Ofcom are proposing in a consultation on Wholesale Broadband Access new price controls that should be applied to what are known as 'Market 1' exchanges. These are areas where only one operator (BT) has installed equipment to provide broadband to an area, and these are commonly found in the most rural areas of the UK making up 11.7% of exchanges. No changes are being proposed to other areas that have competition from other providers through LLU or in the Hull region.
The proposals to introduce price controls follow the ending of a voluntary price agreement from BT to set a ceiling on the price of broadband in these areas, which expired on the 31st December 2010. BT have agreed not to raise prices until April but from then on, there could be uncertainty in the market as to pricing. Ofcom therefore proposes to place controls on pricing for end user broadband services. It is also being selective in what this applies to. Currently, Market 1 is served by three types of wholesale product- IPStream, DataStream and IPStream Connect, with 10%, 3% and 87% wholesale market share respectively at June 2010. No next-generation broadband (21CN) is available in these areas so Ofcom are proposing to apply these price controls to IPStream Connect only. This would offer protection to the majority of users and also provide a little incentive for broadband providers still using traditional IPStream to migrate users on to IPStream Connect.
Whilst there is potential for Market 1 exchanges to receive 21CN in the future, Ofcom believes that not applying price controls to these products, when available, would help encourage the investment in faster technologies.
Ofcom are expecting to bring in price controls based on a three year RPI-X which would require BT to reduce its charge relative to inflation each year. The range being suggested to run until 31st March 2014 are RPI-10.75% and RPI-14.75%.
A charge control model based on these proposals will be published in February. The consultation is open for comments until 31st March 2011.