More signs of a margin squeeze on the way for Openreach fibre
The FT is quoting Redburn Partners who are am independent equities broker suggesting that the wholesale price of fibre services may be reduced by £2 per month in a forthcoming Ofcom margin squeeze test expected to enter the consultation phase in May 2014.
For this to impact on operators like TalkTalk and Sky, this cost reduction would need to be on the GEA-FTTC services from Openreach and TalkTalk made it clear that it favours a wholesale price of £4/month six months ago. What we don't know is whether the TalkTalk fibre pricing which is some of the lowest already has pre-empted this price cut to some extent, or whether we can expect to see retail pricing reduced.
The old ADSL margin squeeze test happened at a much simpler time before the big roll-out of LLU services, and with the added complication that any wholesale reduction might impact on cost recovery calculations for BDUK projects Ofcom may have its work cut out balancing different powerful lobbying bodies.
For the BT Group overall a wholesale price cut may be of little worry if the BT Retail arm can carry on being a dominate power in the retail fibre based broadband services sector, but since Openreach is meant to stand on its own in the financial figures Openreach is likely to fight hard to keep its income.
It is clear that if FTTC (and GEA-FTTP where available) was the same price as ADSL2+ services then we would see a massive boost in take-up, but the roll-out has cost money and this has to be paid for. Balancing take-up rates and payback periods is a delicate game.
If another firm had won a BDUK project area, it would have been interesting to see how the alternate retailers like TalkTalk and Sky approached the wholesale and retail pricing issue and whether they'd have tolerated different pricing, or as they have done with the smaller ADSL exchanges outside their LLU footprint they would have only supplied a more expensive service begrudgingly to parts of some counties.