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Broadband prices may fall after Ofcom adjust wholesale charge controls
Wednesday 20 July 2011 10:34:00 by Andrew Ferguson

This gap between the cost of broadband rural and urban exchanges looks set to narrow with the latest news that Ofcom is to make BT Wholesale significantly reduce the price of its ADSL (up to 8Mbps) services by 12% below inflation each year. The hope here is that this will encourage take-up of services in these areas and increase the level of competition between retail ISPs. An additional factor Ofcom raises is that even if an ISP does not lower its prices, it may decide to invest these savings in buying more capacity which would improve peak time performance.

What many people are not aware of is that some years ago Ofcom allowed BT to have differential pricing across the country for its broadband products, with lower pricing where multiple wholesale providers of broadband were available. Strangely only one broadband provider has passed this differential pricing onto its customers, Plusnet.

What is most interesting is that this price drop only applies to 8meg services using ADSL (IPStream Connect Max and Max Premium) on Market 1 exchanges but does not include the BT Wholesale ADSL2+ services where they are present at the same exchange. This may encourage BT Wholesale to continue its roll-out of ADSL2+ to further areas, and further withdraw the older IPStream services at these exchanges. While ADSL2+ offers little or no benefit to those with 5km or longer telephone lines, the extra speed for many can be a welcome boost. For small businesses the extra upstream speed available through ADSL2+ services makes remote working and sending digital material much faster.

There are some 14% of households in the Market 1 definition, with Ofcom suggesting some 3 million homes stand to benefit. Whether a price cut will stimulate more LLU penetration into these smaller exchanges is unsure, previous policy appeared to be to keep BT Wholesale pricing high to ensure LLU operators had it easy in acquiring customers. TalkTalk currently probably has the largest footprint for LLU around the UK, and is still expanding.

Whilst many will look at this as another possible pound or so off the price of their broadband bill, the ever increasing demands we are all making on our broadband connections mean that while some of the price cut may be passed on, some providers who currently provide highly contended services (thus perform poorly at peak times) will hopefully look at improving their quality of service. Oddly, the worst culprits for this practice are the LLU operators who give the customers who have no choice but to use the BT Wholesale network a very poor deal, often charging more and providing a worse service.

Update 11:30am: To clarify, IPStream Connect product range is a variation of the IPStream range, which gives providers the option to pick up traffic at the IPStream BRAS. Smaller providers are often still using the original IPStream system of buying BT Central access components.

Comments

Posted by herdwick over 5 years ago
It is even more specific than you suggest, the single wholeslale product concerned is IPStream Connect 8M currently used by BT Retail, TalkTalk, Sky, Orange, Virgin Media and Entanet
Posted by herdwick over 5 years ago
It is even more specific than you suggest, the single wholeslale product concerned is IPStream Connect 8M currently used by BT Retail, TalkTalk, Sky, Orange, Virgin Media and Entanet
Posted by andrew (Favicon staff member) over 5 years ago
Will tweak a little, so many versions of their statement, this was not in the one I was working from.
Posted by herdwick over 5 years ago
Fair enough, "1.9 Our decision on the WBA charge control to be applied in Market 1 is as set out in this statement. This statement constitutes our impact assessment.
We are charge controlling BT's 8Mbit/s IPStream Connect product
1.10 We are imposing this charge control on the IPStream Connect 8Mbit/s (Max and Max Premium) product only. "
Posted by AndrueC over 5 years ago
I remain unconvinced that strangling what little profit there is in M1 exchanges would persuade BT to invest more money in them. Time will tell I suppose.
Posted by Rocklett over 5 years ago
Actually IPStream Connect is available to service providers who wish to interconnect at the various BRAS but is also consumed by BTW WBMC which is now used by the majority of service providers, so such service providers can receive both WBC & IPSC sessions from a single customer sited WBMC Ethernet interconnect.
Posted by Rocklett over 5 years ago
You say "Strangely only one broadband provider has passed this differential pricing onto its customers, Plusnet."

This is not strange at all, Plusnet are owned by BT so do as they are told. Other services providers not wishing to add to the digital divide have to create a cost model which blends the reduced cost in Market 3 areas to produce a non punitive national price list, which we assume is what most consumers want to see.
Posted by andrew (Favicon staff member) over 5 years ago
LLU operators are happy to charge varying prices for their off-net services. That has not stopped people signing up to their off-net products.
Posted by GerryCornell over 5 years ago
So when is the new pricing effective from?
Do existing customer contracts have to expire before they see the benefit of a reduction?
How can customers with bundled services know the new pricing has been implemented?
Posted by andrew (Favicon staff member) over 5 years ago
In effect from mid August 2011.

Though it is down to individual retail ISP's to decide what to do.

At most it it will be 80p to a £1 price cut, and as only affects a small section of the market, it may be a smaller cut. In short needs accountants to look at the figures.
Posted by NetGuy over 5 years ago
@Rocklett - it does seem strange to me that where other ISPs might be able to offer a slightly lower price to compete with those which don't give any discount, only PN has gone ahead and passed on the reduced cost.

One could question why BT Broadband doesn't pass on this discount to customers too. Seems to me only PN is transparent about what they're charging the users. If they get it cheaper, we get it cheaper.
Posted by AndrueC over 5 years ago
But cheaper = less profit. It's news to me if the digital divide is caused by people not being able to afford broadband. Surely we don't want prices on M1 exchanges to fall. We want to increase the funds and incentives to make them look more attractive places to invest.

Or are we really saying that a price reduction will increase sign-ups to the point where an M1 exchange looks attractive? I thought the broadband market was basically saturated now anyway.
Posted by GerryCornell over 5 years ago
Andrew
I am an Accountant,which makes me sceptical where there is a bundled package.
You did not comment on existing contracts?
Is there no obligation on BT Broadband to pass on the price reduction afforded to them by receiving the benefit of the reduction by BT Wholesale?
You're doing a grand job. Keep up the good work.
Posted by herdwick over 5 years ago
@NetGuy - BT Broadband has differential prices on its business products "BT Business Broadband prices vary by telephone exchange area" http://business.bt.com/broadband-and-internet/internet-access/broadband/pricing/
Posted by herdwick over 5 years ago
3.16 TTG submitted that if Ofcom were to proceed with its proposal for an RPI-X price
control, [] of the identified [] exchanges in Market 1 would become unviable. In
light of this, TTG argued that the proposed IPStream price reduction will have a
detrimental impact on future rollout in Market 1, on the basis that it would deter
TTG’s rollout plans and other investment for many years.
Posted by Rocklett over 5 years ago
Another thing to take into account is a service provider not only has to pay BT for the ADSL line it also has to pay BT for all bandwidth used (on these lines the bandwidth charge is an unbelievable £131.20 + VAT per 1Mbps). As bandwidth usage rises ISPs have to either raise charges to end users or make less money. It will therefore be a fine balance as to whether an ISP offers a cheaper price or uses the reduction in the cost of an ADSL tail to offset the rise in the cost of bandwidth.
Posted by spetznaz over 5 years ago
Well LLU providers have very little interest in my exchange so it makes no odds if they dont like it, it would be nice to have ADSL2+ though as I am within 2km of the exchange, if it encorages BT to move the exchange to WBC then that is good news.
Posted by herdwick over 5 years ago
@Rocklett - the OFCOM analysis includes growth in bandwidth requirements increasing BT's backhaul costs.
Posted by Michael_Chare over 5 years ago
As a resident of a rural area, what I would like is faster broadband rather than cheaper broadband.
Posted by Bob_s2 over 5 years ago
Costs are far higher in rural areas and demand a lot lower. It is not unreasoonable to charge more. Pricing it at below cost will hardely help the roll out

What is realy wanted is proper joined up thinking for the rollout rather than the goverments approach of small local schemes all over the UK that will like previous ones go nowhere
Posted by andrew (Favicon staff member) over 5 years ago
@GerryConnell
As I have said in interviews, many providers may find that 60p per month reduction for 10% of its customers, does not warrant an overall reduction. It might be better going towards bandwidth to reduce peak time congestion.

BT Broadband (Retail) is under no obligation to pass on the saving, many of its customers are already on ADSL2+ i.e. not the product affected.
Posted by PhilCoates over 5 years ago
@Bob_s2

Are you sure demand in rural regions is a lot lower? Population density obviously is but I'm not aware of any data that says we don't want it.

Of course part of the problem if such data exists is that because speeds and availability are so poor, many people in rural areas end up looking for alternatives because of the presumption that fibre or copper based broadband will never come or never improve.

I would love FTTC/FTTH but have gone with 3G because at least it works.
Posted by otester over 5 years ago
@PhilCoates

Infrastructure cost, a lot more to cover rural areas than urban.
Posted by PhilCoates over 5 years ago
@otester
Never said they weren't. I am disputing the idea than demand for fast broadband services in rural areas is a lot lower than in urban areas.
Posted by herdwick over 5 years ago
OFCOM are reducing prices because they found BT were making too much money relative to cost of provision, so you can all can these "it costs more in a rural area" notions 'cos OFCOM found it was costing less than the prices would suggest.
Posted by PhilCoates over 5 years ago
Actually I am currently experiencing some investment in my rural Market 1 exchange and 7km line. As I haven't had a dial tone for 10 days, Openreach are having to burn some diesel to fix it.
Posted by GerryCornell over 5 years ago
Andrew
Many users in rural areas would love to receive ADSL2+ so your point falls down.

Why shouldn't customers in rural areas pay less? After all they receive a poorer service. If you fail to give this recognition you start to move into situation similar to that which Beeching created for the railways in the 1960s.
Posted by AndrueC over 5 years ago
@GerryCornell:Just because the service is poor doesn't mean it isn't value for money. It takes longer to get a parcel to Kathmandu from London than it does to get one to Birmingham but that doesn't mean you can expect it to be cheaper.

The current service levels in rural areas might be the best that can be achieved for the current price. They might even be better (ie;running at a loss). Without knowing the costings involved you have no way of knowing.
Posted by AndrueC over 5 years ago
(cont'd) services are rarely charged on the basis of results. They are charged on the basis of cost to provide and if the cost of proving 10kb/s to your house is £100pcm then that's what you have to pay. If it costs £10pcm to get 1Gb/s to my house then that's what I pay.

It is naive to think that prices charged for those two services are in anyway related.
Posted by AndrueC over 5 years ago
(oops - hit return by mistake)

Maybe you live on the summit of Ben Nevis and I am renting an apartment in Telehouse. That being the case the price and service differentials could be entirely reasonable.
Posted by ahockings over 5 years ago
What really gets me is the statement that people over 5km will get no benefit from ADSL2+
What a load of C**P.
Both me and my brother are on 7.2Km lines (albiet, good lines). We had around 1600Kbps sync and 140 Kilobytes throughput on ADSL.
On ADSL2+ we get 2200Kbps sync and throughput of between 190 and 210 Kilobytes per second.
Is that not a significant improvement for a 7K+ line???

Who writes this stuff!!
Posted by GerryCornell over 5 years ago
AndrueC

What the average customer is prepared to pay will have a major influence on price. It's known as the law of supply and demand, save that state regulation can distort market forces.
Posted by Bob_s2 over 5 years ago
Rural areas are more expensive to provide Broadband to . It is about £6K per home passed compared to innr city areas where it is about £600 per home passed. There lies the problem in providing Broadband to these areas. They are never with current technology going to make a profit. They will make a very substantial loss
Posted by pigfister over 5 years ago
prices drop, never, they are all rigging the price to keep it high together, this is the capitalist way....
Posted by michaels_perry over 5 years ago
So, just because we have an ADSL2+ connection that only gives 2.7 Mbps sync speed at best we are not getting any benefit! ADSL2+ can give 'up to' 24 Mbps but only in rare cases where the user is extremely close to the exchange and other factors are favourable. The house next to our ADSL2+ equipped exchange only gets 3.7 Mbps according to speed test maps for the area! No one around here gets anywhere near 8 Mbps let alone faster. So we rural people loose out again.
Posted by GerryCornell over 5 years ago
Bob

£6K or £600 are are meaningless statistics. It will cost more in a remote location but not market towns in rural areas!
Posted by andrew (Favicon staff member) over 5 years ago
@Bob_s2

Those prices are for full Fibre to the Home, so not relevant to the discussion of copper based broadband.

The cost of the hardware for ADSL/ADSL2+ has fallen substaintially since 2000.
Posted by andrew (Favicon staff member) over 5 years ago
@micahels_perry

If a property within 300m cable distance of the exchange and receiving ADSL2+ is only getting 3.7Mbps then something is not right with the line/set-up.

A lot of people do have poor wiring setups, or have picked an ISP that has poor peak time performance.
Posted by shamus72 over 5 years ago
How can you find out what the distance to your exchange is.
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