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Ofcom Proposes Broadband Regulation
By: MarkJ - 16 December, 2003 (9:22 AM)

The new communications regulator, Ofcom, has published its proposal for regulation of the wholesale broadband Internet access market. The press release (here) appears to 'hint' at changes that could result in price cuts for 2004:

It was clear to both regulators that the market has moved significantly in the last two years, with the emergence of a widening market offering both alternative technologies and alternative suppliers.

However, it is also clear that at this point in time there is a national and distinct market in wholesale broadband services, and that BT is the dominant provider of those services. As such, both Oftel and Ofcom found that BT had Significant Market Power (SMP).

The Director General of Oftel, David Edmonds, said: “These proposals will address a competition deficit. They will bring clarity and predictability to a strategically important and distinct market, enabling other network operators to compete effectively against BT and, in turn, leading to greater choice and value for the consumer.”

The Chief Executive of Ofcom, Stephen Carter, said: “Broadband Britain needs broadband competition at the wholesale level as well as the retail level. Ofcom believes that these proposals will create the right balance of certainty, alternative supply and incentives to invest.”

A clear and predictable margin for alternative network operators

Oftel and Ofcom also found that BT should be required to provide its Datastream products on a retail minus basis.

A requirement to offer Datastream at a retail minus price means in particular that BT must allow sufficient margin between the price it charges for its IPStream products and the price charged for the Datastream products.

The actual retail minus margin will be set following consultation in the first quarter of 2004. Oftel and Ofcom explored the option of requiring BT to offer its Datastream products on a cost plus basis. Under a cost plus ruling, BT would only be able to recover its costs plus a reasonable return on investment when setting the price of a product.

However Oftel and Ofcom concluded that such a ruling could act as a disincentive to further network investment and as such could inhibit the growth of the broadband market as a whole.

The regulators also considered options including the withdrawal of regulation in this market, but concluded regulatory obligations remained necessary to ensure fair and effective competition.

UK individuals and organisations with an interest in the wholesale broadband market have until 6 February to comment on the draft decision document. The proposals will also be considered by the European Commission.

Ultimately we’ll have to wait until 2004 to find out exactly how things will pan out, although no doubt a number of BTs rivals will lobby for further DataStream price cuts.

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