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Broadband rivals 'pleased' over Ofcom's market shake-up plans. Maybe too pleased

BT overjoyed by 'pricing freedom', TalkTalk says it's good for competition

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Rival British telcos BT and TalkTalk have both said they were "pleased" this morning with regulatory proposals submitted by communications watchdog Ofcom on the future of the country's fixed broadband wholesale market.

However, the ISPs reasons to be cheerful were starkly different as Ofcom laid out its plans to bring in new measures to apparently promote competition among superfast broadband providers.

The regulator wants costs slashed when a subscriber switches over to a competing telco. It proposes that those prices should fall by up to 80 per cent.

Ofcom also plans to see wholesale contract lengths between BT and other ISPs significantly cut from a year to just one month.

"The proposals are designed to promote competition in the superfast broadband market at the wholesale level," the watchdog said. "These would be expected to flow through to consumer benefits in the form of lower retail prices and easier switching between superfast broadband providers."

Ofcom added that it wanted to "maintain the current regulatory framework, including requirements on BT to offer various wholesale communications products to other providers on a fair, reasonable and non-discriminatory basis."

As for the specifics, the government's communications overseer said it would push for BT to meet performance standards for new line installations and fault repairs, after it had received gripes from operators about the length of time it has taken the telecom giant's Openreach engineers to complete work at their customers' premises.

If BT fails to meet those standards then it would be slapped with sanctions, Ofcom warned. The regulator also plans to keep a closer eye on Openreach - which is headed up by Liv Garfield - by monitoring its wholesale service to understand how well the company is performing.

Since 2010, BT has been offering rival telcos the opportunity to pass on faster broadband services to their customers with a virtual unbundled local access (VULA) product, which was waved through by Ofcom without placing a regulatory price cap on the service.

At the time, the watchdog said that BT's £2.5bn fibre deployment in the UK would be stifled if the company didn't have the freedom to set its own costs for VULA, which gives competitors virtual control of customer lines, relying on BT's equipment in exchanges.

TalkTalk and BSkyB, which are among the most aggressive unbundlers on the copper network, are given some control over the configuration of the kit.

Ofcom now wants BT to reduce the £50 connection fee it charges a carrier each time a customer wants to switch to a faster broadband service.

The regulator said:

Ofcom is proposing to cut the switching fee to between £10 and £15 and, where an existing superfast customer switches, to reduce the minimum length of the wholesale contract between BT and the new supplier from a year to one month – providing flexibility to allow telecoms providers to offer shorter-term contracts.

Today’s consultation proposes not to set controls on the wholesale price of VULA. Ofcom believes the price of fibre broadband is currently constrained by the availability of standard broadband services, and by competition from Virgin Media’s superfast cable network.

Ofcom is also concerned not to undermine the investment case for rolling out fibre. Instead, Ofcom proposes to maintain a requirement that BT’s charges for access to its fibre network are fair and reasonable.

Separately, Ofcom confirmed in May that it was investigating "alleged margin squeeze in superfast broadband pricing". The claim is that BT is setting its wholesale prices too high and its own retail prices too low. Ofcom's investigation falls under Britain's 1998 Competition Act and Article 102 of the Treaty on the Functioning of the European Union, which is used by watchdogs to consider whether abuse of a dominant position has occurred.

Initial analysis of that particular probe is not expected to be completed until later this year, however.

BT said in a statement to The Register that it welcomed Ofcom's proposals:

We are pleased that Ofcom is maintaining pricing freedom for Openreach's fibre products. BT has already accepted a long payback period for its fibre deployment and its wholesale fibre prices - which are amongst the lowest in Europe - reflect this.

Openreach is committed to delivering high levels of customer service. Openreach is already highly transparent in its service level reporting to industry and agrees this detail should be shared with consumers and businesses.

While TalkTalk characterised the watchdog's plans as being good for competition:

TalkTalk is pleased Ofcom is taking the issue of fibre regulation so seriously and that it has recognised the need for margin squeeze regulation in its proposals.

TalkTalk has consistently maintained that fibre is too important for future economic growth to be monopolised by BT, and that for this reason access to fibre must be regulated. We welcome Ofcom's proposals which we believe will lead to a more competitive market and better outcomes for consumers, businesses and the UK economy.

We have long supported margin squeeze regulation which balances BT's need to get a fair return whilst at the same time also ensuring there is a level playing field for competition.

Ofcom's consultation process - which seeks views from ISPs and others on its plans for the period from April 2014 to March 2017 - will be open until 25 September. The watchdog said it would publish its conclusions next spring. ®

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