Ofcom aims for lower real-term broadband prices

Ofcom has proposed new BT Openreach wholesale prices, in a move intended to lead to lower real-term landline and broadband prices for consumers.

The regulator has been setting wholesale prices for Openreach since 2006, when it forced BT to create the division to manage the use of its network by other operators. The prices proposed on Thursday are the third set that will come into force since Openreach's creation. They will, in some cases, lead to a slight increase for operators despite representing cuts in real terms, as they allow for inflation.

"Ofcom expects its proposed prices to lead to real-term price reductions for consumers, as communications providers pass on savings to their landline and broadband customers," the regulator said in a statement. It added it hopes the new charges, which will run until 31 March, 2014, will come into effect "later this year".

Ofcom expects its proposed prices to lead to real-term price reductions for consumers, as communications providers pass on savings to their landline and broadband customers.

– Ofcom

TalkTalk, one of Openreach's biggest customers, said Ofcom's proposed prices are "broadly in line" with its expectations. Openreach said it is "encouraged" by Ofcom's recognition that it needs a fair rate of return on its copper and fibre-based network investments, but "would question some of the underlying assumptions being used" in Ofcom's formulation.

"As a result, we will be raising such concerns with Ofcom during the consultation process," Openreach said in a statement.

Affected products

The new prices will affect Openreach's two core products: wholesale line rental (WLR), which is a straight wholesale product, and local loop unbundling (LLU), which lets rival providers set up their own equipment in BT exchanges so as to avoid having to buy wholesale connectivity from the former incumbent. There are 7.59 million LLU lines in the UK today and 6.14 million WLR connections, Ofcom said.

For a fully unbundled line to a property, the current regulated wholesale price is £89.10 per year. Ofcom wants this to come down in real terms by between 1.2 and 4.2 percent below inflation. This would actually allow for a rise to £90.70, an Ofcom spokeswoman told ZDNet UK.

Shared unbundled lines, where a communications provider only uses a proportion of a line for broadband provision, currently cost £15.04 wholesale. Here, Ofcom wants much bigger real-term cuts of between 11.6 and 14.6 percent below inflation. As for WLR lines, which are priced at £103.68 per year, Ofcom wants to see real-term reductions of between 3.1 and 6.1 percent below inflation.

Fibre impact

The professional services firm PricewaterhouseCoopers (PwC) said that after accounting for inflation, Ofcom's proposals could result in some small price reductions for broadband services. However, it said the biggest impact would be on the rollout of fibre, given that BT intends to offer fibre-based, next-generation access to two-thirds of the country.

"Other broadband providers reach 90 percent of households by unbundling BT's copper infrastructure," PwC telecoms strategy chief Brian Potterill said in a statement. "As Ofcom lowers the prices that BT can charge for this, BT has greater incentive to invest further in fibre on which it has more pricing freedom. But BT still believes that there is no commercial case for fibre beyond its planned two-thirds of the population. Ofcom's proposals will certainly improve the case.

"If demand for fibre services grows, Ofcom's proposals may start to tilt BT's commercial case for more fibre investment earlier."