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ISPs angry about broadband regulation

The Internet Service Providers' Association claims Ofcom's rules on broadband pricing are preventing small ISPs growing

British Internet service providers are lobbying Ofcom to urgently review the way it regulates the UK telecommunications industry, claiming that the present situation is holding back the broadband industry.

In a statement released on Friday, the Internet Service Providers' Association (ISPA) claimed that Ofcom's current system is having a harsh effect on small- and medium-sized ISPs. ISPA believes that it is extremely difficult for ISPs to expand their customer base beyond a certain size at present, because the cost of buying a higher-capacity wholesale broadband product is too great.

Small ISPs will typically resell products from BT's IPStream range. Larger ISPs can take advantage of other services, which can be based on BT's Datastream range, which offer greater flexibility but can cost more.

An ISPA spokesman explained that an ISP can find that it has outgrown a service costing £3,500 per year and has to pay as much as £30,000 for the next level. "If an ISP wants to provide a service to more customers, they can have to make a massive investment," he said.

Ofcom forces BT to price IPStream and Datastream at levels where there is effective competition between the two, but ISPA claims this 'margin squeeze test' (MST) isn't working. "We need an urgent review of the MST which has effectively placed a cap on the growth of SME ISPs," said Matthew Hare, managing director of Community Internet and chair of the ISPA subgroup on broadband. "Although the current formula supports the home Internet user market, the impact on business Internet services -- often retailed by small- and medium-sized ISPs -- could be devastating."

But having spent much of this year trying to bring more competition to the UK broadband sector, Ofcom isn't about to ditch its existing work -- especially with the next state of its strategic review of the telecommunications market due to be unveiled on Thursday.

According to an Ofcom spokesman, the MST will be examined again in 2005 when the regulator looks at the wholesale telecommunications market again.

The ISPA's criticism is just the latest in a series of attacks on the way that broadband pricing is regulated in the UK. BT's rivals, who use Datastream to build alternative wholesale offering, have long claimed that BT was executing a margin squeeze by pricing IPStream too cheaply. These allegations were given much credibility earlier this year when BT raised its IPStream pricing, just before Ofcom ruled that the services were indeed too cheap compared to Datastream.