The UK Internet Service Providers Association (ISPA) has called on Ofcom to conduct an urgent review of the 'Margin Squeeze' Test, which many may remember as being the root cause for BT's recent business broadband price hikes:

Many Internet companies in the UK are facing a cap on their growth unless the Office of Communications (Ofcom) reassesses the Margin Squeeze Test (MST), the formula it uses to ensure competitiveness in the wholesale broadband market.

Following several meetings with BT in the search for solutions, the Internet Services Providers’ Association (ISPA), the UK’s leading Internet trade association, is today (12/11/04) calling on Ofcom to urgently review its methodology when setting wholesale broadband prices.

ISPA believes that a margin squeeze test is required but the current Ofcom formula is based on some flawed assumptions that have caused undesirable consequences.

James Blessing of Zen Internet and member of the ISPA Council said, “Ofcom rushed the consultation on one of the most important regulatory devices to ensure effective competition in the Internet access markets. A six-week consultation period is not enough. Only data from BT was used when researching how the formula should work. Fundamentally the test should be based on how much it costs BT to provide the service plus an appropriate mark-up, rather than assessing the retail price of broadband services and subtracting the costs.”

ISPA also believes that the MST principle – effectively and appropriately defined - should be applied to all wholesale broadband services.

Matthew Hare concluded, “At present IPStream Central is excluded from the MST. It does not make sense that a wholesale service that accounts for 40 per cent of the market is excluded from necessary regulation.”

It's worth pointing out that this comes shortly after Stephen Dyer, chairman of ISP Mailbox Internet and ex-director on ISPA's board, was removed due to his support for the UKIF.

Typically the UKIF had strong reservations about the recent ADSL price hikes and many may see today's move by the ISPA as an attempt to show that a rival organisation isn't required.