Providers must think carefully about price rises
This speech was delivered by Lindsey Fussell, Ofcom's Group Director, Networks and Communications, at the Connected Britain conference earlier this week.
Good morning. It’s a pleasure to see you all again.
Coming to this venue, I’m always struck by its impressive and varied history. Over the last 160 years, these walls have witnessed livestock exhibitions, motor shows and military tournaments – not to mention the first ever Crufts. All very different from today’s telecoms market, we might think.
Or perhaps not. In fact, agriculture, transport and defence are just three areas where wireless technologies are being put to work today – by many of you, supported by Ofcom through our spectrum work.
Almost all of the UK’s public, private and leisure sectors are using communications in some way to increase efficiency, lower costs, improve services or open up new opportunities. Our sector is one of the biggest drivers of growth in the UK economy.
Britain has never been more connected. And yet there is much to be done.
Today, I’d like to update you on the work Ofcom is doing to make communications work for everyone. For us, that includes taking on new duties and responding to unprecedented changes in our markets – from disruptive technology, to radical shifts in the behaviour and needs of consumers.
As households up and down the country face financial pressures, we are concerned that prices remain affordable.
As our telecoms infrastructure faces the threat of cyberattacks, we have new duties to keep networks secure.
And as the traditional telecoms sector converges with the online world, we are preparing to examine some new areas where regulation might be required.
But before I turn to those issues, let’s start with a long-standing goal: getting faster, more reliable broadband to every home and office.
Investment in gigabit-capable, full-fibre networks has been a priority for Ofcom. Last year, we unveiled a new framework to promote it. As many of you know, this marked a major shift for us away from traditional regulation based on costs. Instead, we granted companies pricing flexibility on higher-speed, broadband products, so they can achieve fair returns on their investment.
Critically, for all investors, we made clear our intention to stick with the new framework for at least ten years. Our aim is to allow all companies to achieve a fair return on their investment. We do not expect to introduce cost-based prices for fibre services until 2031 at the earliest.
Those were our messages to companies and investors last year, and we stand by them.
So is it working? Well, I think the signs are incredibly positive.
Since our rules came into effect, the proportion of UK homes with full-fibre broadband has already more than doubled, to reach over one-in-three.
BT aims to connect 25 million homes to full fibre within three years. Virgin Media plans to reach up to 23 million later in the decade. CityFibre is targeting 8 million by 2025. And smaller providers are covering millions more.
But the job is far from done. Network builders need to be able to hit their targets, and Ofcom has an ongoing role to ensure that everyone can compete. That might mean helping to remove obstacles to deployment, or ensuring each company follows the rules. As part of that, our monitoring unit will continue to report on the role of the biggest provider, Openreach.
So in short, we need a healthy, competitive environment with clear rules.
That keeps prices affordable for homes and businesses throughout the UK. Over the past few years, both broadband and mobile customers have been getting more for their money.
As we know, usage is booming. Over the last five years alone, the amount of data used in the average UK home has more than trebled. Average upload speeds, which are increasingly important for services such as video calls, have more than doubled in the same period. And the amount of data flowing from mobile masts is doubling each year.
None of that would have been possible without capital spending in networks. So as the UK’s digital economy continues to develop, it’s vital that investment continues so that customers get the services they need, and our sector continues to drive and benefit from growth.
Now I recognise this requires commitment. Investors expect positive returns, and costs are rising in some areas.
So wherever we can, we will continue to provide regulatory support. For example, we’ll soon set out plans to update our guidance on net neutrality. We understand that clarity in this area is important to give confidence to those investing in 5G.
We also appreciate the need for prices to reflect that investment. Though here I want to be clear: those prices should be fair.
Over the past two years, our telecoms industry rose to the challenge of keeping people connected during an extraordinary crisis in public health. Now, we face a generational crisis in the budgets of homes and businesses across the country.
And while telecoms bills may only represent a fraction of household energy costs, every bill matters. Millions of people are struggling.
Here are some ways that broadband and mobile companies can help. First, by continuing to offer good deals. The cheapest superfast broadband deals, for example, are affordable for most people at around £22 a month.
Second, by promoting cheaper ‘social tariffs’ for the most financially vulnerable. I’m pleased that, since we highlighted this issue back in February, the number of people signing up has more than doubled. But that still leaves millions of homes, who qualify for benefits, missing out on broadband savings of around £150 every year. Everyone can do more to make these offers visible and easy to take up. I believe there is a moral responsibility to do so.
And third, I want to say something about annual price rises in April next year. Of course, we recognise that inflation is a wider, macro-economic problem that affects some wholesale costs, as well as customers. But while Ofcom does not regulate retail prices, we want companies to think very carefully about what is justified during an exceptional period of hardship for many people.
We believe companies have a duty to their customers, to recognise and respond to a unique economic climate. We expect them to meet that responsibility. They can do so within their means, and without compromising on fair returns or continued investment.
I want to move on now to talk about the importance of ensuring that our networks are safe, secure and resilient.
As the human value of networks – and the services that rely on them – increases, they become a more attractive target to attackers. So as technology evolves, we must ensure our networks remain secure, and prevent disruptions which might also affect other sectors.
Recent incidents reinforce that need. Major suppliers such as SolarWinds and Syniverse have been compromised. New software vulnerabilities are emerging, such as log4j. We have seen ransomware demands, and targeted attacks sponsored by hostile states.
These are just some reasons we need a strong, forward-looking security framework. And last year, the Telecoms Security Act came in, setting a new legal framework for regulation.
Under the Act, telecoms firms must take steps to identify and reduce the risk of their networks being compromised. If an incident does occur, they should be ready to fix the problem and limit any damage.
Ofcom’s job, from the first of October, will be to oversee this and ensure providers have appropriate measures in place. We will work with them to ensure they improve their security, and monitor their compliance against the new security framework.
Now this is a big deal for the industry. It means investing to upgrade security, in the knowledge that customers’ data will be more secure, and so too will the provider’s business and reputation. As we head towards a 5G and Gigabit future, now is the time to make these investments so that new networks are designed with security in mind, rather than having to be retrofitted. If we get this right, everybody benefits.
Cybersecurity is an ongoing journey. As the nature of the threats we face continues to evolve, so our industry will need to stay alive to those risks and protect against them.
In the wider market, we strongly support the Government’s plan to diversify the supply chain, so the UK is less dependent on a small number of vendors. To help industry achieve this, we are supporting real-world laboratory testing through the SONIC labs programme.
We also understand that cyber-resilience places costs on our telecoms firms. So we are taking care to monitor compliance in a way that won’t create unnecessary burdens. Where we see areas for concern, we will work constructively with a provider to resolve them. But equally, companies should be clear that we are ready to take enforcement action where it’s needed.
In short, this is a busy time for regulation – and it’s about to get even busier. Because, as our sectors continue to converge, the boundaries are blurring between traditional networks and internet-based services.
With each passing week, the services, screens and sites that keep people informed and entertained, and which help us work and connect, are evolving and growing in number.
Real and virtual worlds are colliding. The physical telecoms networks of wires and masts now underpin online areas like cloud computing and remote working. People switch effortlessly between traditional broadcasts or mobile phone calls, to internet-based services like Netflix, YouTube, Zoom and WhatsApp – often over the same device.
Ofcom’s job is evolving too. In the last year, we’ve begun regulating video sites and apps like TikTok and Snapchat. And we’re preparing to oversee social media and search engines under the Online Safety Bill, with the task of ensuring they do a better job of keeping their users safe.
So it’s really important that regulators understand the economics, technologies and behaviours behind these changing markets. That includes the relationship between price, privacy and data; the effects of market power; the growing role of AI; and the rapid emergence of digital financial services.
To put it another way, ‘digital’ is not a sector of the economy with a single regulator to match. Increasingly, it’s just the way we live our lives.
To anticipate these changes, a little over two years ago Ofcom joined forces with the Competition and Markets Authority, the Information Commissioner’s Office, and later the Financial Conduct Authority to form the Digital Regulation Cooperation Forum, or DRCF.
The DRCF is about ensuring clear, consistent and co-ordinated regulation. It helps us build a collective view of important industry trends and innovations. And it lets us pool resources, avoid duplication and respond quickly to shifts in the market.
Converging telecoms and digital markets also need a converged regulator like Ofcom to anticipate and stay ahead of change. So later this week, we will publish a new digital markets strategy, designed to do exactly that.
Under the new strategy, we intend to draw on a range of powers at our disposal – including competition and consumer law, and the power to carry out market studies.
Alongside our strategy, we will set out the specific markets that we intend to explore this year and further down the line. Look out for that in the next couple of days.
These, then, are times of profound change – both for the telecoms industry, and for its regulator. Every day, the coverage of faster, more reliable networks is rising.
Companies are investing in safer, more resilient connections, capable of withstanding a changing range of threats.
Physical networks and online services are converging to form a new digital economy.
Ofcom’s role is changing, with new duties and a fresh strategy for the future.
And yet, amid all that change and adaptation, our central aims remain unchanged: healthy, competitive markets, fair prices, strong investment and world-leading innovation.
We will continue to promote all those things, working with all of you in the industry to help achieve a truly Connected Britain.
The future may look quite different from the past; but it is no less exciting.
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