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Ofcom moves: Rural broadband price war on the cards?

BT shrugs at wholesale price caps

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Ofcom has ordered BT to slash its prices by 12 per cent below inflation per year for the company's wholesale broadband network.

The telecoms watchdog claimed 3 million homes and businesses in rural parts of the UK could benefit from the price reduction by the end of 2011.

It said the move "follows Ofcom's decision to reduce significantly the prices that BT Wholesale can charge internet service providers (ISPs) in primarily rural, less densely populated areas."

The regulator added that it expected to see more competition between retail telcos, while forcing the market to drill down its prices, thereby saving pennies for customers in rural parts of Britain.

"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," said the watchdog.

"It will also incentivise BT wholesale to upgrade services where it is efficient to do so."

It noted that the costs of rolling out broadband to customers living and working in the sticks was typically higher, and claimed its pricing cap on BT's wholesale broadband network could lead to rural customers with bills that were more in line with those dished out to city-dwelling punters.

"This outcome is in line with the proposals that were widely reported on earlier this year. The impact on BT wholesale will be non-material," a BT spokeswoman told The Register.

"Unlike many other providers, despite the higher costs involved, BT Retail's consumer broadband products have always been priced the same in rural areas as in urban areas. This ruling is therefore of more relevance to those ISPs who currently charge a supplement in rural areas."

In other words, a price war among those ISPs is highly likely to kick off in response to Ofcom's ruling.

BT, meanwhile, can expect to lose millions of pounds in sales now that its pricing has been capped.

In its most recent quarterly results, ended 31 March 2011, the company said:

"There will be a stepped reduction in prices over four years starting from April 2011. This regulatory action will have a significant impact on future transit revenues in the UK and Europe.

"We may be required to provide new services to wholesale customers on a non-discriminatory basis, increasing our costs and increasing retail competition. Disputes may result either in reduced revenue or increased costs going forward." ®

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