UPD Ofcom Advises EU of Intent to Slash BT Leased Line Prices in the UK

The communications regulator, Ofcom, has today issued a Draft Statement that formally notifies the European Commission (EC) of their proposal to cut the price that ISPs, mobile operators and businesses pay to BT for wholesale Leased Line services at speeds of above 1Gbps in all parts of the UK except London and Hull.

Ofcom’s review of the country’s £2bn (annual) market for business telecoms services last year found that BT had Significant Market Power (SMP) in the “relatively new market” for 1Gbps+ and should thus be subject to tighter regulation (here), which included overall price caps linked to inflation that would ultimately result in a “real-terms price reduction“.

However the regulator will maintain its existing regulation for Ethernet (Leased Line) products that offer speeds of up to and including 1Gbps. Indeed BT’s prices for lines based on older technology will now be “permitted to rise modestly to reflect higher costs in this declining market“. BT will also benefit from “lighter regulation” in London thanks to the city’s competitive market, while Hull (East Yorkshire) is dominated by local incumbent operator KC.

Ofcoms Statement

“BT remains by far the largest wholesale supplier of leased lines in the UK. For illustrative purposes, if we consider all wholesale circuits, we estimate that BT has a share of 82% of volumes. The majority of CPs remain reliant on BT’s network in providing services to their customers.

Our decisions are designed to promote competition in the provision of leased lines and the services which use them, and will affect the availability, choice, price, quality and value for money of data-transfer services throughout the UK. They are therefore important in furthering the interests of citizens and consumers.”

The proposal is now completed and subject to final consideration by the EC. Assuming there are no stumbling blocks along the way, which at this stage seems unlikely given the relatively smooth process, then Ofcom should be in a position to publish its final statement by the end of March 2013. But BT may have other ideas.

A BT Spokesperson said:

“We believe Ofcom’s decisions to regulate very high bandwidth Ethernet and optical services outside of London for the first time is mistaken; we provided clear evidence to Ofcom that the market is highly competitive and that there is no market failure that needs regulatory intervention. We also believe Ofcom could have gone further in deregulating legacy retail services; newer, more efficient alternatives now exist removing the need for the regulation of such legacy services altogether.

Ofcom has, however, recognised the greater competition for Ethernet services in London, and their moves will simplify and add certainty to pricing in business markets. We also believe that Ofcom’s charge controls must allow a fair return on our investment in leased lines to allow sustainable investment in the next generation of telecoms services and infrastructure.”

The new rules and charge controls would then commence from 1st April 2013 and remain in place for three years.

Ofcoms Business Connectivity Market Review – Draft Statement
http://stakeholders.ofcom.org.uk/consultations/business-connectivity-mr/statement

UPDATE 9:46am:

Added a comment from BT.