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UPDATE TalkTalk UK Want BT to Charge ISPs £4 for FTTC Broadband

Friday, October 11th, 2013 (1:09 pm) - Score 3,250

The CEO of budget Internet provider TalkTalk, Dido Harding, has once again reiterated her belief that BT is “acting anti-competitively” in the market for superfast broadband (FTTC) products and she wants them to cut the related wholesale price that it charges ISPs to around £4 +vat a month.

At present if you add TalkTalk’s up to 38Mbps capable “Superpowered Fibre Broadband” (FTTC) product to your existing service then the ISP will charge an extra £10 inc. VAT per month, which comes to a total of £12.50 when you add in the cost of their cheapest unlimited Simply Broadband package (+£15.40 line rental). Pay an extra £15 instead of £10 and you can have their up to 76Mbps option.

The result is that TalkTalk are one of the cheapest broadband ISPs for FTTC (Sky charge from £20 and BT’s closest match starts at £23). But they’re only able to do that by operating off some very thin margins, which is partly why the ISP lodged a formal competition complaint with Ofcom earlier this year and accused BT of “abusing a dominant position” in its supply of superfast broadband (here).

Ofcoms May 2013 Statement on TalkTalks Complaint

Ofcom has received a complaint from TTG alleging that BT has been abusing a dominant position in breach of the Chapter II prohibition in the Act and Article 102 TFEU in relation to the supply of superfast broadband (‘SFBB’). Specifically, TTG alleges that BT has failed to maintain a sufficient margin between its upstream costs and downstream prices, thereby operating an abusive margin squeeze.”

Ofcom are expected to announce the outcome of their initial probe, which will decide whether or not to pursue a deeper investigation, before the end of this year. In the meantime TalkTalk’s boss has just told the FT that she thinks the price that ISPs are charged should be cut in half from the current level.

Dido Harding, CEO of TalkTalk, said:

We pay £7.50-£8 per home per month for a superfast broadband connection. We think this should be £4. BT is acting anti-competitively – we think they are charging too much at the wholesale level, where it is making all its money.”

According to BTOpenreach, the standard annual rental for BT’s 40Mbps (2Mbps upload) FTTC product is £82.80 +vat (£6.9 per month), which doesn’t include any extras (e.g. profit margin, usage allowances etc.) that are usually added on top. This rises to £119.40 for the 80Mbps (20Mbps) option but prices can differ slightly for various reasons.

However, even if Ofcom did find in favour of TalkTalk’s complaint, then it seems almost inconceivable that the price would end up dropping to £4 as a direct result of intervention by the telecoms regulator. It is possible that such a price might be achieved over the much longer term through improved competition and related regulator changes but short time it’s simply too dramatic, too soon.

Meanwhile BT maintains that its fibre products are offered on a “level playing field” to all ISP and they ”completely refute the basis” of TalkTalk’s competition complaint, which they state bear “little resemblance to the actual costs incurred“ (here). Even if Ofcom did decide to pursue a full investigation then it would probably end up dragging on for years.

UPDATE 3:27pm

Corrected a small mistake in the title and intro, which referenced BTWholesale. But TalkTalk appears to buy direct through BTOpenreach.

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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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37 Responses
  1. I’m with BT on this one.

  2. Avatar DTMark

    The primary issue as I see it, is that the infra provider (BT) is also a retailer of the same services (BT). While that remains the case, and with the entrenchment of that position with taxpayer’s money, ISPs will just have to accept that the BT Group has advantages that they do not and do one of 1) Sell at a wafer-thin margin to attract customers e.g. unlimited packages or 2) Not bother.

    This coupled with other aspects such as bundling is why I’ve previously said that in the future the only ISPs will be Talk Talk, BT, Sky and Virgin Media. It is only economy of scale and the ability to cross-subsidise that enables selling stuff people want.

    It’s more about the market share than the profit. Hence Sky and VM both actively targeting the very customers who lose them the most money – P2P downloaders.

    If you don’t play the vertical monopoly game, you might limp along as a niche provider with tiny market share largely selling ADSL solutions to businesses. The exception would appear to be Zen who have decided to go at this more aggressively by expanding their network to lower the cost of backhaul.

    And while the focus remains on “unlimited” and “up to” speeds and advertising of services permits same, those companies who aim to provide a quality service where things like throughput and reliability actually matter are somewhat side-lined. There are no alternate infrastructures and so little in the way of competition in the middle and end tiers.

    • Avatar Gadget

      Dido really needs to be clear – if the alleged margin squeeze is at the retail level ie Retail sell below a cost that any other competent operator could,taking the same input costs,then any remedy would be to force the other operator to increase prices. If she thinks that Openreach charge her differently to Wholesale then that is a different call. If Openreach were to drop the price to her they would have to drop the price to all their customers and then Dido would be in exactly the same position as now with prices to the end-user.

  3. Avatar Kyle

    I want to pay Asda £4 for my weekly shop. Tough, I can’t.

    TT are coping at the moment. If their margins are too tight, I suggest charging more for a service than a trip to McDonald’s.

    I can see none of the savings being invested but rather used to prop up further cut-throat promotions.

    • Avatar Roberto

      Your Asda shop example does not work. Asda do not sell their own products to other supermarkets. They are not a wholesaler.

      As for profits being used for savings, and not promotions that is not happening now. BT since FTTC arrived have raise the price on 3 occasions (the most recent announcement being only a week or so ago) and they along with other ISPs continue to run silly voucher promotions be it M&S or Sainsbury.

  4. Avatar Roberto

    I can make it more fair for the consumer, Talk Talk and BT.

    Any area BT have invested their own money let them charge what they want.

    Any area BT they have been funded by the tax payer in one way or another fix a super cheap price they have to wholesale in those areas for (a bit like the different market levels of exchanges currently except make them seel even even cheaper as they paid nothing or only a small amount in some areas to roll the product out).

    This would ultimately lead to cheaper FTTC for all as BT and other ISPs if they still wanted business would have to sell both products as cheap as they could and as near in price as they could to entice the customer. NO more monopolies and no more overcharging from anyone.

  5. Avatar FibreFred

    £4

    Just… LOL 🙂

    Jog on Dido

  6. Avatar FibreFred

    So why is this such a problem for talktalk ? Because they are bargin basement , why would a supplier lose out across the board so a reseller can offer something for next to nothing?

    Dido it’s simple just sell the product at a higher more realistic price, if you can’t …just leave the market, stick with Adsl or rollout your own fibre

    • Avatar Kyle

      My sentiment exactly.

      Not everybody wants wholesale prices lowering just so they can offer a £1.50 all-you-can-eat price. I want the wholesale element of my subscription to be used to invest in infrastructure and futureproofing, not reduced to silly amounts in order to fulfil TT’s pricing policy.

    • Avatar FibreFred

      Exactly , even if they got there way (not a chance ) what happens when tt want to lower their prices further force a drop to £2 or £1 ?

      Bt only agreed to rollout fibre on the promise they could recoup their costs with fair pricing so I don’t expect any change

  7. Avatar sentup.custard

    “We pay £7.50-£8 per home per month for a superfast broadband connection. We think this should be £4.”

    I think it should be 50p.
    While we’re at it, let’s have wholesale line rental at 50p too, so that ICUK, having bought it cheaper from BT, can reduce the price I pay.
    I can’t see any reason why either of these ideas wouldn’t be viable.

    Now you know why I’m not running a business. 😉

  8. Avatar Ignitionnet

    I’m not going to dismiss this quite so trivially until I see exactly where she’s going with this.

    I suspect her point is the claim that BT’s retail operation is being subsidised by Openreach, allowing them to charge customers less to increase market share while still turning a profit.

    The figure she mentions is probably what she thinks the cost should be given the pricing that BT Retail are offering.

    Either she wants the retail price increased or the wholesale price decreased.

    Go read TalkTalk’s research on it, it’s based around the premise that BT’s prediction of 20% uptake in a decade is very pessimistic and not borne out by the experiences of other operators. It’s not flawless, far from it, but puts things into better context.

    Bit depressing how few people posting comments appear to have actually read the article and how many just popped up to say ‘£4 lolzzzzzzzzzz’.

    • Avatar FibreFred

      Read the article and have followed dido’s bickering for some time. If she has evidence of cross subbing that is a totally different argument and should be raised as such , changing the price won’t solve that if it even exists. We don’t need lower prices for better products. How do people expect bt to invest in ftth in the future if bottom feeders like this are allowed to get their way. if she’s not happy with the price then she should invest in her own network , start in the cities like hyper and build out.

    • Avatar Ignitionnet

      So you haven’t read the report TalkTalk are basing the accusation that the wholesale price is too high on?

      The accusation is one of margin squeeze through vertical integration, in other words that the wholesale price is too high and BT’s retail price is too low, the wholesale price being used to subsidise the retail one.

      The solution is either for BT to be required to increase retail price or reduce wholesale price, and TalkTalk commissioned a report which appears to indicate that wholesale price is too high.

      This wholesale price is out of scope for Ofcom at the moment, they agreed not to regulate it. Doesn’t mean that she can’t complain about it.

      Feel free to have a read of a couple of things and we’ll talk some more when you’re informed on the other side of the discussion.

      http://br0kent3l3ph0n3.files.wordpress.com/2013/05/wik-report-on-gea-costing.pdf
      https://docs.google.com/spreadsheet/ccc?key=0Avrz3P5AJBUZdHpJLUdVOTFWTjFSNTEycEJmZUpjd1E&usp=sharing#gid=0

    • Avatar FibreFred

      Yes I read that report when it was *cough* leaked. Full of assumptions and estimations.

    • One has to question also that IF there really is a margin squeeze going on then how come TalkTalk are able to undercut the BT Infinity retail rates? After all, TalkTalk’s retail costs can clearly be covered by their very low “normal” adsl retail prices otherwise they would not have been offering such low prices for so long. There is thus no need for any additional margin when moving to FTTC in my view. I dare say that if the FTTC charges were dropped to £4 then TalkTalk (and the rest in a downward spiral) would simply reduce their retail prices by essentially the same amount – thus 100% disproving the existence of a margin squeeze in the first place.

    • Avatar Ignitionnet

      Probably wise to let the complaint take its course. An estimation isn’t necessarily completely inaccurate.

    • Avatar FibreFred

      Oh I agree and I believe Ofcom will probably be able to make BT give a more accurate version if needed for better or worse

    • Avatar DTMark

      “The accusation is one of margin squeeze through vertical integration, in other words that the wholesale price is too high and BT’s retail price is too low, the wholesale price being used to subsidise the retail one.”

      Pretty sure I was making this prediction a year ago while I was being rather, shall we say, “aggressive” (I’d say “provocative”) towards in particular the smaller ISPs describing them as “rabbits in the headlights”, the headlights being “BDUK”. “Do wake up and smell the coffee”. “Do something”. Though there was, in the end, nothing they could have done.

      Referring to the point I quoted: If I were BT, that’s what I’d do.

      Doesn’t mean that’s what *is* happening.

      But the point I’ve always made is that OFCOM presides over a “faux-market” and that there can be no such thing as a true “market” in a vertical monopoly.

      As BT might find in their deal with EE eventually.

      The spectre of companies squabbling at the hands of government bodies for hand-outs and price controls is an ugly one.

  9. Avatar Roberto

    Excellent and sensible points ignitionnet, im sure the £4 figure that a certain individual took exception to is based on something they have looked into.

    • Avatar FibreFred

      Oh it will be, what they want their profit margin to look like

    • Avatar Roberto

      No idea what that is supposed to mean, the whole argument is the wholesale price is too high, nothing to do with their resell price. Once again you fail to follow a debate.

    • Avatar FibreFred

      If you spent less time brown nosing Ignitionnet and read his links you’d understand

      Even reading all of the article properly would be a start

    • Avatar Roberto

      If you spent less time insulting people and more time in school you would not have the comprehension issues you have today.

    • Avatar FibreFred

      She buys from open reach at £7.50-£8 and wants to pay £4 to open reach instead , it’s a shame I had to point that out to you but you have clearly missed that.

      The wholesale price is not the “whole” argument at all

    • Avatar Roberto

      Except it is, as that is the price Openreach are “WHOLESALING” to Talktalk for. Perhaps you are confused between what the word ‘wholesale’ means and various BT departments.

    • Avatar Roberto

      In case you are confused further…
      http://en.wikipedia.org/wiki/Wholesale
      http://dictionary.cambridge.org/dictionary/british/wholesale_1?q=wholesale

      BT WHOLESALE do not have to be involved for a product which is being purchased wholesale.

    • Avatar Roberto

      Maybe if you had read what Ignitionnet pointed you towards in the first place you would had comprehended this, then again more than likely not as you never seem to comprehend anything or know what words of more than 5 letters mean. PS BT Retail now also buy FTTC from Openreach, not via BT wholesale. BT WHOLESALE which you think people are referring to when they mention a “wholesale price” is nothing to do with it.

  10. Avatar FibreFred

    At what point did I mention BT Wholesale?

    Her argument is the price she pays Openreach and a suggestion of margin squeeze

    • Avatar Roberto

      Indeed and the price they pay Openreach is a wholesale price hence the argument about margins. Its pretty logical Ignitionnet even explained it with links.

  11. Avatar telecom engineer

    A price cut will affect economic viability and bduk funds required. Are we happy to pay more tax or have lower coverage to keep mrs didos bonus and tt profits up?

    • Avatar Roberto

      I don’t see why not if the government are happy to fund BT and keep their profits up.

    • Avatar Telecom engineer

      The govt are funding a network build. What benefit will be see from adopting this price in relation to cost of investment /. Coverage?

    • Avatar Roberto

      Fuels demand for one, cost of investment/coverage is pointless if nobody takes the product. BT say FTTC covers over 6 million homes already, yet only around 20% of BT Retails customers take the product. YOu only have to look at the recent Cornwall story to see how poor take up and cost per head is. That combined with BT also trying to increase take up via sainsbury vouchers and as you noticed in another story TV services (Sky Movies only via FTTC) and it is clear the current structure of funding and pricing is not working.

    • Avatar telecom engineer

      But bt model is for a low take up. Aside from clawback ( which would be at risk with lower price) there is no tangable benefit to anyone other than talk talk. 4 quid isnt an impossible barrier for a ffamilyto get an fttc connection; a slower or reduced rollout is.

    • Avatar FibreFred

      Deduction has no interest in facts or economics telecom engineer, his only goal is to bad mouth BT.

    • Avatar Roberto

      There are a few apps you can get for your phone when you use that to talk to yourself which will capitalise initials for you. You may as well get it because you are not fooling anyone by putting it in lowercase when on your phone.

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