15 January 2015
Ofcom has today notified new measures to promote competition and investment in the growing market for superfast broadband.
Under a draft decision notified to the European Commission today, a new pricing rule would mean that BT must maintain a sufficient margin between its wholesale and retail superfast broadband charges in order to allow other providers profitably to match its prices.
The new pricing rule would preserve BT’s current flexibility to set its wholesale fibre prices, which in turn provides an incentive for future investment by the company in its fibre network. At the same time, the rule would mean BT could not set prices in such a way that might prevent other operators from competing profitably for superfast broadband customers.
BT is currently the largest retail provider of fibre broadband services over its network, but is required to allow other operators to use its network to sell superfast broadband to consumers under a process known as ‘virtual unbundled local access’ (VULA).
The draft regulatory condition notified by Ofcom to the Commission would require BT to ensure that the margin between its wholesale VULA charges and its retail superfast broadband prices is sufficient for rival operators to compete and make a profit.
Ofcom’s indicative assessment* is that BT is maintaining a sufficient margin under the new draft rules. Therefore, the condition is a safeguard which limits BT’s ability to reduce retail margins in future, and ensures that any increases in BT’s costs must be reflected in its prices.
BT currently provides BT Sport free to its superfast broadband customers, and the new rules take into account the costs and revenues of these sport channels, as well as other elements included by BT in its retail superfast broadband bundles.
When Ofcom introduced the requirement for BT to allow other operators to use its upgraded fibre network, there were fewer than 100,000 superfast broadband connections on this network.
That number has now risen to around 3.4 million, with providers regularly offering speeds of up to 76 Mbit/s, and take-up is expected to increase further over the coming years. Looking ahead, industry and policy-makers are also considering how the next generation of ‘ultrafast’ broadband services - which will provide speeds around 1 Gbit/s - can best be achieved. This may involve further investment to upgrade the infrastructure currently used to provide superfast broadband.
Today’s draft decisions are aimed at ensuring that different operators can compete in the developing broadband market in years to come, so that consumers benefit from competitive prices, network investment and high-quality, innovative services.
The measures are subject to review by the European Commission. Following this review, Ofcom expects to publish a final statement in February 2015. The new regulatory condition would commence from the beginning of March and remain in place until March 2017, when the current regulatory review period ends.
A statement on today’s draft measures is available online.
ENDS
* Ofcom’s indicative assessment of BT’s compliance with the draft condition uses data sources from a mix of years, so the assessment will not precisely reflect the current position.
