Ofcom proposes reduced prices for high-speed data links, including price controls on BT

Alex Walls
February 27, 2013

Ofcom is proposing to reduce prices for high speed data links in the United Kingdom, including price controls on BT.

The proposals followed Ofcom’s Business Connectivity Market Review, which looked at the £2 billion a year market for wholesale leased lines, used by businesses, mobile operators and broadband providers to transfer data over their networks, Ofcom said.

Price controls on BT

These proposals included price controls on BT, the major provider of wholesale leased line services, Ofcom said.  This would reduce the price of Ethernet products, or high speed transferral of data over networks, for many businesses, helping to meet the growing demand for fast data services from schools, universities, mobile operators and internet providers, as well as consumers, Ofcom said.

The measures were designed to promote competition, it said, and ensure the UK had a core of high-speed business networks capable of supporting companies as well as consumer services that ultimately relied on such networks, such as superfast broadband and mobile video streaming.  Leased lines also connected schools, universities, libraries and other public bodies via high-speed links, Ofcom said, and mobile operators used leased line services for backhaul.

The breakdown

Ofcom was proposing that BT’s very high bandwidth, wholesale leased line services above 1 Gbit/s, everywhere except London and Hull, should be subject to regulation, since BT had been found to have ‘significant market power’ in what was a relatively new market, it said.

BT said it believed this decision was mistaken.

“We provided clear evidence to  Ofcom that the market is highly competitive and that there is no market failure that needs regulatory intervention.”

For Ethernet products of speeds up to and including 1 Gbit/s, Ofcom proposed that while existing regulation be maintained, including charge controls and non-discriminatory access requirements of BT, “significant” price reductions outside London should be imposed, of 11% below inflation per year over the next three years, Ofcom said.

BT’s prices for leased lines based on older technology would be permitted to rise “modestly” to reflect higher costs in a declining market, Ofcom said, with reductions in Ethernet charges providing customers a cheaper alternative and incentive to move to newer and more efficient technologies.

Less regulation in Londontown

The proposals included lighter regulation in London, Ofcom said, since BT faced greater competition from other providers.  This would involve safeguard caps, or an upper limit on price, for products up to and including 1 Gbit/s and no regulation on very high bandwidth products, since there was already effective competition, Ofcom said.

It proposed to deregulate the longer-distance legacy leased lines market and require BT to provide regulated Ethernet services on the same basis to all retail providers, Ofcom said.

BT said it believed Ofcom could have gone further in deregulating these lines.

“Newer, more efficient alternatives now exist removing  the need for the regulation of such legacy services altogether.”

It acknowledged Ofcom’s recognition of greater competition in London and said its moves would simplify and add certainty to pricing in business markets.

“We also believe that  Ofcom’s charge controls must allow a fair return on our investment in leased lines to allow sustainable investment in the next generation of telecoms services and infrastructure.”

Starting in April

The European Commission has been notified of the  draft statement  and can submit comments, following which Ofcom expected to publish a final statement towards the end of March, with price controls in place for three years, starting on 1 April.

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