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TalkTalk attacks BT local-loop price hikes

Just after Ofcom closed a consultation that is expected to allow BT to raise its charges to rival ISPs for local loop unbundling, TalkTalk criticised the price increases as unnecessary
Written by David Meyer, Contributor

Carphone Warehouse's broadband supplier, TalkTalk, has attacked a proposed rise in the amount BT charges other internet service providers for installing their equipment in its exchanges.

According to a statement from TalkTalk on Monday, BT raising its line charges for local loop unbundling (LLU) will "raise the barrier [to broadband access] for lower income households". BT has not yet, however, announced specifically how much extra it wants to charge for each unbundled line.

In 2005, the regulator Ofcom forced BT to split off its access division, which became Openreach, as a separate entity, so other ISPs could use the UK's telecoms infrastructure without having to use BT as a wholesaler. TalkTalk, one of the country's largest ISPs, now has most of its customers on unbundled lines. BT, however, still charges such ISPs a fee to cover the costs of maintaining the copper connections between customer premises and the exchange.

Last Friday, Ofcom closed its consultation into the issue of BT raising LLU rental prices. The results of that consultation will be announced in the next month or so, but TalkTalk said in its statement that it expected rates for each line go up by 11 percent, from £81.69 a year to a maximum of £91 a year.

A spokesperson for TalkTalk told ZDNet UK on Monday that the company expected the price for each user connection to go up by between £2 and £3 a month to cover Openreach's price hike.

TalkTalk commissioned an economist, Dr Chris Doyle of Warwick Business School, to analyse BT's price rises. His report — which forms the backbone of TalkTalk's submission to Ofcom's enquiry — concluded that BT was either "very inefficient, or… exaggerating its costs or it is deliberately being allowed to make excess profits by the regulator".

A BT spokesperson told ZDNet UK on Monday that "pricing will only increase to the extent that it allows us to recover our costs", adding that Openreach invests around £1bn per year in "upgrading and improving local networks".

"You would expect our shareholders to want a decent return," BT's spokesperson said. The spokesperson was, however, unable to specify what costs were going up to necessitate BT's LLU rental increases.

In a statement on Monday, BT's director of industry policy and regulation, Emma Gilthorpe, said it was "astonishing and ludicrous [of TalkTalk] to suggest that people will be locked out of Britain's digital revolution by BT".

"The UK has the most competitive broadband market in the world, thanks in large part to the massive investment made in broadband infrastructure by BT," Gilthorpe said.

An Ofcom statement on Monday said the regulator aimed to "ensure that the market continues to operate in the interests of consumers with competition continuing to drive take-up, innovation and value for money".

"It is worth noting that the UK has some of the lowest retail broadband prices — lower than, for example, the US, Germany, Spain and Italy," Ofcom's statement added.

Broadband analyst Ian Fogg, of Forrester Research, told ZDNet UK on Monday that the LLU pricing issue was closely tied in with BT's proposed investment in rolling out high-speed, fibre-based, next-generation broadband. This investment looks set to go ahead after Ofcom assured BT it could charge rival ISPs what it liked for its wholesale fibre product.

"If DSL today is available at a very competitive price and it offers pretty good speeds, then that will act as a dampener on the ability of anyone looking to roll out a fibre network, including BT, to charge too much for it," Fogg said. "If the price of LLU charges goes up, that will raise that competitor pricing and make it easier for other broadband offerings, including BT's new fibre network and Virgin's cable network, to charge more."

Fogg added that he thought TalkTalk was trying to maximise the returns on its own extensive investment in unbundling, ahead of the arrival of widespread fibre-to-the-home.

"There are certain points in a market's development when there is a massive upheaval and all the chips go up into the air and fall down in a different order," Fogg said. "One of those happened when we moved from dial-up to broadband. When LLU happened, the game changed again. That encouraged consolidation in the market and encouraged ISPs to become bigger, because bigger ISPs can invest more. With fibre, all the chips go up in the air again, and the investment made today in LLU won't be so relevant."

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