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Written Evidence Submitted by Talktalk

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Written Evidence Submitted by Talktalk The Committee has chosen to publish material submitted to its inquiry into broadband and 5G. Publication does not indicate any endorsement of the views expressed or validate any claims within that material. You can read about our inquiry here: https://committees.parliament.uk/work/89/broadband-and-the-road-to- 5g/publications/ Full Fact have published information about 5G conspiracies: https://fullfact.org/online/5g-and-coronavirus- conspiracy-theories-came/ You can find out how to spot false information online here: https://sharechecklist.gov.uk/ Written evidence submitted by TalkTalk Submission to Digital, Culture, Media, and Sport Committee June 2020 Introduction About TalkTalk TalkTalk entered the market in 2003: our objective was to ensure that affordable access to these products and services, which had previously been privilege, became a right for all UK customers. Since then, we have continued to drive competition in the sector and advocate for consumers. Today, TalkTalk is the UK’s challenger telecoms company, providing landline, broadband and TV to over 4 million customers. We operate Britain’s biggest unbundled broadband network, covering 96% of the population, supplying services to consumers through the TalkTalk brand and to businesses through TalkTalk Business and by wholesaling to resellers. TalkTalk has traditionally been a retail provider in the UK market, rather than an infrastructure operator. Whilst we own our network, we rely on Openreach to connect it to individual homes and businesses. In 2014 we launched a pilot programme in York to bring full fibre infrastructure to 55,000 premises in the city. In 2018 we created FibreNation, a standalone business within the TalkTalk Group, which expanded its network reach across Yorkshire. In January 2020, CityFibre acquired FibreNation for £200m and we no longer own or operate a full fibre network. We are now a strategic partner of CityFibre and will move our customers onto our networks in the areas where they are the first full fibre operator. We continue to partner with Openreach and hope to come to a similar agreement to use their full fibre services. Overview We are delighted to submit a response to this timely inquiry. We are at a crucial juncture for the UK’s digital infrastructure. There is significant planned investment, strong industry support and Government focus on rolling-out new full fibre networks to future-proof the UK’s infrastructure. The current pandemic situation has underlined the UK’s reliance on digital infrastructure. The current networks have performed extremely well during the period of lockdown (with Ofcom reporting in its Home Broadband Performance Report that UK broadband speeds largely held up during lockdown despite rising demand from home working, online lessons and TV streaming.1) Nevertheless, the pandemic has demonstrated the reliance of businesses and households on their connections and it is likely that it has accelerated trends in terms of home working, video-based communication and digital learning, as well as wider-scale digitisation of public services including telehealth. Moving to full fibre will give improvements to quality of service, reliability and speeds to support these changes. We are pleased the Government continues to focus and prioritise full fibre roll-out in policy terms. No one company can deliver full fibre connectivity alone. If we are to achieve nationwide coverage, it will be because of competition between providers to roll-out, cooperation where needed to remove barriers, and ultimately because we will have brought customers with us. Customers need to be at the heart of the full fibre ambition if it is to succeed, and therefore we need to ensure that full fibre is rolled-out, priced, marketed and consumed in ways designed to maximise consumer take-up. Enacting these changes will be complex: this is an infrastructure project which will involve every home and business in the country, and much about the roll-out and customer experience is still under consideration by Government, industry, and Ofcom. In our submission, we give TalkTalk’s views on both principles to follow, and some practical steps which are needed, if we are to make effective policy and support nationwide usage of full fibre broadband. Current landscape The Committee has made important contributions to this debate in the past, notably with the 2016 report, Establishing world-class connectivity throughout the UK, which was influential in Ofcom’s requirement of structural separation of Openreach from BT Group. We are pleased to see the progress since then – with cross-party support for full fibre infrastructure, Government policy to reduce barriers to network roll-out and high levels of private investment. However, we are still at an early stage in the move to full fibre, with coverage just at 12%2. In our response, we give our views on the steps needed to secure nationwide coverage and ensure that new networks deliver benefits for consumers and the country. We are also entering a transition phase, as we move away from reliance on copper-networks to new networks. As network build progresses, customers will move over to new networks – some immediately and some later. There are a range of different customer circumstances to consider: some consumers will want to move to new services immediately, but will live in an area where there are no plans to build; while some consumers may live in an area where network build takes place, but where they are unable or unwilling to change their services for a variety of reasons. Policy and regulation need to acknowledge that we are entering a phase where there will be more variation between customer expectations and experiences and need to ensure that all consumers are appropriately protected regardless of their circumstances. 1 Ofcom, Home Broadband Performance Report, May 2020 2 Ofcom, Connected Nations: Spring 2020 update (May 2020) (p1) This is especially true when it comes to pricing. As we discuss in our response, we are concerned by Ofcom’s proposal to allow higher pricing on current copper products from April 2021. Ofcom’s intention is that higher current prices will support the investment case for new full fibre services. However, increased prices will fall on all current customers of copper-based products regardless of whether they will be able to move to full fibre networks in the near future. Raising the prices simply gives Openreach about £900m higher over the regulatory period (2021-26) compared to the current pricing strategy (which sets prices against Openreach’s costs), while increased prices for leased lines, which are used for business connectivity, would see Openreach make an additional £500m above the level they would be if wholesale prices were based on cost. We think these across the board price increases are unfair as some consumers face higher prices for no additional benefit or service. In addition, it is not clear that it will lead to new FTTP networks. This additional profit is not ring- fenced and Openreach is under no requirement to spend it on full fibre networks. We note the recent research report by WIK for the Broadband Stakeholder Group which acknowledged this potential impact on investment incentives. It found that France took a directly opposite approach than this approach advocated by Ofcom in the Wholesale Fixed Telecoms Market Review, by setting copper prices in line with cost in order to prevent a situation where “the incumbent could benefit from excess profits that could distort investment and competition in [ultrafast broadband], as well as risking retail price increases for copper-based services.”3 We believe Ofcom needs to reconsider these proposals to ensure that consumers do not face unjustified price rises and that the incentive on Openreach to invest in new networks is not weakened. Openreach While TalkTalk had argued for full separation of Openreach from BT Group, we accepted the decision that Ofcom made and focused on making the new arrangement work. Since then, we have seen improvements in our day to day relationships with Openreach, both in terms of our working arrangements and our commercial negotiations. We have publicly acknowledged the areas where they have improved – notably regarding culture and in installation of leased lines for businesses – when we published our 2017 assessment of the impact of separation. We have also worked together to increase the percentage of TalkTalk customers using superfast products by volume commitment deals, and we welcome this collaborative relationship. This said, there are some structural and behavioural issues which we think could be improved in order that there is maximum competition and ultimately consumer fairness, not least to ensure the proper flow of increased BT Group profit from wholesale lines to fibre build by Openreach. The current structure – and way in which it is regulated by Ofcom – does not always ensure this commitment to build. This is most evident in Openreach’s negotiations regarding access to new full fibre services. We are committed to working with Openreach to enable their full fibre investment by signing a similar 3 BSG/WIK, Moving to a fibre-enabled UK: International experiences on barriers to gigabit adoption (June 2020) (p60) volume commitment deal regarding their FTTP products. Given the high fixed costs of FTTP and low consumer willingness to pay for higher speeds, Openreach FTTP investment can only be viable with rapid migration and high uptake which, in turn, is only possible with low wholesale prices (in return for volume commitments). This is a standard approach to network upgrades in other countries, as demonstrated by the recent report by the Broadband Stakeholder Group, Moving to a fibre-enabled UK: International experiences on barriers to gigabit adoption. For example, this is the approach we have taken in our agreement with CityFibre, the network operator with ambitions to roll-out to 8 million premises in the coming years.
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