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CBC pricing by BT Wholesale, holding back UK broadband?
Tuesday 22 February 2005 12:16:00 by Andrew Ferguson

The state of broadband in the UK is something that has a good and bad side to it. We are seeing availability that is in excess of many other countries. The bad side seems to be the increasing amount of metering for broadband.

The capacity based pricing model is coming up for almost been one year old. In May 2004 the pricing for CBC was confirmed with Ofcom, but it has taken many months for the full effects to be felt. The move to making the cost of bandwidth usage more apparent to service providers is having an impact with the large number of bandwidth capping or the final activation of fair usage clauses that have sat dormant in the terms and conditions of a service for years. Though the growth of caps soft or otherwise is not confined to providers using BT Wholesale CBC pricing, the cable company NTL is implementing them, while Telewest is not. Also there are ISPs like Tiscali who widely use BT Datastream services who are shifting pricing models. We even see LLU operators like Bulldog charging for time spent online, and HomeChoice with usage caps.

So why does capacity pricing encourage providers to charge for usage or try to limit users? It is down to the costs to them, and the constant pressure by consumers for ever lower pricing, but coupled with ever changing usage patterns. Back in 2000 when UK ADSL started to roll-out, users were expected to surf the web and read emails, perhaps a bit of audio file sharing which was just starting. Now in 2005, we have some people who still do this, but some that use the Internet as a way of video conferencing with relatives, VoIP for telephone calls, sharing of photo albums, online backup systems, watching music videos and increasingly watching video. The amount of file sharing that is breaking copyright laws is another major factor, but it is to be expected that this may diminish as content providers start to provide legitimate sources for material.

Looking at the costs of a simple 155Mbps CBC BT Central which is £316,200 per year, if this were fully utilised every day of the year, it would cost 52 pence per GB transferred. Though it is also true that if the BT Central was under utilised it would still cost the ISP £316,200 a year, which is the key. Where traditionally ISPs would happily just populate each BT Central with 4000 users, and not worry if it was under used, since it cost just £40,000 per year, with CBC the pressure is on to ensure that it is used by lots of customers. In theory if a provider advertises a up to 50:1 contention service, they could populate the pipe with 7000 1Mbps users, which would be OK if they are not heavy users. The problem arises if just 2% of these people are downloading massive amounts of material everyday, since 140 users would almost fill the pipe.

By now people are wondering, hey if the price per GB comes down to 52p per GB why are ISPs charging £1.50 to £3 per GB. Well that would be down to attempts to reduce usage to increase the number of users on a pipe, plus the actual act of metering customers costs money. Then there are other costs, that if not fully covered by the standing charge each month will need to be recovered, for example transit costs, cost of hardware to manage network.

So who is the villain, well that is not clear. BT Wholesale are selling capacity to ISPs at what seems a very high price compared to other countries, the cost of bandwidth to BT should be around 15 pence per GB. So maybe BT Wholesale is making a nice profit from CBC. Then one imagines a scenario whereby BT Wholesale did sell the BT Centrals at a 1/3rd of the current price, they would then have to lower the price of BT Datastream products, and rental charges for LLU lines so that Ofcom was satisfied no margin squeeze was in effect. In short BT can charge high prices for some products, since the big complainers are the competitors setting out their LLU and Datastream stalls.

The UK is in grave danger of having a competitive market that may be second to none in some parts of the UK, but in the rest of the UK, other providers that are relying on the incumbents (BT) products are possibly going to be overcharged in comparison, with the end result only the large providers who have large user bases will survive.

Content providers like the BBC, are moving towards making more video available online, how long before users find out that watching a good quality online video stream at around 1.3Mbps, eats almost 0.5GB per hour, which might cost them £1. Research shows that many people are watching less TV, and using broadband more, the next stage for many is likely to be watching a video stream while doing all your other Internet based tasks.


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