The news earlier this week about the surprise price rises for the BT Wholesale Office products still has providers annoyed. The service providers are still irked over both the scale of the price rises and the short notice that has been given (just one month). The rises are likely to affect the small to medium size providers, especially those specialising in providing services to SMEs and also the smaller power user segment of the market.
The price rise appears to have been triggered by the Margin Squeeze Test (MST) that was defined by Ofcom back at the end of May 2004. Initially this resulted in a price cut of £1/month for Datastream line ports, and most people forgot about the MST after that. Unfortunately from going back over the documents it is possible to see that the extra £1 margin only solved the failed test for IPStream Home 500 services.
The key to the price rises and the scale of them is in the Ofcom spreadsheet located here (note: you need MS Excel to view the spreadsheet). The spreadsheet shows the MST applied to the BT Wholesale range of products, with the following results:
The table does not take into account the recent reduction in Datastream pricing of £1 per month, which now means that Home 500 passes the MST. The margin test is designed to see if it is possible for a Datastream provider to offer the same service for less than BT Wholesale. On the Home range the test shows this is OK now, but since the Office range are lower contention Ofcom has allowed for the Office range using 2.5 times more bandwidth.
So looking at the paperwork that is out there, it would appear that the comments made on ZDNet that suggest the price rises are largely down to regulatory concerns are correct. The question is whether Ofcom will insist that ALL BT Wholesale IPStream products pass the MST, or allow exceptions to ensure the SME market for ISPs is not unfairly affected.
Apparently Ofcom is due to make its conclusive statements on IPStream vs Datastream pricing in a few weeks. The price rises by BT and the uproar from service providers may just force Ofcom to reconsider how the the margins are calculated. The next few weeks are likely to see a lot more discussion between BT, providers and Ofcom.
The classic pricing model that has seen the proposed price rises is on a limited lifespan, the 'usage based pricing' (UBC) model is due to be released later in the year. Then when the UBC and CBC models are running, BT Wholesale will withdraw the classic pricing structures. The overlap period will depend on how providers take to the new UBC model when it is released.
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