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Ofcom UK Propose New BT Charge Controls to Lower Rural Broadband ISP Prices

Posted: 20th Jan, 2011 By: MarkJ

The communications regulator, Ofcom UK, has today proposed to significantly reduce, by between 10.75% and 14.75% below inflation, the price that BT Wholesale can charge ISPs for broadband services in Market 1 regions of the country. These are typically rural telephone exchanges where BT is the only supplier of wholesale broadband services (11.7% of premises).

According to the regulator, some 85% of UK premises reside in areas (Market 2 and Market 3) where there is a greater degree of competition from rival operators (mostly from unbundled LLU ISPs like TalkTalk , Sky Broadband , O2 / Be Broadband or cable operators like Virgin Media UK). These do not require such controls.

Market definitions alone are only part of the wider equation and Ofcom has already set out how it intends to define those, which will not be fully imposed until after today's new consultation has concluded (Ofcom's New UK Wholesale Broadband Market Definitions).

New Broadband Market Definitions (Not Fully Introduced)
* The Hull Area: (0.7 per cent of UK premises);

* Market 1: exchanges where only BT is present (11.7% of premises);

* Market 2: exchanges where two ISPs are present or forecast and exchanges where three ISPs are present or forecast, but where BT’s share is greater than or equal to 50% (10% of premises);

* Market 3: exchanges where four or more ISPs are present or forecast and exchanges where three POs are present or forecast, but where BT’s share is less than 50% (77.6% of premises).

Today's consultation concerns how much ISPs in the Market 1 area should be paying BT for their wholesale broadband services, which in turn could have a noticeable impact on the prices that end-users (residents and business) pay their ISPs.

The newly proposed price controls would last for three years (until 31st March 2014) and only affect BT's older 'up to' 8Mbps ( ADSL MAX ) based 20th Century Network (20CN) IPStream Connect products. The reason for this is essentially because BT "has no 21CN deployment or plans to deploy 21CN in Market 1".

Ofcom Consultation Quote

"Currently BT has no 21CN deployment or plans to deploy 21CN in Market 1, although it is possible it will start to rollout 21CN in Market 1 exchanges within the charge control period. We propose the charge control should apply only to the 20CN IPStream Connect product, and not to any 21CN services BT may roll out during the charge control period.

We believe that this “anchor pricing” approach will give BT the incentive to invest in new technology when it, for example, lowers costs, or provides higher quality services (or both) for which consumers are willing to pay."

BT's 21CN platform typically underpins and ultimately carries the operators latest and fastest broadband technologies, such as its ADSL2+ based up to 24Mbps services and their newest superfast 'up to' 40Mbps FTTC and 110Mbps FTTP connections.

A BT Spokeswoman told ISPreview.co.uk:

"BT understands Ofcom's desire to move from voluntary to more formal wholesale broadband pricing controls in the most rural parts of the country given this defined market is getting smaller as deregulation expands elsewhere.

It is key that the details strike the right balance between control and incentives to invest in rural areas. As the UK's main investor in rural broadband, we will engage fully in the consultation process which follows to make our case."

Ofcom's consultation is open until 31st March 2011 and it expects to publish a conclusion / statement in the summer. The charge controls are planned to come into effect shortly after publication of the statement.