Ofcom to regulate BT Wholesale broadband pricing
January 15, 2015 | 12:31
Companies: #bt #ofcom #openreach
Communications watchdog Ofcom has announced new measures to promote competition in the broadband market, forcing BT to maintain a set margin between its wholesale and retail prices in order to give its rivals a hope of competing.
A draft regulatory condition announced this morning by Ofcom would force BT to have a set margin between its retail and wholesale prices to offset its position as de facto communications monopoly in the UK. At present, BT is free to set its wholesale and retail pricing to any level - meaning it can, should it so choose, buy its own wholesale products at a massive profit and then sell them at a small loss at retail. Its competitors, by contrast, would be forced to pay the same high-margin wholesale fees as BT, then put its own profit requirements on top of the retail price - giving BT a clear pricing advantage.
'We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA [Virtual Unbundled Local Access] and retail superfast broadband prices,' Ofcom explained in a statement on the matter this morning. 'Our approach is designed to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers. It also continues to provide BT with pricing flexibility for VULA that preserves its investment incentives in relation to superfast broadband.'
BT has, naturally, argued against the need for such regulation, but Ofcom's report (PDF warning) has considerable feedback suggesting its competitors would - unsurprisingly - welcome the move.
Ofcom has notified the European Commission of its plans, opening the move up for comment. With the notification process complete, Ofcom will work to address any comments received then publish a formal statement to bring the new rules into effect. The new rules are expected to come into effect in March and remain in place until 2017, when Ofcom's regulations will be reviewed once more.
A draft regulatory condition announced this morning by Ofcom would force BT to have a set margin between its retail and wholesale prices to offset its position as de facto communications monopoly in the UK. At present, BT is free to set its wholesale and retail pricing to any level - meaning it can, should it so choose, buy its own wholesale products at a massive profit and then sell them at a small loss at retail. Its competitors, by contrast, would be forced to pay the same high-margin wholesale fees as BT, then put its own profit requirements on top of the retail price - giving BT a clear pricing advantage.
'We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA [Virtual Unbundled Local Access] and retail superfast broadband prices,' Ofcom explained in a statement on the matter this morning. 'Our approach is designed to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers. It also continues to provide BT with pricing flexibility for VULA that preserves its investment incentives in relation to superfast broadband.'
BT has, naturally, argued against the need for such regulation, but Ofcom's report (PDF warning) has considerable feedback suggesting its competitors would - unsurprisingly - welcome the move.
Ofcom has notified the European Commission of its plans, opening the move up for comment. With the notification process complete, Ofcom will work to address any comments received then publish a formal statement to bring the new rules into effect. The new rules are expected to come into effect in March and remain in place until 2017, when Ofcom's regulations will be reviewed once more.
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