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By: MarkJ - 20 July, 2011 (8:33 AM)
uk map broadband market definitionsofcomThe communications regulator, Ofcom UK, has ordered BT to cut its wholesale broadband charges for rival ISPs by 12% below inflation. The move will only impact those areas of the country where Ofcom has decided that there is a lack of wholesale competition; this is often referred to as Market 1 (i.e. about 11.7% of UK premises or around 3 million homes and businesses).

Ofcom classifies different parts of the country based upon the amount of competition from Principal Operators (PO) / ISPs in any given area (i.e. Market 1, Market 2 and Market 3). Market 3 areas are typically home to 4 or more providers and thus have the lowest prices due to de-regulation, while Market 1 (rural or isolated areas) is essentially the opposite and services are only available through BT.

However, the new measure will only impact BT's up to 8Mbps (IPStream Connect) capable broadband products, while its latest ADSL2+ (24Mbps) services have been exempt. This isn't actually all that surprising because most Market 1 areas do not yet have access to ADSL2+ services and Ofcom would not wish to discourage BT's expansion into related locations.

Ofcom Statement

Ofcom expects these price cuts to generate more competition between retail ISPs and to lead to cheaper retail prices which will benefit consumers. The changes may also lead to better quality services by enabling ISPs to allocate more bandwidth per customer which could deliver faster broadband services.

This could benefit around 3 million homes and businesses. These are mostly in rural areas including parts of Scotland, Wales and Northern Ireland as well as the South West of England, Norfolk, Yorkshire, Cumbria, Northumberland and other areas.

Ofcom expects the level of the charge control to incentivise efficient investment by ISPs to roll out their own networks in these areas and enable them to compete with BT Wholesale. It will also incentivise BT Wholesale to upgrade services where it is efficient to do so.

The new RPI-12.00% charge controls will come into effect by mid August 2011 and should last until 31 March 2014. Still, consumers shouldn't expect the move to have a noticeable impact upon their service prices, not least because BT could simply put prices up in other areas.

ISPs are coming under a lot of pressure from new government rules and regulations, which in the very near future could cause their costs to increase. As a result many providers may simply use related savings to cover some of the rise. Often only a small portion of users come from Market 1 areas, which means that any savings would also be relatively small.

Ofcom claims that 78% of UK households are now served by effective competition in mainly urban or densely populated areas, following the continued success of LLU (Local Loop Unbundling - giving rival's control of BT kit). This has increased from around 69% of households in May 2008.
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