Broadband News

Ofcom too slow over price cuts say BT competitors

It is two months since Ofcom announced a proposal to lower the wholesale price of the GEA-FTTC 40/10 product and started its feedback process so that industry could respond and ask for a bigger reduction or plead for it to not be reduced.

It now seems that we presume as well as responding to the consultation two largest LLU broadband providers, Sky and TalkTalk and Vodafone who are aiming to expand their fixed line broadband consumer base to catch-up to and pass rivals like EE and Plusnet are responding in the public domain via the Financial Times.

The combined might of the three operators is around 9 million broadband customers with around 2.5 million GEA-FTTC customers and around 750,000 on 40/2, approx 350,000 on 80/20 and 1,400,000 on the 40/10 product (figures based around a mixture of financial reports and observation on product ratios from speed test analysis). Of course wholesale price changes to one of those might change how or what providers sell.

The proposed price cut is worth £1.87+VAT per month in the 2018/2019 year rising to £3+VAT per month in 2020/2021, so if there are no product changes and Openreach does not reduce the price of any other products (reducing 40/2 seems likely but we doubt that 55/10 and 76/10 will drop voluntarily - note our following figures are based on Ofcom proposal for dropping the price of the 40/10 service) this translates to around £31.4 million in the first year, £44.5 million in year two and £50.4 million in year three - which at a total of £126.3 million is very close to the £140m Vodafone talk about in the FT article, but this figure is a three year saving. If Vodafone are as text suggests talking about the cost of the 1 year delay during consultation and implementation then it is just £31.4 million, or if they believe the cut will affect ALL FTTC products then it would be £56.1 million.

Oddly Vodafone also talk about a windfall for Openreach due to this delay which appears to overlook the minor cost of deploying VDSL2 in the first place and thus the 12 months at existing pricing is not a windfall that can be re-directed to fund more full fibre roll-out. No doubt Openreach will be highlighting the impact on the pay back period for VDSL2, but we believe that is part of what Ofcom want to achieve i.e. make VDSL2 less attractive so that Openreach concentrates more on rolling out FTTP in the future and thus the industry consultation Openreach is undertaking to see if more providers will come on board.

Looking beyond the politics for the consumer who has endured years of rising retail broadband prices (mainly via the rising price of the line rental component) we predict a minimal price cut for 40/10 users in 2018 of maybe 50p to £1/month, as the pressures that have caused those price rises are likely to continue (e.g. support costs, wage inflation, network upgrades as we use more data) will likely erode the wholesale savings, just like the changes in wholesale voice line rental did.

The risk of minimal price cuts means talking up the potential price cuts by operators is a dangerous game as if people are built up to expect a £2 to £4 price cut in 2018 there may be an ugly reaction if the reality is a lot smaller.

Correction 3:15pm It seems we managed to confuse the GEA-FTTC 40/10 price cut with a different set of price controls, the FT article apparently actually refers to price controls for MPF (full LLU) which are not changing this year and thus affects around 9 million broadband customers with those providers. This means the talk of a delay giving a windfall of £140m now makes more sense, since that only equates to around £1.29 line rental reduction.

We have not removed the previous analysis as it still stands with respect to the proposals for a GEA-FTTC price cut. The effect therefore is that if this complaint bears fruit both ADSL and FTTC customers on those three providers might see a price cut, or at least no more price rises in 2017 and then potentially cuts in 2018.

Comments

"ehllo?"

  • woodmass14
  • 9 days ago

How odd. Clicked on the article and all that was there was "ehllo", submitted my previous comment and the article appeared in full. Weird.

  • woodmass14
  • 9 days ago

What happens when you hit publish on a wrong version and get distracted by a phone call straight after

  • andrew
  • thinkbroadband staff
  • 9 days ago

You may think that OR won't voluntarily reduce the price of 55/10, but as that would widen the differential from 40/10 from £1 per month to about £4 per month. BT Consumer would not be happy about what would be an unjustifiable differential (in terms of costs to OR) and might well threaten to reintroduce the 40/10 service if OR won't lower the costs in parallel. The 80/20 service is a bit different, but that's a minority product, but even then I can't see the differential widening by £3 a month.

  • TheEulerID
  • 9 days ago

Ah i see, happens to the best of us :)

  • woodmass14
  • 9 days ago

Openreach could provide Sky, TalkTalk, et al, FTTC for free and they'd complain that they want to be paid for using it.

  • CarlThomas
  • 9 days ago

@Carlthomas

Precious little sign of major network investment from that lot. We don't see much sign of the York experiment going further. It's much easier to moan to a regulator and an audience willing to listen.

What surely is becoming unsustainable with the new OR is Ofcom's application of the VULA tests that Ofcom apply to BT Consumer. Given that Ofcom are meant to regulate on a cost basis, it does seem odd that they've not include the 55 & 80mbps services. Do they expect those to subsidise the 40mbps product?

  • TheEulerID
  • 9 days ago

You might take Sky and TalkTalk more seriously if they stopped moaning and increased their footprint with regard to more LLU provision in more exchanges :P

  • 21again
  • 8 days ago

Some basic economics. Sky & TT have LLU equipment at almost all exchanges serving 1000+ lines. Their market share are 20-30% each, so they might expect to connect ~200 customers at an exchange with 1000 lines but only ~100 at an exchange with 500 lines. The minimum efficient scale for unbundling an exchange and installing LLU equipment is probably close to 200 customers, so why would they go below this threshold? Exchanges with < 5000 lines account for less than 5% of the market though there are a lot of them. Serving 20-30% of customers at long tail exchanges makes no commercial sense.

  • gah789
  • 8 days ago

@21again

Putting a few MSANs into some tiny exchanges would achieve a close approximation to nothing in improving network infrastructure - indeed, if it blocked LR-VDSL rollout it would make it worse. What would improve network infrastructure would be if those ISPs provided some commitment to the selling of new services. For example, Talktalk and Sky dragged their feet on committing to GEA-FTTC and still don't sell GEA-FTTP products. OR had to rely on BT Consumer almost alone (one third the market) to justify the case for FTTC and to do all of the early retail marketing.

  • TheEulerID
  • 8 days ago

@21again

So if Sky & Talktalk want comprehensive FTTP then they ought to have a realistic discussion on how much they will commit to sale, a realistic price and removal of the barriers (such as the retirement of MPF lines in favour of fibre). Instead, what they want is to minimise wholesale prices at almost all costs which acts as a brake on fundamental network investment.

  • TheEulerID
  • 8 days ago

I wonder what number/percentage of non buisiness exchange subscribers move from ADSL2+ to FTTC in a year?

Are the trials on LR-VDSL still ongoing and I wonder what the real world speed v. distance will be compared to what the boffins think it coud be?

  • 21again
  • 8 days ago

@21again

The LR-VDSL2 trials have been extended to more sites. There was an update on this very site just two days ago.

https://www.thinkbroadband.com/news/7711-more-lr-vdsl-as-openreach-stretches-its-legs-on-lr-vdsl

As to whether it will work, then I'd bet the forecasts on reach are pretty accurate as this is, by now, technology and it's a matter of tweaking power masking and frequency plans to make best use of the expanded bandwidth from use of the ADSL frequencies. It's not a long term solution, but a valuable, quick to deploy and cheap one.

  • TheEulerID
  • 8 days ago

@21again

To put the costs of connecting other services in perspective, there's a whole series of them on this thread and these seem to be relatively straightforward examples. Some of those costs are still eye-watering.

http://www.greenbuildingforum.co.uk/newforum/comments.php?DiscussionID=9466

  • TheEulerID
  • 8 days ago

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