Ofcom moves: Rural broadband price war on the cards?
BT shrugs at wholesale price caps
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." ®
Can someone explain the logic behind their reasons? Surely a cheaper BT means that there is less money and incentive for BT to upgrade systems, less incentive for people to set up their own networks and make it harder to compete? Surely the more BT charges the quicker it becomes cheaper to set up your own service, not the other way around?
This isn't the best of articles, but...
This isn't the best of articles, but it's not all that clear in the press release either.
It's not mentioned at all in the article, but aiui the "reduce prices by 12% a year, less inflation" only applies to a subset of BT's wholesale services. As far as I can tell it's applicable only to BT Wholesale's legacy IPstream services and variants thereof, which are the old as the hills, up to 8Mbit, ones using DSL technology that has been around for ten years or so (probably using exchange kit which in broadband terms is long obsolete, and which has probably been financially written off several years ago).
BT Wholesale's current preferred wholesale services, which offer ADSL2+ at nominally up to 20+ Mbit, or VDSL, or in a few places actual fibre, are based on newer kit and are not covered by this ruling.
So this ruling is imo more likely to motivate BT Wholesale to upgrade existing but obsolescent kit in already-served exchanges to provide faster services to those who can already get 8Mb or so. It will not motivate BT Wholesale to provide better service to poorly served areas. Nor will it motivate other ISPs with their own infrastructure (the 'LLU' ISPs) to start to serve areas they're not already serving.
As far as I know there is only one ISP who has taken the opportunity to pass on BTwholesale's geographic discount to end users on the relevant exchanges. That ISP? BT Sheffield, formerly Plusnet.
"The impact on BT wholesale will be non-material"
Kelly, you seem to be struggling with the concept that BT is supposed to be split into a number of separate groups, with chinese walls between them. One of those groups is BT Wholesale, capital W (or maybe BTwholesale, no space), who are supposed to provide customer-independent wholesale services to any ISP who wants to use them, with BT Retail (capital R) as just one customer of many. OK everybody knows that in reality BT Wholesale do what BT Retail want (BT Retail are, after all, BTw's biggest customer), but it would be nice to at least acknowledge the theory.
@AndueC: "It just has to look like they are doing something."
That's about the size of it.
99% of joe blogs in this world don't understand the difference between BT Broadband/BT Internet or whoever they call themselves these days, and BT Wholesale...
They even think it's worth pay BT Broadband extra money, as it means they are getting the product from source. Of course BT Broadband won't tell them otherwise.....