Early last year, we remarked on the new trends in regulation in the Telecoms, Media and Technology industry. 2016/17 was certainly busy, with regulators issuing record fines, blocking the proposed merger of O2 and Three, and enforcing the legal separation of Openreach from BT. It looks like this was just the start. Fines, probes, and new legislation followed and look set to continue. So what's next, and how do providers keep up?
Ofcom continued to hold communications providers to account, with a number of fines issued for breaches, including the biggest Ofcom fine to date - £42m - issued to BT for failing to pay compensation to other providers for delays in installing high-speed ethernet lines (1). Other fines were issued based on unfair consumer practices - EE were fined £2.7m for overcharging customers (2), PlusNet were fined £880,000 for billing former customers (3), and Three were fined £1.9m after it was discovered that customers may not have been able to contact the emergency services at all times (4).
The investigations look set to continue. Last month, Ofcom announced they are looking into whether Three and Vodafone are contravening EU net neutrality rules by restricting certain services on their networks (5).
There has also been increased challenge from the telecoms industry over the past year. Both EE and Three launched appeals against Ofcom after a cap was announced on the amount of mobile spectrum a British company could own (6), and the Court of Appeal upheld a challenge from operators that a government-ordered increase in the license fee paid by companies to Ofcom was not lawful (7).
Looking ahead - Ofcom driven change
In January of this year, Ofcom held a stakeholder engagement session to share the proposed plan for FY18/19. The remit is ambitious and presents many challenges and opportunities for the industry.
Ofcom’s raison d’etre is to put the consumer at the heart of everything they do, with three key focus areas: Promoting Choice, Securing Standards and Preventing Harm.
For the telecoms market specifically, the headlines emerging from the plan involve:
1) Openreach and BT Reform
With Ofcom set to actively monitor and report on progress of the separation of Openreach from BT; specifically how this will benefit consumers and encourage network investment and competition. Published KPIs have been set, with the carrot of promoting the Openreach brand and independence and the stick of penalties, fines and adverse publicity.
2) Spectrum Awards
Ofcom will be designing the auctions, obligations and measures with a view to promoting competition as part of the licence award. As mentioned above, we’ve already seen challenge from Three and EE around whether there should be caps on spectrum ownership, so it will be interesting to see how Ofcom positions this year’s Spectrum awards.
3) Quality of Service
Ofcom’s ambition is to enable the consumer to shop around with confidence and switch with relative ease. Moorhouse supported a number of our clients to impact assess the 2016/17 Ofcom Switching proposal. Following assessment, it was found that the business case for the switching consultation no longer stood up, when the respective legacy systems and processes of communications providers were considered. As a result Ofcom will be moving more towards ‘helping consumers engage in communications markets’.
With the objective of ensuring that consumers are more informed and empowered, there is a drive for more accurate consumer information on the quality of experience different services provide in different locations.
Ofcom noted that network investment is required, to drive better quality availability, reliability and resilience but reiterated the need to balance this, to avoid excessive pricing for consumers.
As a first step, Ofcom will be updating coverage maps and working closely with operators to ensure they are representative and comparable. Coverage obligations were set at the end of 2017: 90% geographic coverage for 4 operators (EE, O2, Three, and Vodafone), 98% population data coverage for O2 (8). In FY18/19 Ofcom will be assessing where operators have got to with the obligations.
The government announced Regulated Service Obligations, giving every household and business the right to request a broadband connection at a minimum speed of at least 10Mbps, up to a reasonable cost threshold - no matter where they live or work. Currently, 1.1m UK premises cannot regularly access these speeds (9). A priority and challenge for Ofcom this year will be to work through how to implement this.
Finding the balance and how we can support
If those are the highlights in what will be a busy year for Ofcom and the industry, what does this increase focus on regulation mean to you and what opportunities does it present?
Whilst any reforms will be implemented with the best intentions for the consumer, there will be a fine line between truly driving competition, versus regulating the market to such an extent that the communications providers don’t have the capacity to provide differentiated and innovative offerings.
Being able to offer consumers choice and offerings relevant for their needs is an important aspect of promoting competition. The risk is that with such a focus on regulation and the fact that significant investment is often required to implement change; this could lead to convergence of the market and in fact not truly promote choice.
Whilst implementing regulatory change, it is imperative for communication providers to seek out the opportunities to remain competitive and hold on to their unique selling point.
From our experience of supporting clients through regulatory change, we have 3 key lessons learned:
1) Validate the business case
Take time to impact assess the proposed changes on existing systems and processes, to ensure that the consultation will deliver the benefit that it is setting out to achieve. Often, the cost to the industry to implement the changes outweighs the benefits.
2) Coordinate change
The impact of regulatory changes will be unique to each organisation: the business landscape, processes, systems and people impacts for each specific entity need to be considered. Change should be coordinated as part of a programme to avoid duplication, drive efficiencies and identify business opportunities.
3) Consider the customer impact
Additional consent processes can threaten smooth customer experience. Maintaining the best possible experience and offering, whilst maintaining minimal effort for the customer in spite of the changes is critical.
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