UK fibre to the home (FTTH) investment: UK communications regulatory framework

UK communications regulatory framework

The Communications Act 2003 is the primary legislation governing the telecommunications sector in the UK. It grants powers to Ofcom, the UK’s telecoms regulator, and forms part of a wider framework of legislation and regulatory guidance. Communications providers are also affected by other Acts, subordinate legislation and Ofcom’s regulatory initiatives.

General conditions of entitlement

Under the Communications Act 2003, the UK operates a general authorisation regime, meaning that there is no requirement for telecoms providers to apply for a specific licence. Rather, all providers of electronic communication networks and services, including FTTH and wireless operators, are entitled to offer telecoms services to consumers, provided that they comply with the General Conditions of Entitlement, which are set by Ofcom.

There are currently 17 General Conditions of Entitlement. They relate to:

• Network functioning, such as interconnection obligations with other network providers, standards and specifications, and providing access to emergency services.
• Numbering and technical, relating to the use of telephone numbers.
• Consumer protection, such as:
  • The requirement for transparent, easily accessible contracts, which must include any provisions relating to traffic shaping, minimum service levels, pricing information, the duration of the contract, charges for terminating the contract and dispute resolution procedures.
  • Customer billing obligations.
  • Specific measures for vulnerable customers and those with disabilities, such as a requirement to have a priority fault repaid service.
  • Rules for customer switching, including restrictions on mis-selling, slamming (that is, switching customers without their consent) and the provision of accurate information at the point of sale.

Ofcom has:

• The power to enforce compliance with the General Conditions of Entitlement.
• The power to investigate potential breaches, including by requesting information from providers. In the event of a breach, Ofcom can fine providers up to 10% of their annual relevant turnover (being the turnover of the provider’s relevant business).
• A number of additional powers - for example, the power to obtain injunctions to prevent a provider from continuing a particular course of action. 

In recent months, Ofcom has launched a number of investigations in relation to compliance with the General Conditions, in particular in relation to consumer protection. Investigatory action can be provider-specific, or industry-wide, such as the enforcement programme launched in December 2022 to investigate whether broadband providers have given customers sufficiently clear and transparent information relating to mid-contract price rises and a compliance monitoring programme relating to access to emergency services during power outages.

Ofcom is likely to want to ensure that ISPs, no matter what their size, comply with such consumer protections.

Wireless licensing

Providers supplying services using radio spectrum (for instance, wireless networks, mobile network and satellite services providers) must generally obtain a licence from Ofcom, further to the provisions of the Wireless Telegraphy Act 2006, unless the service falls within one of several identified exemptions.

There are numerous types of licences, entitling licence holders to use certain spectrum and/or equipment. Licences generally specify the details of the permitted frequency and use and set out the fees (which tend to be charged on the annual basis).

Licensing considerations will be particularly relevant for alternative network operators (altnets) that incorporate fixed wireless access (FWA) technology or wireless fixed links in their networks.

Consequences of operating wireless technology without the correct licence or in breach of a licence may result in investigations from Ofcom, fixed-penalty notices and/or criminal prosecution.

Electronic Communications Code

The Electronic Communications Code (ECC) provides a statutory basis for registered communications providers to place and maintain their apparatus (including cables) on land and buildings owned by another person.

The ECC sets out the so-called “Code Powers”, which enable an operator to install and maintain apparatus, relying on simplified planning procedures.

In particular, Code Powers holders have the right to:

• Construct and maintain electronic communications networks and infrastructure (such as ducts, cabinets and poles) on public highways without the need to obtain a street works licence to undertake such works.
• Construct communications infrastructure which is classified as “permitted developments” under Town and Country Planning legislation (such as certain types of masts, poles and cabinets) without the need to apply for planning permission.
• In the event that agreement cannot be reached with the owner or occupier of private land within 28 days, to apply to the Court to impose an agreement which confers authority to exercise the relevant Code right, or for the Code right to bind the landowner or occupier.
• Claim compensation from a local authority in circumstances where that local authority has obstructed access to electronic communications apparatus in certain stipulated circumstances.

Code Powers are awarded to operators following a direction given by Ofcom (or, less frequently, the Secretary of State or Northern Ireland department). The decision must be made within six months from receiving a completed application.

Operators with Code Powers are subject to various requirements:

• They have to pay an annual renewal fee to Ofcom and provide Ofcom with the certificate confirming that they have sufficient funds to meet liabilities including a performance bond from a financial institution.
• They are subject to conditions and restrictions imposed by the Secretary of State pursuant to section 109 of the Communications Act 2003, as set out in the Electronic Communications Code (Conditions and Restrictions) Regulations 2003/2533 (as amended). Amongst other things, these include an obligation to comply with a code of practice concerning the siting of cabinets and poles. Ofcom has an enforcement role over compliance with the ECC.

Code Powers are fundamental to altnets looking to lay fibre cables and associated infrastructure on both public and private land, as they simplify the process for obtaining wayleaves and access. It is therefore important to conduct due diligence in relation to such altnets to ensure that they:

• Hold Code Powers.
• Are in compliance.
• Have the relevant performance bonds in place.

Ofcom’s regulatory framework: Wholesale Fixed Telecoms Market Review

Ofcom concluded the Wholesale Fixed Telecoms Market Review (WFTMR) and published its final statement on 18 March 2021. The WFTMR sets out the regulatory framework for the period from 1 April 2021 to 31 March 2026.

Subject to market developments, Ofcom currently intends that the broad principles established in the WFTMR will remain in place for the subsequent review period, from 2026 until 2031. It has clarified that price controls are not expected to be in place until 2031, and that it will continue to support investment and competition in telecoms.

Openreach

One of the key objectives of the WFTMR is to promote connectivity, access to, and take up of, very high capacity networks, by promoting investment and network competition in full fibre networks. For example, Ofcom has found that Openreach has “significant market power” in certain geographical markets for physical infrastructure, wholesale local access and leased line access markets (the WFTMR takes a different regulatory approach for different geographic areas depending on the level of network competition).

The WFTMR established the following key remedies:

• A price cap on Openreach’s entry level wholesale fibre services whilst allowing it to charge a premium for full fibre.
• An obligation on Openreach to allow network operators to lay their networks in Openreach’s infrastructure through the physical infrastructure access product (PIA) on non-discriminatory terms and subject to a charge control (as discussed in more detail below).
• Progressive deregulation of access to Openreach’s copper network to support transfer to full fibre.
• Restrictions on Openreach’s behaviour, such as prohibiting Openreach from offering geographic discounts on full fibre services, as well as superfast broadband wholesale services.

The framework is also intended to allow Openreach greater margins for its full fibre services, which is intended to encourage competing rollout from FTTH operators as well as investment in full fibre networks.

Equinox offer

The terms of the WFTMR require Openreach to notify Ofcom where it proposes to introduce commercial terms where the price or other conditions are conditional on the volume and/or range of services purchased. In July 2021, Openreach announced new pricing arrangements for its FTTH services, known as the Equinox Offer. In December 2022, Openreach notified a new pricing offer (referred to as Equinox 2), which offered further discounts.

The Equinox Offer was strongly opposed by the altnets and ISPs involved in building new infrastructure. They expressed concern that lower prices of Openreach’s FTTH product would make it harder for altnets to attract investment to build their networks and would have significant impacts on competitors’ entry and expansion.

Ofcom accepted the Equinox Offer and concluded that it did not raise concerns. CityFibre appealed against Ofcom’s decision to approve the Equinox Offer to the Competition Appeal Tribunal (CAT). In July 2022, the CAT rejected the appeal, underscoring the fact that a court should be cautious about interfering with a consultation process carried out by an expert regulator. Ofcom has subsequently determined not to prevent Equinox 2 from being introduced.