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

Wednesday, August 9th, 2017 (10:47 am) - Score 1,576
price and cost rises uk

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.

fttc wholesale price impact of bt 10mbps broadband uso

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.

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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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7 Responses
  1. Avatar Chris P

    just make a mandatory charge of £20 pm on all BB and other data lines, no refund on other (leased lines etc) data lines but the operator has to put most of that £20 into say a fibre delivery fund for lines that are not fibre, but gets to keep most of that £20 for lines that are fibre. that creates an incentive for OR, VM or Alt Nets to convert customers to Fibre to gain the increased income and also provides a fund to help convert those last few % that are uneconomical to convert. Also all lines funded this way would need to be open for access to all competitors like the current OR last mile is.

    With postcodes brimming with funds to convert their lines, you’d hope operators would be clambering over themselves to access the funds and provide service.

    • Avatar Steve Jones

      That would raise about £7bn a year (which is a lot – Openreach turnover is only £5bn a year). However, £20pm is £288 per year (when you include VAT) on every BB line assuming, and I can’t see that being politically acceptable.

      A few years ago I did a calculation that implied that a full national FTTP rollout would add around £5 per month for about 10 years before it started reverting back to current wholesale rates. That looked difficult enough to get support for (for various reasons). £20pm would surely cause riots in the streets.

    • Avatar Chris P

      I’m thinking the £20 as a minimum charge for BB, faster tiers could / would cost more but the majority of the £20 going to the BB fund. If the isp wants more of a slice of that £20 then they need to fibre the connection. Consumers wanting just BB will be charged £20. A fibre line might bundle tv and voice for that same £20 with the isp getting more of the £20, on an adsl line an isp might earn just £1 of that £20. The only way to earn more would be to fibre the line.

  2. Avatar Steve Jones

    Not much more than rounding errors I would suggest.

  3. Avatar MikeW

    I’m heartened to see a speedy response from Ofcom here, when they could as easily have refused to play ball.

    • Avatar NGA for all

      They are now down to 750,000 premises by 2021 before they discuss the impact of existing plans in NI, Wales and Scotland.

      They reference fixed wireless on demand rather than develop fibre or add to full fibre.

      The 10Mbps came left side from the Conservatives so it is interesting to see policy makers and Ofcom work I hope to do something better. Ofcom have been slow to review the existing plans in Wales and Scotland. At least they are beginning to do so.

      The price adjustments look small anyway, so why not a more ambitious plan with fibre on demand.

    • Avatar Steve Jones

      Ofcom could not have refused to play ball when it comes to evaluating the USO options and they have the government breathing down their neck. If Sharon White is anything, she is the consummate ex-civil servant and knows which way the mood goes in the government.

      In any event, it is not Ofcom who are making the decision on the USO. That will be the government. Doing a little calculation on how to recover £450-600m over a given period by tweaking the 40mbps VDSL wholesale price is not exactly a major commitment of resource or of intent.

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