Ofcom Propose Not to Cut BT's FTTC Superfast Broadband Prices for ISPs - ISPreview UK
The national UK telecoms regulator has today revealed the outcome from its recent consultation into whether or not the cost of BT’s superfast broadband Fibre-to-the-Cabinet (FTTC) lines for rival ISPs needed to be adjusted in order to “maintain a sufficient margin between [their] wholesale and retail superfast broadband charges“.

The consultation indirectly sprang from a competition complaint that was lodged by TalkTalk in May 2013, which alleged that BT was “abusing a dominant position” in its wholesale supply of superfast broadband (primarily FTTC) services to rival ISPs by conducting an “abusive margin squeeze” in superfast broadband pricing (here). BT completely refuted the claim.

Unfortunately for TalkTalk that complaint was not successful (here), although Ofcom did decide to take a closer look at the “margin” that BT sets between its wholesale and retail fibre prices in order to see whether or not it could adopt a new approach that might help to address some of the wider concerns.

therefore proposed a new Significant Market Power (SMP) requirement that would ensure BTdoes not set the VULA margin such that it prevents an operator that has slightly higher costs than BT (or some other slight commercial drawback relative to BT) from being able to profitably match BT’s retail superfast broadband offers“. Take note, VULA stands for Virtual Unbundled Local Access and is the solution that ISPs like TalkTalk use in order to offer “fibre broadbandFTTC services to their customers.

Crucially Ofcom said that they wouldn’t just look at broadband in isolation and also intended to consider the impact of other aspects like BTSport, which is offered for free to BT’s own retail broadband customers but at cost to rival ISPs. The fibre products offered by BT’s sibling ISP PlusNet were also factored into Ofcom’s consultation.

TalkTalk’s CEO, Dido Harding, has previously said that she would like to see BT cut the wholesale price that it charges rival ISPs by around £4 +vat a month (here), although recent reports have indicated that £2 might be more likely (here). But the failure of TalkTalk’s complaint, combined with Ofcom’s recent Fixed Access Market Review (FAMR) stating that competition in the fibre market was working and BT’s recent retail price rises, suggested a much less significant change. BT’s move to gobble EE may also have a future impact.

In the end today’s new draft regulatory condition (pricing rule), which has been notified by Ofcom to the European Commission for approval, states that Ofcom currently sees no need to force any change of price upon BT.

Ofcoms Statement

Ofcom’s indicative assessment is that BT is maintaining a sufficient margin under the new draft rules. Therefore, the condition is a safeguard which limits BT’s ability to reduce retail margins in future, and ensures that any increases in BT’s costs must be reflected in its prices

BT currently provides BT Sport free to its superfast broadband customers, and the new rules take into account the costs and revenues of these sport channels, as well as other elements included by BT in its retail superfast broadband bundles

Today’s draft decisions are aimed at ensuring that different operators can compete in the developing broadband market in years to come, so that consumers benefit from competitive prices, network investment and high-quality, innovative services
The regulator did however note that their indicative assessment of BT’s compliance with the draft condition “uses data sources from a mix of years, so the assessment will not precisely reflect the current position.” In addition, Ofcom vaguely says that they’re also “considering how the next generation of ‘ultrafast’ broadband services – which will provide speeds around 1 Gbit/s – can best be achieved. This may involve further investment to upgrade the infrastructure currently used to provide superfast broadband.”

The outcome will not shock observers of the process, many of whom will have been anticipating a much more tepid result than some might have hoped, although at least the operator will soon have to ensure that future adjustments comply with the new rule.

The new measures are of course still subject to review by the EC, although Ofcom expects to publish a final statement in February 2015. The new regulatory condition would then commence from the beginning of March 2015 and remain in place until March 2017, when the current regulatory review period ends.

NOTE: Under the new rule BT would have to provide the data necessary to monitor compliance every six months.