Ofcom announced a range of measures on Thursday designed to create more competition in Britain's wholesale broadband market, a sector which is currently dominated by BT.
The communications regulator has demanded that BT lower the pricing it charges rival operators who want to install their own equipment in its local exchanges and offer competing wholesale services -- a practice known as local-loop unbundling (LLU).
It will also appoint an 'independent telecoms adjudicator' who will be charged with establishing better relations between BT and LLU operators.
BT has already announced that it will launch a new LLU product and cut pricing by up to 70 percent over the next few months. The telco says the move will give a very significant boost to broadband competition in the UK, but some observers believe that BT is having to dancing to Ofcom's tune.
Ofcom has welcomed BT's move, and hopes that its own actions will help to create a better market for broadband services in the UK.
"Until today, LLU prices and operational delivery in the UK have been poor by EU standards," said Stephen Carter, Ofcom chief executive. "Now, for the first time, cable operators will be able to roll out DSL services. Until now, the cost of moving off their own networks has made this difficult to fly."
LLU has largely been a flop since its introduction in the UK in 2000. It was meant to help alternative operators to compete with BT on a level playing field by letting them take control of the copper lines between a customer's premises and the local telephone exchange. However, only a few thousand lines have been unbundled, compared to the millions of ADSL customers that BT Wholesale has attracted. This has led to criticism that the cost of getting involved with LLU is too great, a view that Ofcom has now endorsed.
BT, which was aware of Ofcom's thinking in this matter, somewhat pre-empted the regulator's announcement by declaring its planned LLU changes early on Thursday. It will cut the price of its existing LLU product by some 35 percent from 1 June, and later this year it will launch a cut-down version that will allow it to slash prices by another 35 percent.
According to the telco, this move will "usher in a new era of broadband investment".
"Our announcement marks a major move towards the telecommunications market of the future. BT has always argued that a market needs to develop in which those who are willing to invest and innovate can reap the rewards. This is a significant step in that direction," said BT chief executive Ben Verwaayen.
Analysts and rival operators have welcomed BT's move, although not too effusively.
"BT's price cuts look dramatic, but they are designed to bring prices in line with the rest of Europe. BT has obviously decided to act now, before regulatory intervention from OfCom. BT's current price for shared access is around 38 percent higher than the EU average. Today's reduction brings it below the EU average. However, BT's reduced connection fee will still be 50 percent higher than the EU average," said Ovum analysts Serafino Abate and Stefano Nicoletti.
"We at Tiscali think this is very good news for the industry and for the consumer. It opens up access to the BT network at a more basic level, the customer's local BT exchange, to other network operators like us and this will only promote more competition and a better deal for consumers," said Mary Turner, chief executive of Tiscali UK.
"The average broadband user is currently paying between £27 and £30 a month and this announcement means that there is continued downward pressure on price to make broadband more affordable for the mass market," Turner added.
Ofcom is just four months into a year-long review of the UK's telecommunications market that could conclude that BT should be split up. BT has repeatedly argued against this move, and there was speculation on Thursday that the telco is trying to appease Ofcom in the hope of proving that tougher measures can be avoided.