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UPDATE BT Refute TalkTalk Commissioned Study of its FTTC ISP Prices

Wednesday, May 8th, 2013 (2:37 am) - Score 960

National UK telecoms operator BT has said that they “completely refute the basis” of a controversial new TalkTalk commissioned study into its superfast broadband charges as bearing “little resemblance to the actual costs incurred“.

The confidential report from German analyst Wik Consult, which was leaked to the internet on Sunday by technology writer Ian Grant (here), is said to contain evidence that might support TalkTalk’s case against BT’s alleged anti-competitive margin squeeze of superfast broadband (FTTC) pricing and which is now the subject of an initial probe by Ofcom (here).

According to Ian Grant, the report offers “credible evidence” that “BT is charging more than double what it should for wholesale superfast broadband products“. In reality it’s difficult to reach that conclusion from the limited information provided, although the report does make for an interesting read and will probably give Ofcom some extra food for thought. Naturally BT are less forgiving.

A Spokesperson for BT told ISPreview.co.uk:

TalkTalk claims that BT has failed to maintain a sufficient margin between the price of Openreach’s GEA product and the price of BT Retail’s Infinity product. Yet by TalkTalk’s own admissions to the City, it is profitable for them to sell fibre broadband based on the GEA price. This undermines the whole basis of their complaint to Ofcom.

Far from seeking lower GEA prices, TalkTalk’s complaint appears to suggest they are looking for higher prices for BT Retail’s Infinity product. BT Retail’s total input costs for its fibre product are actually higher than TalkTalk’s, so any suggestion that they have an unfair advantage is nonsense.

We completely refute the basis of the WIK report which has modelled its costs on a theoretical network that bears little resemblance to the actual costs incurred by Openreach or the competitive environment in which we undertook our initial fibre investment. We have already accepted a long payback period for that investment and the current prices for GEA reflect that.”

BT continues on to claim that the “low prices” and open access nature of its network have helped the United Kingdom to build “one of the most competitive markets for fibre in the world“, where more than 80 ISPs are using or offering superfast broadband products via their network.

However critics might suggest that, at the infrastructure level, BT is still the only available option for most ISPs. Meanwhile plans for alternative national networks (e.g. Fujitsu UK) tend to end up flopping due primarily to economic and regulatory constraints. But that’s another matter.. sort of.

Ofcom are now considering whether or not BT has, by allegedly failing “to maintain a sufficient margin between its upstream costs and downstream prices” (TalkTalk’s claim), abused a dominant position under UK and/or EU competition law. The regulator is expected to make a decision about whether or not to pursue the investigation before the end of this year.

A TalkTalk Spokesperson responded:

In order to open an investigation into the gap between BT’s wholesale and retail fibre prices, Ofcom must have reasonable grounds for suspecting that BT have infringed the Competition Act by operating a margin squeeze so it is simply untrue to say there is no basis to our complaint. We have been clear that we believe this squeeze can be addressed through reducing the wholesale prices that all ISPs pay, which is supported by WIK’s analysis, and categorically disagree with any assertions that we are seeking higher retail prices.

BT should certainly make an appropriate return on their fibre investment but given BT’s monopoly it is essential that there is a regulator on the pitch to ensure prices allow effective competition, particularly since much of the network is being substantially funded by the taxpayer. History has shown that effective monopoly regulation leads to true retail competition which in turn leads to better choice and value for consumers.

The number of customers buying from BTOpenreach is not a relevant measure of the level or intensity of retail competition. If BT are so confident that their wholesale charges are reasonable then perhaps they should publish their actual incremental fibre expenditure and costs as they do for other regulated products.”

Sadly such cases, when formally pursued, have a tendency to drag on for years and some are already concerned that this might risk becoming counter-productive (here).

UPDATE 9th May 2013:

Added a reaction to BT’s comment from TalkTalk above.

Leave a Comment
11 Responses
  1. keith says:

    A Spokesperson for Openreach told ISPreview.co.uk:
    …BT Retail’s total input costs for its fibre product are actually higher than TalkTalk’s…

    Quite how they should know TOTAL costs of not one but two companies is entertaining. They should not even know BT Retails “TOTAL” (and that is the important word) costs if they are so separate.

    Dig that hole deeper. Or are they saying they can estimate costs of other companies but Talk Talk must not?

    1. Mark Jackson says:

      Sorry Keith that’s actually my bad as some PR contacts work for several departments. Corrected the statement to just BT (BT Group).

    2. keith says:

      Fair enough Mark 🙂

      Would it be possible for you to find out who or what department specifically within BT have made that statement?

      The only part of BT i can think of which should have any idea of TOTAL costs involved in Talk Talk and BT Retail buying the FTTC product would be BT Wholesale would it not?

      At least i thought that was the department that sold the services to retail ISPs.

      Even then they should not be blurting out information with regards to other companies costs. Even if they are allowed to do that the very fact one is cheaper than the other, even if they are claiming it is Talk Talk which is cheaper, surely enforces Talk Talks complaint even more… That being the pricing is not a level playing field.

      I do not know who or what department in BT made that statement but clearly they did not think first. From what i can see/have stated it still just digs their hole deeper. Of course it could also just be utter nonsense from some cretin proclaiming to be from BT.

  2. JNeuhoff says:

    Create a genuinely independant network infrastructure company which inherits Openreach’s assets.
    BT Group shareholders can be compensated accordingly. Then every ISP and/or service provider will be on equal footing, and it will be a lot easier for a regulator to control this new network company. Problem solved!

    1. FibreFred says:

      Sounds easy enough 🙂

    2. Somerset says:

      Plus the assets of all the other telcos?

    3. DTMark says:

      This idea marks the beginning of the development of a high speed national broadband network in this country, so it will probably never be pursued 🙁

      Valuing the ancient GPO last mile might be tricky since it’s basically the same as it was back when we sold it except with some new cabinets and now even older circuitry. Its key value is in poles and ducts, but it seems that even the FTTC rollout is stressing those since a fair number of ducts are blocked.

      At a street level I would have thought it would be cheaper to run new ducts from scratch in many areas.

  3. DTMark says:

    “BT is charging more than double what it should”

    What should it charge?

    What should be the basis used for calculation?

    Should Tesco only be allowed to charge 15p for a banana? Should we launch an investigation?

    “The pricing isn’t fair”. What would be?

    Having had a decade or two of underinvestment in telecoms in this country, thanks largely to the monopolistic actions of the incumbent and to “regulation” we appear to have learned nothing and the next two decades seem set to see us with backward infrastructure, the entrenchment of the very monopoly that held us back, and more “regulation”.

    You cannot have a hybrid private/public company and expect it to work for the consumer because that is not who it is supposed or obliged to work for.

    This is not a level playing field. Achieving same was one of BDUK’s original mission objectives yet we have ended up with the opposite.

    Price to BT = cost price efectively less/with the benefit of taxpayer subsidy
    Price to anyone else = wholesale price

    If the objective was to, in time, reduce the number of ISPs, then all seems to be going according to plan.

    1. Paul says:

      Good analysis. The objective is now public – surveillance, as in the snooper’s bill. To be effective this requires a centralised network, which requires buying off the main players and helping them pull up the ladder to competition. The ofcom voip agenda is the same, it is after all a central planning agency of the same government. There’s a half billion of “pilot” snoop funding out there with BT’s nose well in that trough. But ongoing behind the scenes regulatory obstacles and no contest contracts fit the pattern also. Suppose one of the big suppliers didn’t fully take the carrot – then the answer is a stick, say selective prosecution and a private visit later offering help in exchange for compliance (sky?). At the top level, that’s how its always been played, its just getting worse… for now, until the new big economic bubble bursts. That’s why they are in such a mad dash to get control of communications.

    2. DTMark says:

      I posited this idea a little while back – that it’s No Bad Thing for the Government to have all ISPs integrated underneath a single entity as a “vertical monopoly” which makes control much easier. You certainly don’t install or prop up monopolies for the benefit of consumers.

  4. TUK says:

    Given the fact that TalkTalk actually sells it’s own products at a really low margin (Wholesale published ADSL pircelist) to promote their PSTN service, it’s obvious why they are trying to create panic in the market.

    TalkTalk has a long tradition of undermining BT’s capability and willingness to invest in the infrastructure. I remember reading on BBC a few months ago when their CEO actually mentioned that there is no customer demand for FTTC and has a customer base of around 5000, when BT has in millions. There was no comment about pricing at that point?

    May be we should look at TalkTalk’s current business practice first. Why don’t they tell the market how they are so sure that BT Retail is profiting from the pricing policy?

    Again the critics here can talk as much as they like, but I never see the figures coming out from them either.

    If BT has invested billions to bring fibre to the consumers I’m sure they are allowed to take a return from their investment or are they doing it for charity?

    We need to wake up to the fact that when a Business makes an investment, in case of Billions, they would like to see a decent return as soon as possible. So, if TalkTalk can’t afford to pay that may be they should look at putting their price up and give customers a better service, i.e. get rid of their crappy helpdesks that do not have a clue on how to fix a customer fault etc.

    You get what you pay for like they say! Poor TalkTalk always moans and we have a few ciritcs who join in as usual. Grow up!

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