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Vodafone UK Boss Slams Openreach 'Stranglehold'

Iain Morris

The UK is falling behind European countries including Spain and Portugal in the digital economy because of its failure to break BT's grip on the broadband market and improve the economics of building higher-speed fiber-optic networks, the CEO of Vodafone UK told reporters and broadband stakeholders at a meeting in London Wednesday morning.

Nick Jeffrey slammed the broadband network infrastructure currently available to UK businesses and consumers and said that BT Group plc (NYSE: BT; London: BTA)'s stranglehold on the market had stopped Vodafone UK from making investments in a superior fiber-to-the-premises network.

He also dangled an opportunity for FTTP collaboration in front of other broadband stakeholders. "We want to build FTTP but I can't make the economics work and if entrepreneurs can find better ways to improve the economics and avoid the Openreach stranglehold I am all ears," he said.

That message came on the same day that Vodafone published research in which it claimed that more than 50 cities and towns in the country had the potential to use digital resources to fuel economic growth with the right public-sector support.

At an infrastructure level, Vodafone has become increasingly frustrated that it cannot access networks owned by Openreach, BT's networks division, on favorable terms. In a report written with a consulting firm called WPI Strategy, it has also taken issue with onerous planning rules at a local authority level, and urged the government to slash business rates and make land and facilities more readily available to alternative network operators.

"The underlying macro issue is that the vast majority of broadband is based on legacy copper infrastructure from the last century and there is no conceivable way that 20th century infrastructure is fit for 21st century digital economies," said Jeffery. "We have to break BT's stranglehold on the market. The regulator has taken some steps but there is still a long way to go."

Vodafone has argued that regulatory measures in Spain and Portugal have already spurred investment in fiber-optic networks by operators other than the former state-owned monopolies. "In Spain and Portugal FTTH [fiber-to-the-home] penetration is more than 70%," said Jeffery. "Here it is less than 2%."

Openreach is upgrading last-mile copper loops for around 10 million UK premises using a technology called Gfast, which could deliver speeds of around 300 Mbit/s for homes and businesses, it says. It has also promised to extend FTTP networks to around 2 million premises by the end of 2020. (See BT to Cover 2M Homes With FTTP in $8.7B Plan.)

But this would still leave the vast majority of the UK's 27 million households without access to the gigabit-speed services that are becoming increasingly available in other parts of Europe.

The rollout of gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.

In an effort to improve the competitive environment for BT's rivals, UK regulatory authority Ofcom has forced the incumbent to run Openreach at arm's length from the rest of the business, with its own management.

While this "legal separation" was backed by most of BT's rivals, it does not go far enough for some critics, who want to see Openreach spun off as an entirely separate company. (See Only BT's Dismemberment Will Sate Rivals.)

Matt Hancock, the UK's digital economy minister, said the pressure was now on BT to prove that legal separation has delivered improvements. "The test of separation will be whether Openreach works with other companies to provide infrastructure for retailers," he said at today's meeting in London.

Despite the criticisms leveled at BT, Vodafone was recently reported to be in talks with Openreach about co-funding the rollout of new fiber networks up and down the UK. (See Eurobites: Vodafone, BT Eye Joint Fiber Rollout – Report.)

In a sign of its interest in collaborating with "entrepreneurs" on broadband rollout, Vodafone has also previously signed a "master services agreement" with a small but fast-growing infrastructure rival to BT called CityFibre, whose strategy chief Mark Collins was in attendance at today's event. (See CityFibre Takes On BT With $136M KCOM Acquisition.)

The deal with CityFibre, which is building fiber-optic networks across a number of UK towns and cities, could pave the way to the launch of a so-called fiber-to-the-tower service in future, providing backhaul support for the soaring volumes of data traffic on Vodafone's mobile network.

However, Vodafone also appears to be interested in running a fixed-line broadband service over its own networks, weaning itself off the wholesale products it currently buys from BT.

Earlier this week, Vodafone Germany announced plans for a €2 billion ($2.4 billion) gigabit upgrade to its cable and fiber-optic networks. In the German market, it was frustration with incumbent Deutsche Telekom AG (NYSE: DT) that partly spurred Vodafone to spend €7.7 billion ($9.2 billion) on a takeover of Kabel Deutschland, the country's biggest cable operator, in 2013. (See Vodafone to Pump €2B Into German Gigabit Networks.)

— Iain Morris, News Editor, Light Reading

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