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

Thursday, July 5th, 2012 (7:56 am) - Score 851
ofcom uk telecoms regulator

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

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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3 Responses
  1. Avatar DTMark

    Is it a relatively new market? To get any broadband at all in the part of Welwyn Garden City that we lived in required, and by the looks of it still requires a leased line or dedicated circuit.

    Residential premises about 3km from the exchange with poor quality and/or “long” lines. Quote at the time to supply a broadband service via BT was 37,000 to install and about 2,000 a month for 10Mbps IIRC. Because there was and is no useful infrastructure in place apart from a few ducts. Nobody has built any kind of broadband network to service hundreds of homes.

    What I find hilarious is on the one hand the idea that a private company can be or indeed has to be constrained in its pricing – which is in itself an acceptance of market failure – while other OFCOM statements say “where there is no market competition”. That’s in circa 67% of the entire country, then, a figure which I strongly suspect will rise *because* of the way in which the BDUK programme is set to award money; there’s no *market* to spend the money in. Bye bye all the small ISPs.

    This duplicitous approach and failure to acknowledge the shambles is the reason why we won’t have “the best broadband network in the world” by 2015 or at any time. It’s why there isn’t a range of bidders for BDUK money and why actually some even withdrew citing same concerns. It’s also why BT is constrained in what it can or will invest.

    There’s only one supermarket and one place to get certain goods within about 6 miles of where I live. Why isn’t their pricing (Sainsbury’s) “constrained” too? It has “significant market power”.

    Well, because someone could always open another shop selling said goods if there were sufficient demand. The barrier to entry to that market is not especially high.

    Think we’re onto something there.

    We can’t undo the mistakes of the past (selling public infrastructure). We could however move in a direction that might unlock real progress.

    How can we, on the one hand, determine that broadband is strategically important and potentially a “utility” and on the other, move in a direction which actually makes the underlying issue worse?

  2. Avatar Michael

    Skimming the document one of the most significant areas is I believe the proposal to reduce the cost of Excess Construction Charges (ECC). These play out today in many high speed builds and underpin the economic models in NGA for openreach and all those that might use them in the route(s) from exchanges using fibre.

    Since this is a “reflection” of civil engineering cost it could be a major catalyst to greater coverage for business and residential customers.

  3. Avatar Deduction

    More good news, seems to be a lot of it today 🙂

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