Prices may not fall after unbundling - experts

The cost of Internet surfing in the UK may not be reduced even after unbundling the local loop according to experts Friday.

Unbundling the loop -- where BT will be forced to open local exchanges to rival operators -- has been beset by controversy, but most commentators have agreed, until now, that it will bring costs down.

On Wednesday, the telecommunications watchdog Oftel, announced that operators will pay £105 per year per customer to rent a line from BT. According to Ovum analyst Tim Johnson, this is a standard price but represents just a fraction of the total cost of taking over the local loop.

"The real issue is the co-location costs," says Johnson. "Compared to what BT is talking about as a wholesale price for DSL, it is pretty fair but operators will have to invest in co-location. They will have to pay for equipment, pay for the facility and pay a connection charge per line, which will be at least £230."

Johnson believes that with these additional costs, the likelihood of prices falling is slim, at least in the short term.

Charles McGregor, CEO of Fibernet, a provider to businesses is happy with the pricing in the business sector but doubts it will reduce margins in the mass market. "It is not very acceptable for those serving the domestic market." He adds: "That £100 per customer is not the end of the story. They will have backbone and content costs. It is still feasible to make money but it narrows the opportunities."

Oftel admits there will be additional costs but believes the end result will be lower prices for consumers. "For operators to provide alternative, competitive services -- that is what we want to happen," says a spokeswoman.

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