Following the broadband money

Ofcom price cut likely to cut rural access to fast broadband

with 6 comments

Ofcom’s  decision to limit the wholesale price of basic broadband in rural areas to 12% below inflation for the next three years from August is likely to reduce rural communities’ access to high speed broadband rather than increase it.

Ofcom’s decision relates to BT Wholesale’s IPStream product, which provides a basic 8Mbps broadband service to subscribers, and which Ofcom’s own map shows is honoured mainly in the breach of that promise. Ofcom hopes three million homes will get cheaper broadband as a result of today’s decision.

However, what rural subscribers need is competition between network operators based on infrastructure, not services. By not making BT either sell dark fibre or provide access to its passive infrastructure at cost, Ofcom is perpetuating BT’s monopoly in Market 1 areas.

Richard Brown, COO at Wispa, a Welsh rural broadband start-up said in a statement, “A reduction in the wholesale pricing of 10-12% has just given BT less reason to invest in rural communities due to constantly diminishing returns. The result? Rural broadband is worse off today than yesterday.”

He said the reduction in wholesale bandwidth costs of around 10% was not a 10% cut in costs to resellers and agents of 10% because wholesale bandwidth was a very small proportion of the cost to deliver rural broadband.

“Ofcom’s claim that rural broadband will be cheaper for millions of rural customers will actually increase the discontent within the subscriber base when it doesn’t happen,” he said.

Harsh words

Brown had harsh words for the regulator. “Ofcom seem to be going out of their way to prove that they are not fit for purpose,” said Brown. “This announcement… just demonstrates the total lack of understanding that this body has of a market it is supposed to be the independent governing body for.

“Ofcom, it would appear, have no real understanding of how to generate competition in the market place, and indeed today’s announcement has only served to damage the hopes and aspirations of rural providers and subscribers across the UK.”

ADSL2+ exempted

Ofcom said it decided not to place a charge control on BT’s ADSL2+ product, which could provide subscribers with a 24Mbps service. As Ofcom’s own figures show, the average speed received nationally by subscribers is 6.2Mbps.

Commenting on Ofcom’s decision BT said it was in line with the proposals that were widely reported on earlier this year, and would have no “material” effect on BT Wholesale.

It said BT Retail’s consumer broadband products had 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,” it said.

Ofcom said in a statement it hoped ISPs would now invest in rural broadband networks and compete with BT Wholesale.

A spokesman for the Internet Service Providers Association (Ispa) said, “Many ISPA members already offer broadband to rural areas in innovative ways. However, ISPA believes that the increase in competition will encourage further investment and encourage the take-up of rural broadband.”

Rural investment

The decision “will also incentivise BT Wholesale to upgrade services where it is efficient to do so,” Ofcom said.

Asked if the decision motivated BT on those lines, a BT spokesman said, “We’re continually reviewing our plans for our ADSL2+ footprint in Market 1 (the so-called Final Third where BT has a monopoly) and we will continue to invest as long as its commercially viable.”

BT CEO Ian Livingston has said BT would provide matching funds if it was given most of the £530m budget controlled by Broadband Delivery UK, part of the department of culture, media and sport. This would enable 90% of UK residents to receive at least a 2Mbps broadband service.

BT plans to spend £2.5bn rolling out an “up to” 40Mbps service based on fibre to the cabinet (FTTC) to two-thirds of the population. It is also experimenting with a 100Mbps fibre to the home product.


Adrian Wooster of BroadwayPartners says, “We recognise that action is needed in this arena but surely Ofcom should be encouraging new investment in infrastructure – particularly in rural areas where BT has already signalled its disinclination to invest.

“The Ofcom action in lowering wholesale charges for last generation access connectivity seems designed to encourage ISPs to deny transformative opportunities for businesses, consumers and communities working in those areas  that are already underserved.

“Ofcom should argue for a policy of selective tax breaks for new utility infrastructure investment. This is a far more enlightened response to UK economic growth needs  than attempting to shore up BT revenues from legacy access networks.”

Written by Br0kenTeleph0n3

2011/07/20 at 11:06

6 Responses

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  1. I think Brown is just plain wrong here. IPStream Connect costs £6.90 per month for the end user connection and 45 kbits/s of wholesale bandwidth is another £5.52 so we’re up to £12.42 per month + VAT of wholesale costs per user that will fall into this regime. The £6.90 per month is the bit that gets the RPI-12% price cap. The £5.52 is capped to RPI. Clearly the cap affects a substantial proportion of a retail price point of £16 + VAT and not as Brown would have it “a very small proportion of the cost”.

    Obviously as a wireless provider he isn’t happy to see potential price reductions forced on the incumbent competitor.

    BT will have a motivation to invest in ADSL2+ and 21CN services as these won’t have the cap applied, it is that specific. Talk Talk will be less inclined to invest in LLU in Market 1, as they made clear in their submission to OFCOM.

    Alternative providers like fibre and wireless operators will see a potentially lower price point competing against them, but they don’t really have an attractive proposition for the price sensitive customer to start with.


    2011/07/20 at 20:56

    • re : “Alternative providers like fibre and wireless operators will see a potentially lower price point competing against them, but they don’t really have an attractive proposition for the price sensitive customer to start with.”

      I wouldn’t entirely agree with that. A Fixed wireless provider who charges £13.99 inc a month for 16Mbps/1Mbps (down/up) I would consider a fair price , especially if you factor in that they would be able to receive those speeds, unlike the line length delimited xDSL services and FTTC etc..

      OFCOM clearly have no idea about the true broadband market issues. They produce maps showing what they think the broadband market is like and they do not correlate in any way with “real” maps of the situation at all.

      Bill Lewis

      2011/07/20 at 22:32

      • Fair comment where available Bill, but we’re looking at rural areas and notspots that have seen no progress in provision in 8 years.


        2011/07/21 at 13:36

    • Your point that Ofcom’s decision is unlikely to encourage companies to compete with BT is well made. The Wik consultation (see elsewhere on the blog) showed very clearly that incumbent has no incentive to invest in their copper networks unless forced to do so by competitors, and the only competitors strong enough were cable TV firms. We are heading for a BT/Virgin Media duopoly in the towns, and a BT monopoly in the countryside, i.e. no change.

      Ian Grant

      2011/07/22 at 08:19

      • Why is FTTC going into non VM Market 1 areas?


        2011/07/24 at 16:03

  2. Great post Ian and it is excellent to see you now fully unconstrained to tell #digitalbritainmyarse like it is.

    Guy Jarvis

    2011/07/21 at 16:52

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