UPD Ofcom to Cut the Price of UK Fibre Superfast Broadband ISP Migrations

The national UK telecoms regulator, Ofcom, has today launched a new consultation that proposes to boost competition for superfast broadband (FTTC and FTTP) services by cutting the wholesale cost of switching between ISPs on BT’s network to £10-£15 and slashing contract lengths for migrations to just 1 month. BTOpenreach will also face stiffer rules.

The proposals, which form part of the regulators wide-ranging Fixed Access Market Review(s), means that the wholesale cost of switching to a new superfast broadband provider would fall from £50 to around £10-£15 (ISPs can of course still choose to charge extra).

On top of that the minimum contract period would be slashed from 12 months to just 1 month. However this would only apply to existing (not new) superfast broadband customers that swap to the same service type (FTTC/P) on another ISP.

The 12 month contract was originally designed as a way to help keep prices low and protect BT’s £2.5bn commercial investment, which aims to make its fibre optic based broadband (i.e. up to 80Mbps FTTC and 330Mbps capable FTTP) services available to 66% of the UK by spring 2014. But this purpose is somewhat lost when a consumer switches ISP after their first contract has ended.

Ofcoms Statement

Different broadband providers can retail their own superfast services over BT’s network under a process known as ‘virtual unbundled local access’ (VULA), which Ofcom introduced in 2010. At that time, there were fewer than 100,000 superfast broadband connections on the BT network. By last year that number had risen to 1.4m, and take-up is expected to increase further over the coming years.

Currently, if a consumer wishes to change to a superfast broadband provider, the company they are switching to must pay a £50 fee to Openreach – a charge which is often passed on to the customer. Ofcom is proposing to cut the switching fee to between £10 and £15 and, where an existing superfast customer switches, to reduce the minimum length of the wholesale contract between BT and the new supplier from a year to one month – providing flexibility to allow telecoms providers to offer shorter-term contracts.

The proposals are designed to promote competition in the superfast broadband market at the wholesale level. These would be expected to flow through to consumer benefits in the form of lower retail prices and easier switching between superfast broadband providers.

But there’s more.

Changes to Openreach (Speeding-up Installations and Repairs)

The regulator also wants to speed-up the pace of new FTTC/P installations and repairs, which are currently managed by BT’s semi-independent network access and maintenance wing BTOpenreach. Ofcom intends to tackle this by requiring Openreach to meet “specific performance standards” for new line installations and fault repairs (sanctions may be applied if they fall below these standards).

Openreach will also be required to issue better performance reports. This will allow Ofcom to monitor the service levels provided to BT Retail (BT’s consumer division), relative to its other wholesale ISP customers. The move is designed to address the concern of some ISPs, such as TalkTalk and Sky Broadband, that Openreach is perceived to give BT Retail favourable treatment.

However Ofcom stopped someway short of meeting the demands of some ISPs (e.g. TalkTalk), which want to see lower rental prices and greater price controls, and instead proposed not to introduce controls on the wholesale price of related fibre based broadband services. Ofcom also intends to maintain its current regulatory framework.

Other changes

The consultation also proposes some changes for Sub Loop Unbundling (SLU) ISPs, such as Gigaclear and Spectrum Internet that typically build their own street cabinets in isolated rural areas. Ofcom proposes a “basis of charges obligation to address the risk of excessive prices“, which means that SLU prices should be set to reflect “the price differentials for the corresponding LLU services“. It will be interesting to see how this impacts the aforementioned ISPs.

Ofcom also proposed to impose a similar remedy on BT’s Physical Infrastructure Access (PIA) product, which allows rival ISPs access to use BT’s underground cable ducts and telegraph poles.

The next step

Today’s consultation (linked below) is open until 25th September 2013 but it’s only the first in a series of planned proposals. Before the end of July 2013 Ofcom will also set out how it intends to tackle future charge controls on Wholesale Line Rental (e.g. BT based phone lines) and Local Loop Unbundling (LLU) products (i.e. this is the process that allows ISPs like Sky Broadband and TalkTalk to take more control of phone and broadband lines by installing their own kit in BT’s telephone exchanges).

Finally Ofcom also intends to consult on changes to the Wholesale Broadband Access (WBA) market, which is expected to include a revised definition of the UK’s different geographic markets. At present the regulator classifies different parts of the country based upon the amount of competition from ISPs in any given area (i.e. Market 1, Market 2 and Market 3).

Market 3 areas are usually home to four or more ISPs and thus have the lowest prices due to de-regulation, while Market 1 is essentially the opposite and services are usually only available from BT (e.g. the last 11.7% of premises in predominantly rural areas). Some ISPs charge customers significantly more if they live within Market 1 areas because they cost more to serve.

In recent years Market 1 has shrunk, which is largely due to the expansion of TalkTalk and Sky Broadband’s unbundled network. As a result a large number of Market 1 areas could arguably be given cheaper services through re-classification to Market 2 or 3.

Ofcom said that it expects to post the conclusions from all these reviews during spring 2014, which will occur just as BT’s commercial deployment of FTTC/P services comes to an end.

Ofcoms Fixed Access Market Reviews – Consultation
http://stakeholders.ofcom.org.uk/consultations/fixed-access-market-reviews/

UPDATE 10:04am

BTOpenread has given us the following statement.

A Spokeswoman for Openreach told ISPreview.co.uk:

“We are pleased that Ofcom is maintaining pricing freedom for Openreach’s fibre products. BT has already accepted a long payback period for its fibre deployment and its wholesale fibre prices – which are amongst the lowest in Europe – reflect this.

Openreach is committed to delivering high levels of customer service. Openreach is already highly transparent in its service level reporting to industry and agrees this detail should be shared with consumers and businesses.”

But Openreach also pointed out that there are already strict measures in place to ensure that it delivers service levels to BT Retail on exactly the same terms as other ISPs, such as Sky Broadband and TalkTalk. Clearly Ofcom see room for improvement.