Ofcom Preps Measures to Boost Competition for KCOM in Hull, East Yorkshire

Ofcom Preps Measures to Boost Competition for KCOM in Hull, East Yorkshire

The incumbent telecoms and broadband provider for the Hull area of East Yorkshire, KCOM, looks set to face new regulatory measures when Ofcom completes their review of competition in the wholesale local access market next week. But achieving substantive change could be difficult.

The regulator’s on-going 2017 Wholesale Local Access Market Review announced in June 2017 that KCOM continued to hold a position of Significant Market Power (SMP) in the Hull area (here), where their network has dominated the local market for many years via a mix of copper line phone, ADSL, FTTC and FTTP broadband connection technologies.

One of the highlights of their unique position has been the operator’s ability to invest £60 million into the roll-out of an “ultrafast broadband” Fibre-to-the-Premises (FTTP) dominated “Lightstream” network, which aims to reach 150,000 premises by the end of December 2017 (roughly 75% of their network). We’re also anticipating the possibility of an extension plan to reach the final 25% by 2020 (here).

However competition in the Hull areas remains extremely limited (i.e. a few fixed wireless ISPs and MS3’s fledgling FTTH network) and that’s partly because KCOM only offers some very basic Wholesale Broadband Access (WBA) products to rivals via their older ADSL copper line services.

Ofcom “do not require” the operator to offer more flexible Local Loop Unbundling (LLU) or Virtual Unbundled Local Access (VULA) based broadband solutions because, they claim, “up to now there has not been sufficient evidence of demand.”

Nevertheless Ofcom’s review has already proposed a future set of changes that will require KCOM to “provide fibre network access on reasonable request,” adopt “fair and reasonable prices” for their wholesale services, as well as offering greater transparency and accountability.

Summary of Ofcom’s Plan for KCOM in Hull

Our proposals seek to achieve the following outcomes:

* Addressing the potential competition concerns we have identified, namely KCOM refusing to supply wholesale services, unduly discriminating in favour of its own retail operations or other selected telecoms providers and charging excessive wholesale charges;

* Ensuring that other telecoms providers can obtain the wholesale products they require at fair and reasonable prices from KCOM to compete effectively in retail broadband services, with a transparent process for telecoms providers to use if those products are not yet available;

* Greater transparency and accountability in relation to requests for new wholesale services and the functioning of the process by which such requests are submitted and considered by KCOM; and

* Greater transparency in relation to KCOM’s costs for supplying wholesale services, to ensure that it is complying with its regulatory obligations.

A report in the Hull Daily Mail confirms that Ofcom expects to complete their review of the situation next week, which will be followed by a set of proposals that should reveal more detail on precisely how the above changes will actually be achieved. Any changes will then need to be imposed from 1st April 2018 and run until 31st March 2021.

A Spokesperson for Ofcom said:

“We share concerns about a gap between value for money that broadband customers in Hull receive compared to the rest of the UK. We’re currently developing the regulation that will apply to KCOM over the next three years. Encouraging more competition in the Hull area to benefit consumers will be at the heart of our decision-making.”

Cathy Phillips, KCOM’s Chief Marketing Officer, said:

“It is incorrect to suggest that KCOM has prevented other major phone and broadband providers from coming to the area, in fact the area already has a choice of fibre providers. So far we have invested more than £60m in deploying our world class full fibre Lightstream service across the city.

We are committed to providing a range of packages designed to meet our customers’ individual requirements, delivering the best full fibre broadband experience at affordable prices.”

However Ofcom faces a number of challenges, not least of which is the fact that KCOM’s older copper network is already on the long road towards being retired and thus will not be a particularly attractive investment for rivals. The regulator states that it is “unlikely to be commercially viable for telecoms providers to utilise LLU in the Hull Area” and so have excluded that requirement in the WLA market, although Sub-Loop Unbundling (SLU) will be available for anybody who wants to build their own hybrid fibre FTTC cabinets.

On the flip side they also recognise that KCOM has made a big investment into their new “full fibre” FTTP broadband network and “should be permitted to benefit from sufficient upside potential from its investment to offset the downside risk of failure.” Suffice to say that there’s a big question mark over whether or not any of this will truly attract significant competition into the local market.

In reality the question of local market competition is also a lot more complicated than may first appear because KCOM remains a significant financial contributor and major employer in the Hull area (details), which makes it difficult for the regulator to fundamentally change the status quo without risking damage in wider social and economic areas. Time will tell.