Ofcom price cut likely to cut rural access to fast broadband
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.
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.”
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.”
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.