BT forced to cut rural broadband wholesale rates

Ofcom has forced BT to charge ISPs less for wholesale broadband service in regions where it has the only network, a move that could lead to cheaper broadband prices for consumers in rural areas.

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On Wednesday, the regulator said BT must cut its wholesale service fees in those regions by "12 percent below inflation per year". With the move, it delivered on a plan outlined in January to compel the company to drop charges by between 10.7 percent and 14.7 percent.

According to Ofcom, the wholesale price cut should bring down retail prices for businesses and consumers in rural areas, due to increased competition between retail ISPs. The areas likely see a price drop are parts of Scotland, Wales and Northern Ireland, as well as the south-west of England, Norfolk, Yorkshire, Cumbria and Northumberland, it said.

The changes "may also lead to better-quality services by enabling ISPs to allocate more bandwidth per customer, which could deliver faster broadband services. This could benefit around three million homes and businesses", Ofcom said in a statement. Service providers could increase bandwidth because the wholesale cost is cheaper, it argued.

BT said it has already factored the cuts into its financial plans. The wholesale price controls only affect BT's up-to-8Mbps ADSL products, not its up-to-24Mbps ADSL2+ products or faster fibre services. Both ADSL and ADSL2+ are based on BT's legacy copper network.

The decision should give BT an incentive to upgrade its rural broadband networks to ADSL2+, as such services are not charge-controlled, an Ofcom spokesperson told ZDNet UK.

Move 'will not encourage competition'

However, Trefor Davies, the chief technology officer of Timico — an ISP that is a BT Wholesale customer — argued Ofcom's move may not have the effect the regulator intends. While it might drive down some service providers' prices, it "will not encourage any competition", he said.

If the pricing is being driven down, it makes the business case for [investing in] LLU a lot harder.

– Trefor Davies, Timico

The changes only affect places where there is no local-loop unbundling (LLU) — that is, where no ISP has equipment installed in BT's exchanges to control the line between the exchange and the customer.

As LLU involves investment, and as rural areas tend to give ISPs a poor return on investment, providers operating in rural areas usually go for the cheaper option of being wholesale customers of BT.

"If the pricing is being driven down, it makes the business case for [investing in] LLU a lot harder," Davies explained.

Responding to Ofcom's announcement, BT said it did not expect to lose much money because of the cuts.

"This outcome is in line with the proposals that were widely reported on earlier this year," the telecoms giant said in a statement. "The impact on BT Wholesale will be non-material."

While pointing out that it would be up to retail ISPs to pass on the savings to their customers, BT implied in its statement that BT Retail — itself a customer of BT Wholesale — may not lower its own prices in rural areas.

"Unlike many other providers, despite the higher costs involved, BT Retail's consumer broadband products have always been priced the same in rural areas as in urban areas," the company said. "This ruling is therefore of more relevance to those ISPs who currently charge a supplement in rural areas."

A BT spokesperson told ZDNet UK it is reviewing the details of Ofcom's announcement.