Ofcom to regulate BT's fibre broadband profit margin
Ofcom is proposing to regulate BT’s profit margins on fibre broadband (FTTC) connections, so that rival providers are able to compete with BT on price yet still make a profit.
The watchdog wants to ensure that BT's retail division maintains a large enough retail profit margin that rival providers such as Sky can undercut BT's prices and still make money.
The news will likely mean that businesses benefit from cheaper fibre broadband deals. Rival providers will have the confidence to market FTTC (Fibre to the cabinet) services more aggressively, secure in the knowledge that BT can't just drop its retail margins to levels that makes reselling FTTC unattractive.
Suppliers offering FTTC have to pay BT's infrastructure division (Openreach) for much of the underlying connectivity. In addition to these costs, rivals need to cover their customer costs and market their services to attract new customers. If BT were to cut its retail prices to levels that makes it hard for rivals to make a profit, most smaller providers would exit the market, resulting in rapid market consolidation and a substantial reduction in competition. Ofcom’s decision to regulate BT's retail margin is likely to mean a fall in BT's share of the fibre broadband market.
Ofcom's proposal will be reviewed by the European Commission. OFCOM hopes to be in a position to enforce the new rule from March 2015.
TalkTalk has said that it is “delighted” with Ofcom’s actions. The company told IT pro: “They [Ofcom] are right to be concerned that BT could abuse its position to undermine competition in superfast broadband. Robust regulation creates a more competitive market that better serves consumers and small business.
OFCOM's ruling is good news for consumers, however not all businesses will benefit, as FTTC is only available in cases where the local cabinet has been upgraded to support it.
Many businesses require faster connections than ADSL can provide, but find that FTTC isn't available in their area. These businesses may have other options, include EFM (ethernet first mile) leased lines. These are available to around 82% of business premises. In areas where EFM isn't available, fibre leased lines will usually offer an alternative, as well as higher connection speeds. To get an instant cost for an EFM or fibre leased line at your location, visit our online leased line price checker.
(Image: Luis García)
