BT may follow Freeserve with price hike

When broadband prices were launched a year ago the hope was they would get cheaper. Now it looks like they are getting more expensive

Speculation increased on Thursday that BT Openworld is set to hike its broadband prices.

It follows a price rise from ISP Freeserve, which has put up its broadband offering from £39.99 to £49.99, effective from next month. Freeserve blamed lack of confidence in the telecoms regulator Oftel and BT to roll out a useable mass market broadband service for the price rise.

Tim Johnson, analyst at research firm Ovum believes price rises across the board are inevitable. "I would expect BT Openword and everyone else to put their prices up," he said. "The current situation, where the wholesale price is higher than retail prices is ridiculous and while it was viable in the old world when people were willing to pay and subsidise it is no longer realistic. It is grim news but will be the new reality," he said.

BT Openworld has already admitted that it is shifting its broadband focus from consumer to the more lucrative business market. Its consumer offering is currently £39.99, a price-tag that analysts agree is too high to appeal to the mass market. Analyst firm Ovum describes UK ADSL prices as the most expensive in the world and two recent surveys put the UK at the bottom of the league table in term of homes connected via broadband services. About 50,000 homes are connected to broadband in the UK compared with 500,000 in Germany.

Despite the vote of no confidence in Oftel from Freeserve, the watchdog refuses to admit there is a crisis in the broadband market. "The market will develop as more and more people become interested. It is still an emerging market," said a spokesman.

Both BT Openworld and Freeserve buy services from BT's network arm BT Ignite as there is currently no way they can reach consumers' homes other than via the telco. Freeserve claims the wholesale price is too high and called on Oftel to intervene. "We don't regulate for what is an appropriate price for consumers, we regulate to make sure BT doesn't make more than it should," said an Oftel spokesman.

Local loop unbundling was to have opened up fresh competition in the broadband market and brought prices down but it has seen a huge dropout rate among operators and the few left involved in the process are currently only considering rolling out broadband to businesses. This also does not worry Oftel. "It is usual to target markets where they can make the best returns but those currently only offering businesss ADSL may think there is a market for the consumer too," the spokesman said.

Other worries from operators wishing to offer consumer ADSL services are the lack of service level agreements with BT, concerns over cross-subsidies between BT's network and ISP arms and lack of confidence in BT to smoothly roll out services. "We are not saying there are no problems," admitted the Oftel spokesman. "We are making a number of investigations into whether the terms of conditions of the wholesale service constitute and abuse of power and whether there is cross subsidy," said the spokesman. A decision will be taken "shortly" he said.

For Ovum's Johnson, even at the new average of £50 a month there will still be a market of "hundreds of thousands" for ADSL. He believes that Oftel's refusal to regulate the wholesale price means it is probably a fair one. "Reality has hit the world. People were living in cloud cuckoo land and thinking they had a god-given right to broadband at the price they felt they should pay," he said.

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