BT superfast broadband faces new pricing rules

Rivals need enough room to being able to make a profit, so BT's pricing is facing scrutiny.

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Ofcom is applying new rules to BT's superfast broadband pricing. Photo: BT and Johnnie Pakington

BT must leave enough room in its pricing of superfast broadband to make sure that its rivals can make a profit, according to Ofcom.

Ofcom said it is putting in place measures to make sure BT maintains a sufficient margin between its wholesale and retail superfast broadband charges in order to allow other providers profitably to match its prices.

The statement from the telecoms watchdog has come about because of complaints from other suppliers, like TalkTalk, who say that BT is setting its prices in a way that makes it hard for them to compete. In reply, Ofcom came up with the statement which is intended to make it clear where it stands on this issue.

BT is currently the largest retail provider of fibre broadband services over its network but is required to allow other operators to use its network to sell superfast broadband to consumers under a process known as 'virtual unbundled local access' (VULA).

The draft condition notified by Ofcom would require BT to ensure that the margin between its wholesale VULA charges and its retail superfast broadband prices is sufficient for rival operators to compete and make a profit.

Ofcom's said its "indicative assessment" is that BT is maintaining a sufficient margin under the new draft rules, the statement said. "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."

So, Ofcom's answer to TalkTalk and others is that as far as it is concerned BT is dealing fairly with the market. However, Ofcom does add in perhaps less than reassuring footnote: "Ofcom's 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".

When Ofcom introduced the requirement for BT to allow other operators to use its upgraded fibre network, there were fewer than 100,000 superfast broadband connections on this network: that number has now risen to around 3.4 million.

On the horizon is the next generation of 'ultrafast' broadband services - which will provide speeds around 1 Gbps. Delivering this may involve further investment to upgrade the infrastructure currently used to provide superfast broadband: Ofcom's aim is to make sure there is enough money in broadband provision to make sure there are still operators around to provide competition in the years to come.

These measures are subject to review by the European Commission. Following that review, Ofcom "expects to publish a final statement in February 2015".

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