Boosting broadband competition is vital, says IoD

Improved competition among high-speed access providers in the UK hinges on whether Ofcom forces BT to cut its wholesale broadband prices

Further cuts in BT's wholesale prices "would go a long way" towards promoting more competition in the broadband market and encouraging greater take-up, according to research from the Institute of Directors (IoD).

IoD members believe if efforts by ISPs to cut the amount they currently pay to BT in order to lease the telco's telephone lines prove successful, it will lead to an increase in real competition in the market.

"At present, other ISPs pay BT a fee of around £13 per customer per month. Many ISPs claim that, once they have added a further charge on top of this to cover their own overheads, they are unable to compete with BT's own retail broadband services," said the IoD's survey, Broadband: Its impact on British business.

The telecoms regulator Ofcom will play a pivotal role in deciding if BT should in fact lower these wholesale prices, according to the IoD.

The report's author -- Professor Jim Norton, senior policy advisor at the IoD -- claimed that Ofcom has indicated that it will look favourably on a formal complaint by Wanadoo that BT is in breach of the Competition Act. "BT was given eight weeks to respond. The most likely outcome would appear to be a further cut in BT's wholesale prices," he said.

At the beginning of September Ofcom announced that it believed that BT has infringed competition law in its pricing of broadband services.

The decision, which BT is contesting, dates back to a complaint filed over two years ago -- since when many of the main players have changed their names or ceased to exist.

Freeserve (now Wanadoo) alleged in 2002 that BT Openworld, the telco's retail arm, was selling its broadband at a loss. If true, this would be illegal because BT is not permitted to cross-subsidise its services in this manner because it would hamper competition.

The IoD research also confirmed that lack of rural broadband availability is still a problem for some members. 13 of the 409 respondents to the survey claimed that high-speed services were still unavailable in their areas despite BT's claims that broadband will be available in 99.4 percent of homes by 2005.

"In my opinion it is entirely unacceptable for BT to have a monopoly position and at the same time postpone providing a modern communications system at a time when so many people work in part or full time from home," said one survey respondent.