UPD2 Ofcom UK Moot Cheaper High Speed BT Wholesale Leased Line Prices

Ofcom has today proposed new controls that will “lead to [a] real-terms price reduction” of BTWholesale’s Leased Line services, which are used by businesses, mobile operators and broadband ISPs around the UK. The move is part of the regulators wider review (detailed here) into the country’s £2bn market for business telecoms.

As part of that review Ofcom has pledged to maintain most of its existing regulatory remedies against BT and even proposed softer regulation for their London-based services. But outside of London BT was found to have Significant Market Power (SMP) in the “relatively new market” for very high-bandwidth wholesale leased line services (1Gbps+) and was warned to expect tighter controls.

The consultation published today identifies the proposed level for these price controls, which mainly relate to BTWholesale’s legacy leased lines using Traditional Interface (TI) technology, and newer telecoms lines based on the faster Ethernet standard. As usual Ofcom is proposing overall caps linked to inflation (measured under the retail price index [RPI]), which it claims will “align the prices of these BT products with their cost by 2015” and “provides an incentive for BT to make efficiency gains“.

Ofcom’s Proposed Controls

* For BT’s TI services, Ofcom is proposing an overall basket cap of between RPI + 0% and RPI + 6.5%, with a central estimate of RPI + 3.25%.

* For BT’s Ethernet services, we are proposing an overall basket cap of between RPI – 8% and RPI – 16%, with a central estimate of RPI – 12%.

In addition the regulator has proposed a safeguard cap that will apply to low-bandwidth Ethernet lines in most of London, where BT faces greater competition from other ISPs. This will apparently ensure that “no prices can rise over the three-year period“.

Ofcom Statement

“We consider that these charge controls proposals are sufficient to constrain BT’s pricing. They will provide incentives to make efficiency improvements and are appropriate for achieving the other objectives pursued. We are therefore not proposing to impose a cost orientation obligation in addition to these charge controls.”

The consultation itself will remain open for views until 30th August 2012.

Ofcom’s Leased Lines Charge Control Consultation
http://stakeholders.ofcom.org.uk/consultations/llcc-2012/

UPDATE 6th June 2012

A BT spokesperson has said that the operator has “concerns” with Ofcom’s proposal to lower its prices for 1Gbps+ lines outside of the London area. The operator now intends to challenge the regulators assumption, which is to be expected. It’s worth remembering that BT has a history of putting up prices in other areas when it’s forced to lower them elsewhere.

UPDATE 6th June 2012 – 1:16pm

In relation to this BTOpenreach has provided commitments to Ofcom to implement price reductions on its 1Gbps services that will apply for the period from 1st October 2012 to 31st March 2013 (or until a new Ofcom LLCC charge control is set, whichever is sooner). The cuts range from -8% to -45% and have been detailed at the link below.

http://www.openreach.co.uk/orpg/home/updates/briefings/…./eth03412.do