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UKIF Responds to Ofcom support of broadband price hike
Thursday 26 August 2004 18:24:00 by Sebastien Lahtinen

UKIF (UK Internet Federation), a group of service providers convened as a result of the recent BT Wholesale price rises of up to 32.6% taking effect from September has spoken out against Ofcom's lack of respect for business models of smaller providers

This morning, Ofcom published its Direction statement setting out a Margin Squeeze test to compare BT Wholesale's IPStream and DataStream services which 'hand over' the user sessions in different parts of the network. Ofcom's role as regulator is to ensure BT does not abuse its dominant market position for example by supporting its own IPStream services over similar services provided by DataStream operators who take the session from BT at an earlier level in the network.

The group alleges that Ofcom's decision will "put [UKIF members] in a position where they will be unable to compete and will be faced with terminating their business" as it increases the costs to smaller businesses because of BT Wholesale's current portfolio of Capacity Based Charging options with no news on Usage Based Charging at this time.

"This is not really surprising and it is more of the same of what small and medium ISPs have heard from the regulator. Ofcom claims that it wants to promote competition, but it would be very difficult for my company, and for many other ISPs, to compete in what is essentially a non-competitive market."

Robert Kemp (Managing Director, KeConnect


UKIF believes that the 'Margin Squeeze' test which Ofcom has introduced was based on evidence from larger ISPs with a mix of residential and business services whereas many small-to-medium ISPs make it their core business to focus on affordable but reliable business services, and this is where the changes will hit ISPs hard. They say Ofcom has stated its model 'might be wrong' and would correct itself over the next five years, giving the smaller companies in the UK industry a bleak future and certainly does not help to bring more competition into business broadband in the foreseeable future.

In an ironic twist, BT Wholesale, the incumbent operator that supplies all of the services being measured, gets an increased profit margin, although this may be offset somewhat by the reduction in BT IPStream Office user base growth but even then the biggest losers are the small ISPs. UKIF also questions why BT is allowed to increase the prices beyond the scope of the regulatory requirement as it believes there is a 7% rise beyond what was required, although BT may be able to review this now the document is published.

UKIF is calling for a parliamentary enquiry to examine and re-evaluate Ofcom's role in regulating the Wholesale Broadband Access Market:

"Ofcom has dodged the issue. No attempt has really been made to address specific areas of the consultation process, or to clarify the regulatory process. This will only lead to further confusion between Ofcom and the industry in the long-term"

Joe Kerr (Managing Director), Fastnet

Although regulation is vital for a competitive broadband market, it seems that regulation is more of an art than a science and the current trend of ignoring smaller providers is worrying to say the least. Fixing this in five years' time is just not good enough, but is broadband important enough for the government to take notice and act now? [seb]

Related Articles:
Ofcom publishes more documents
ISPs attack expected Ofcom broadband margin squeeze test
ISP industry speaks out against BT broadband price rise
BTs price rises, the saga continues
BT Wholesale updates broadband prices, upwards!

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