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Ofcom proposes new prices for landline and broadband services

12th July 2013 Print

Telephone and broadband customers could see lower prices as a result of changes to wholesale charges proposed by Ofcom.

The proposals relate to prices that Openreach, BT's network access division, can charge other telecoms providers for some of its main wholesale services.
These prices have historically been regulated by Ofcom because BT has been found to have ‘significant market power' in the delivery of these services. Last week Ofcom published the Fixed Access Market Reviews consultation, which found this still to be the case.1
As a result, Ofcom is proposing revised ‘charge controls' on some Openreach products. These controls would reduce wholesale charges, which could be expected to lead to real-terms price reductions for consumers, as communications providers pass on savings to their landline and broadband customers.
Competitive landline and broadband markets
The consultation covers wholesale charges for telephone and standard broadband services delivered to homes and businesses over BT's copper network in three ways:

A ‘fully unbundled' line to a property. This allows telecoms providers to provide broadband and telephone services to their customers by installing their own equipment in Openreach's telephone exchanges. A fully unbundled line means the provider assumes full control of the line;

A ‘shared unbundled' line to a property. Again, the telecoms provider uses its own equipment in the exchange and takes over a proportion of the line to provide broadband, while BT continues to provide the basic voice connection; and

Wholesale line rental (WLR), which is used by communications companies to offer voice telephone services to consumers using lines rented from Openreach.

These wholesale products underpin the competitive provision of standard broadband and landline services in the UK.

New prices for sustainable competition
The proposed new prices are designed to provide incentives to invest in networks while also ensuring that broadband and landline prices are affordable for consumers.
The prices would be set by charge controls linked to inflation (measured under the consumer price index, or CPI). This form of regulation provides an incentive for BT to make efficiency gains. Ofcom is consulting on the following charge controls on annual rental charges which would come into effect on 1 April 2014 and run until 31 March 2017:

Fully unbundled lines: the regulated wholesale price for this service today is £84.26 per year. Under Ofcom's proposals this will fall in real terms by between CPI - 0% and CPI - 6% every year;

Shared unbundled lines: the regulated wholesale price today is £9.75 per year. Under Ofcom's proposals this will fall in real terms by between CPI - 8% and
CPI - 12% every year;

Wholesale line rental: the regulated wholesale price today is £93.27 per year. Under Ofcom's proposals this will fall in real terms by between CPI - 2% and CPI - 8% every year.

These proposals are subject to further work by Ofcom on quality of service and fault levels on BT's copper network. Ofcom will consult further later in the year should that work suggest any need to modify these proposals.

Competition continues to grow
Ofcom has also published a consultation on the Wholesale Broadband Access review, which considers competition in the market for wholesale broadband products that telecoms operators provide to themselves and sell to each other.
Since the last such review in 2010, competition has spread to more rural areas as communications providers have rolled out their own networks, based on unbundling BT's lines, to smaller telephone exchanges. Ofcom has found that the area of the UK with effective competition has grown in the last three years from 78% to 90%.
Ofcom is proposing no regulation in this competitive area, but to impose regulation including a charge control on BT's services in the less competitive remaining 10% of the UK.
The consultations on the Wholesale Broadband Access Review and Approach to Setting LLU and WLR Charge Controls both close on 25 September 2013. Ofcom aims to publish a statement on its final decisions in spring next year.