTalk and Sky are among those that use the Openreach network for their broadband services.

Figure 1: CityFibre and Virgin Media O2 flag concerns that BT Openreach is using its position to prevent wholesale customers from switching to alternative networks.
(Source: BT)

The Equinox 2 offer is due to launch on April 1, 2023, and is described by Openreach as an "optional overlay to the Equinox 1 offer" that was launched in 2021 and lasts for ten years. The aim is to provide long-term pricing certainty to ISPs that use the network while encouraging the migration of customers from copper to fiber networks.

Goldman Sachs-backed CityFibre has already taken Openreach to task over discounts under Equinox 1, and the altnet's CEO Greg Mesch did not mince his words about Equinox 2.

He accused Openreach of "exhibiting a series of behaviors straight out of the playbook of a dominant operator using its market power and advantages to maintain its dominance. Equinox is just one of those levers — a pricing policy designed to lock in its near-totally dependent customers and prevent them switching to faster, cheaper and more reliable competitors."

Both Mesch and Lutz Schüler, CEO of Virgin Media O2, said providers such as theirs are bringing billions of pounds into the country by investing in alternative fiber networks.

"To avoid putting planned and future investment at risk, and to safeguard fair competition, it's vital that these wholesale pricing proposals are thoroughly scrutinized to ensure Openreach is not using its market power and dominance to lock in providers and deter them from switching to other networks," Schüler said.

Openreach has pointed out that there are "no volume or exclusivity requirements to obtain discounts" and said it introduced a so-called "failsafe mechanism to remove any theoretical possibility of distorting incentives to use alternative networks."

Big squeeze

Essentially, BT's rivals are concerned that wholesale prices are too low and will force them out of the market because they won't be able to respond with their own offerings or invest in their own networks.

As explained by media and telecoms analyst Paolo Pescatore, "Rivals will feel that Openreach is trying to use its market dominance by locking in providers for longer. If so this will squeeze their own margins, making it harder to rollout their own networks and compete at scale. However, Openreach wants to have long-term certainty as it invests in building out a fiber broadband network in the UK."

Rumors have been circling for some time that Equinox 2 was on the horizon. At the same time, BT is planning higher-than-inflation-rate price increases for its consumers next year.

During BT's earnings call last month, one analyst made a valid point: "On the one hand you are cutting wholesale prices to potentially choke off infrastructure-based competition, and on the other hand you are increasing retail prices. How do you convince Ofcom this is for the benefit of citizens?"

Openreach has to give Ofcom 90 days' notice of any new network access conditions, and it remains to be seen what the UK regulator will make of the Equinox sequel. Ofcom expects to publish a consultation in late January or early February 2023, and interested parties will then have 30 days to respond.

Notably, Ofcom approved Equinox 1, and CityFibre failed in its attempt to challenge the regulator's decision at the Competition Appeal Tribunal.

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Apparently undeterred by the earlier ruling, the altnet has just submitted a Competition Act complaint to the Competition and Markets Authority (CMA) and Ofcom against BT Openreach.

According to Mesch, "If left unchecked, BT Openreach will strangle competition and threaten the pace of the UK's full fiber roll out – all at the same time as BT Consumer is imposing broadband price rises on millions of households far above the rate of inflation."

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— Anne Morris, contributing editor, special to Light Reading