The communications regulator announced on Thursday that it was forcing BT to substantially cut its local-loop unbundling (LLU) prices in an attempt to increase "effective and sustainable" broadband competition.
LLU allows rival operators to compete with BT by installing equipment in the telco's local exchanges. The operators can then offer their own wholesale services over BT's phone lines.
In May this year Ofcom announced that it wanted BT to cut its LLU prices -- at which point BT immediately announced some voluntary reductions. Thursday's announcement represents the regulator's final decision, following an LLU market review.
The cost of transferring a line from BT's control to an LLU operator will now fall from £88 to just £34.86. The cost of installing a new line, which BT cut from £265 to £223 in May, must now drop to £168.38.
Ofcom believes these reductions will help encourage telecoms companies to invest in LLU.
"This year has seen lot of progress on local-loop unbundling," said Stephen Carter, Ofcom's chief executive.
"This has been achieved through a combination of industry investment, regulatory review and, importantly, constructive engagement from BT," Carter added.
BT itself says that it supports the conclusion of Ofcom's LLU market review, despite the extra competition that it is now likely to face.
"BT has been working hard with Ofcom since May on this issue, and these price reductions are absolutely in line with what we jointly agreed then. I believe they are right for the industry," said Paul Reynolds, chief executive of BT Wholesale.
Since Ofcom's initial announcement in May, several companies have expressed renewed interest in unbundling, including Cable & Wireless, which was quick to snap up Bulldog -- one of the few companies that have taken on LLU over the last few years.
Easynet, another LLU pioneer, is hopeful that these price cuts -- which will apply from 1 January, 2005 -- will benefit the UK telecoms industry.
"These price reductions are good news, another step on the road to affordable next generation broadband services in the UK," said David Rowe, chief executive of Easynet.
Both Easynet and Bulldog have used unbundling to offer faster wholesale broadband services than those offered from BT. Easynet's network is underpinning an 8Mbps service being rolled out at present by UK Online.