Regulator’s ‘fair return’ to unleash ‘decade of investment’ for UK fibre

Market to take cue from Openreach’s 10-12% return requirement as Ofcom pledges not to introduce cost-based regulation for at least a decade.

Fibre broadband providers will be able to make a “fair return” over their whole investment period, UK telecoms regulator Ofcom confirmed.

The move comes following a lengthy review by the regulator over how it enables Britain’s urgent need for fibre broadband rollout. It said it will not introduce a cost-based return system, as is done by its respective water and energy peers Ofwat and Ofgem, for at least another 10 years.

“We recognise that full fibre is a long-term investment, taking more than a decade – if not two – to pay back,” Ofcom said. “So, we aim to allow all companies the opportunity to achieve a fair return over their whole investment period, and do not expect to introduce cost-based prices for fibre services for at least 10 years.”

While Ofcom only officially regulates network incumbent and BT-owned Openreach, a spokesman told Infrastructure Investor the way BT is regulated determines how others in the sector can invest. The spokesman added that Ofcom has not set a figure for what it regards as a “fair return”, rather this will be defined through the margin of flat charges posed by BT and the falling costs of the rollout.

BT has said it would need to generate a return of 10-12 percent to ensure the investment required. BT had also wanted a guarantee of cost-based charges not being introduced for 15 years, although it said following Ofcom’s ruling that the decision is “broadly in line” with its expectations.

BT now plans to “build like fury”, according to chief executive Philip Jansen. BT plans to build fibre-to-the-premises to 20 million locations by the mid-2020s. The news was also welcomed by CityFibre, which has been owned by Antin Infrastructure Partners and Goldman Sachs since 2018 and is now the country’s third largest broadband provider.

“This regulation will promote and protect the infrastructure competition that is enabling Britain to go full speed ahead for full fibre,” said chief executive Greg Mesch. “It will inspire confidence and unleash a decade of innovation and investment from competitors like CityFibre, rebalancing market share away from incumbents and driving better services and prices for wholesale customers and consumers.”

The UK has one of the lowest FTTP and FTTH connection rates in Europe, according to a report last year by FTTH Council Europe. Despite the availability, many in the UK have yet to switch over to stronger connections.