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ISPs attack expected Ofcom broadband margin squeeze test
Tuesday 24 August 2004 21:19:00 by Sebastien Lahtinen

A significant number of small-to-medium sized ISPs have expressed their dissatisfaction at Ofcom's consultation process with respect to the proposed margin squeeze test that is has been using to calculate margins which BT claims left them with no option but to increase prices of the higher end IPStream Office services and among others. A group of ISPs met with Ofcom last Friday to bring their urgent concerns to the table but left feeling their comments would not make a difference.

The group known as UKIF is particularly concerned over the targeted impact of the price changes which will disadvantage smaller providers offering higher end business services against larger companies which are billed on a different method and thus do not fail the margin squeeze test. This opens the industry for DSL consolidators (middle-men aggregating large capacity pipes and reselling it to smaller providers) which has its place, but results in smaller providers being unable to compete on a fair basis.

"Friday’s meeting with Ofcom left a rather bad taste in the mouth. The overriding feeling was that Ofcom had already made its decision, in spite of the two week consultation period running until August 26th. [..] Many of the attendees at Friday’s meeting are business people from Small and Medium ISPs, who gave up a day of their valuable time and were left with a prevailing feeling of false hope having not been consulted"

John Tsai (Vice President of ISP Entanet), Entagroup

It seems most ISPs have accepted the fact the BT price increases will be approved by Ofcom on Thursday, they also believe that the consultation process between BT, the dominant telco, and the wider industry is in desperate need for review. It is quite clear that the communication between BT and its smaller customers has some way to go, a fact BT representatives have accepted when discussing the issue with their customers.

"While the officials in Ofcom and industry understand that the consolidation of the ISP industry is inevitable, it does not justify the lack of clarity about BT and Ofcom’s consultation on this issue. The incumbent and the regulator put the onus on the industry to be aware of changes in pricing in regulation – but this can be very difficult for small to medium ISPs"

Joe Kerr (Managing Director), Fastnet

The UKIF believes that self regulation is key to a competitive communications market allowing ISPs the freedom to set their pricing according to their products and position in the marketplace and believe that the introduction of Capacity Based Charging (CBC) designed primarily for the benefit of larger ISPs will in the long run reduce competition, consumer choice and innovation, the latter of which has been a key strength for smaller and medium sized providers. There are promises by BT to expedite pricing of Usage Based Charging (UBC) which may help smaller providers, but this doesn't prevent the immediate losses many will be suffering as a result of increased costs on these services. [seb]

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