BT forced to cut wholesale line rental prices

Ofcom has officially set new pricing controls for BT Openreach's wholesale and unbundled line rental products, in a move that should lead to lower prices for landline and broadband customers.

The European Commission has approved Ofcom's proposed prices cuts on BT Openreach's wholesale and unbundled line rental products. Image credit: Jon Yeomans

The regulator proposed the new price caps in February, before sending them off to the European Commission for approval — as the new EU telecoms framework requires.

The Commission has now signed off, and on Wednesday Ofcom said the controls — which are revised every three years — were now in place. However, there's a good chance that BT will appeal.

"The price controls are designed to protect the interests of consumers while providing BT and communications providers with the appropriate incentives to continue to invest in networks and services," Ofcom said in a statement.

Ofcom's controls will not directly lead to lower retail prices, but the regulator expects the savings gained through the cuts to be passed on to consumers.

The new caps affect two types of charges that Openreach levies on other ISPs. One is a straight wholesale price, which applies where the other ISP simply resells BT's connectivity. The other is Openreach's charge for unbundling, where the other ISP installs its own equipment in BT's exchange and takes over management of the customer's line.

Ofcom has brought the wholesale line rental (WLR) cap down from £103.68 a year to £98.81. In common with the other reductions, the price is expected to fall further in the 2013-14 financial year.

A fully unbundled line must now cost £87.41 a year rather than the previous £91.50, and a partially unbundled line £11.92 rather than £14.70. These are the same reductions that Ofcom had proposed — the Commission did not make any changes, and agreed with the regulator's methodology.

However, BT has a problem with the way Ofcom calculated the cuts. The regulator based the controls on certain valuations of Openreach's assets, savings that Openreach should be able to achieve, and particular inflation models.

"We continue to disagree with some of the underlying assumptions they have used to determine these controls with our primary concern being that we are able to achieve a fair rate of return in order to continue our investment in the future of the UK's communications infrastructure," BT said.

"Now that we have received Ofcom's final decisions, we will consider all options available to us, including appealing," BT added.