Internet price cuts may never reach consumers

UK consumers look unlikely to benefit from Oftel's decision to force BT to cut the cost of its unmetered Internet access products.

Sources within the telecoms industry have told ZDNet UK that the savings are likely to be swallowed up by other telecoms operators -- depriving Internet Service Providers of the chance to pass them onto their customers.

Oftel announced on Thursday morning that it was ordering BT to cut the cost of its wholesale unmetered Internet access products by 8.5 percent. These products, known as FRIACO (Flat Rate Internet Access Call Origination), are used by ISPs to provide customers with always-on narrowband Internet access.

However, BT does not sell these products directly to ISPs. Instead, other telecoms operators -- such as Energis, Thus and WorldCom -- buy wholesale unmetered Internet access capacity from BT and then resell it to ISPs.

"This reduction means that operators can now buy capacity from BT cheaper than before. Operators have the opportunity to pass these savings on to ISPs and through them to consumers," said Oftel director-general David Edmonds in a statement.

Many of these telecoms operators are suffering the effects of the dramatic decline in sales and investment that has hit the telecoms industry. Rather than pass the 8.5 percent saving on to ISPs, giving them the opportunity to reduce their customers' bills, they are expected to maintain their prices and use the savings to improve their margins.

Although BT said it was disappointed by Oftel's decision, it is not expected to fight the ruling -- especially as it will not be made retrospectively.

"Our hope is that these price cuts filter down to consumers, as they are the people who should benefit from them," a BT spokesman told ZDNet UK.

Energis did not respond to calls asking whether it intended to pass on some or all of the 8.5 percent cut.

An AOL spokesman told The Times that it was not clear whether its telecoms suppliers would pass the price cut on.

As ZDNet UK reported, Oftel had said in February that it was planning to force a cut in the cost of FRIACO -- a move that BT said it would fight. Oftel had originally been proposing a 7 percent cut, but decided on an 8.5 percent cut instead after seeing new figures for BT's Internet traffic volumes.

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