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Ofcom imposed wholesale prices unlikely to change retail prices
Wednesday 07 March 2012 13:49:06 by Andrew Ferguson

Price drops of 5.9% and 15.9% on some wholesale telephone and broadband products is prompting lots of talk of a new wave of price reductions for consumers. Alas this is very unlikely, as the wholesale products are one element from many that make up the price we all pay for voice line rental and broadband services.

Ofcom a month ago submitted proposed changes to the EU regulator, and these have now been approved, but following standard practice BT is opposing the changes, but not blocking their introduction in April.

The monthly price drop for a full LLU service (voice and broadband) as used by Sky and TalkTalk is just 34p, making the monthly price £7.28. Retail prices are around the £25 to £28 for these providers, which generally includes evening and weekend calls, VAT, cost of bandwidth, capital costs from unbundling an exchange, salaries and the list goes on.

A shared LLU service such as that used by O2 and Be, has a 23p per month drop to £0.99 per month for the broadband element, and in the case of voice line rental which can be from the provider or any other WLR supplier this drops down to £8.23 a month (drop of 41p), again retail prices are much higher due to all the other elements.

So while there is some scope for a small price change, it is unlikely particularly as bandwidth usage is increasing, and this carries a cost, even on a large core fibre network like Sky run, 10GigE hardware is not cheap. The yo-yo nature of VAT over the last few years needs to be factored in too, particularly as the reductions from Ofcom are predictable, and a provider may have held off passing on the 15% to 20% rise in VAT on the assumption that wholesale pricing will decrease.

If Ofcom wants to create a dynamic, vibrant and competitive market for copper broadband, it needs to address the costs of switching between full LLU services, and how people with a full LLU service can cheaply return to a WLR/SMPF combination. The £6.25 drop in migration charges is a welcome change, but not large enough we would suggest.


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