UPD2 Ofcom Reveals Price Impact of BT’s Proposed 10Mbps Broadband USO

Ofcom has today revised their Wholesale Local Access (WLA) charge controls in order to show how their planned broadband / FTTC price reductions could be impacted by BT’s voluntary proposal to spend £450m to £600m on the roll-out of a 10Mbps Universal Service Obligation.

Assuming the Government were to accept BT’s USO proposal (details) then Openreach has said that they would fund this investment and recover its costs through the charges for products providing access to its local access networks, albeit only if the regulator factors this in when setting future regulation (i.e. Ofcom’s plan to cut the cost of Openreach’s 40Mbps [10Mbps upload] FTTC product (here) may need to be softened).

Ofcom has now completed just such a revision and, as expected, this shows that they would need to soften their proposed price charges on broadband lines and that means consumers will have to pay more than currently forecast. Table 7.1 below sets out the proposed additional cost per broadband line to account for the extra costs of BT’s proposed network expansion.

Based on the proposals set out in their consultation document, the allocation per broadband line will be £0.39 in 2018/19, £1.19 in 2019/20 and £1.93 in 2020/21 in Ofcom’s base case. This is equivalent to a monthly additional charge of around £0.03 in 2018/19, £0.10 in 2019/20 and £0.16 in 2020/21. Table 7.1 also presents the ranges over which Ofcom are consulting based on their various scenario analysis.

We’ve also included two tables to show how this will impact the current wholesale rental charges for fully unbundled (MPF) broadband lines and the 40Mbps Fibre-to-the-Cabinet (FTTC / VDSL2) based service. Remember that ISPs will charge more at retail because they need to consider things like profit, 20% VAT, service features and data capacity etc.

Broadly speaking the change does soften Ofcom’s plan to impose a dramatic reduction on the wholesale price of Openreach’s 40Mbps (10Mbps upload) FTTC tier, although it doesn’t appear to be especially dramatic and in theory consumers should still benefit from cheaper access to superfast broadband.

An Openreach spokesperson told ISPreview.co.uk:

“We are pleased Ofcom is consulting on how these costs can be recovered in an efficient and appropriate manner through the WLA charge control and this would give a fair outcome for consumers. We will study the detail of Ofcom’s proposals and will respond formally in due course. We expect Ofcom to publish their final proposals in early 2018.”

The regulator has to tread carefully here because they still run the risk of making FTTC so cheap that it could discourage investment in new / alternative / faster networks, which might struggle to compete against the extremely low pricing. Lest we forget that both the Government and Ofcom are currently very keen to encourage more coverage of ultrafast FTTH/P (example), especially via alternative networks (non-Openreach based).

A similar situation already exists in today’s market. Just under half of broadband lines in the UK are still based on slower pure copper ADSL based lines and that’s partly because they’re so cheap and not everybody sees the faster services (FTTC, HFC, FTTP etc.), which usually cost a few £ extra per month, as a necessary upgrade.

Remember that the Government has yet to make a decision about whether or not to accept BT’s proposal and Ofcom’s final adjustment may go up or down depending on their consultation. The new consultation will be open for responses until 27th September 2017 and Ofcom expects to make a final statement during “early 2018“.

NOTE: Ofcom’s document estimated that by 2021 the number of UK premises needing intervention via a 10Mbps USO would be around 785,000.

UPDATE 4:46pm

Added a comment from Openreach above.