Rural parts of the UK could receive better value broadband services under proposals published by Ofcom today. Ofcom has proposed significant reductions in the prices that BT Wholesale can charge internet service providers (ISPs) in parts of the country where it is the sole provider of wholesale broadband services - mainly in rural areas. The proposed price reductions are between 10.75% and 14.75% below inflation. As a result, Ofcom expects competition between retail ISPs, who will benefit from the lower wholesale prices, to lead to reductions in retail prices which will benefit consumers. The changes may also lead to better quality services by enabling ISPs to allocate more bandwidth per customer which could deliver faster broadband services. This could benefit nearly 12% of UK households or around 3 million homes and businesses. These are mostly in rural areas including parts of Scotland, Wales and Northern Ireland as well as the South West of England, Norfolk, Yorkshire, Cumbria, Northumberland and other areas. In other areas of the country where there is some wholesale broadband competition delivered by local loop unbundling, Ofcom is not proposing any charge controls.
Ofcom's proposed charge controls could narrow the difference between prices that consumers in rural and urban areas are paying for broadband services. This difference is due to the absence of local loop unbundling* (LLU), the more limited set of bundled offers available and the higher costs of delivering broadband to customers in rural areas. Ofcom's aim is to incentivise BT Wholesale to continue to improve its efficiency. This could make it cheaper for other communications providers to roll out services and should ultimately benefit consumers in those areas through lower prices.
The charge controls could also improve broadband speeds in rural areas in two ways. If wholesale broadband costs are reduced, ISPs should be able to buy more capacity for their customers without increasing their costs. This could result in faster broadband for rural areas. Ofcom also proposes to exempt ADSL 2+** technology from charge controls. This should encourage BT Wholesale to invest in this new technology where it is cost effective to do so. ADSL 2+ is capable of supporting faster broadband speeds than ADSL, with maximum possible speed of 24 Mbps over the copper network.
Today's announcement follows a decision by Ofcom in December to lift wholesale regulation in more areas of the country where it concluded that broadband competition is working well for consumers. Today, some 78% of UK households are now served by effective competition in mainly urban or densely populated areas, following the continued success of LLU. This has increased from around 69% of households in May 2008.
Ofcom expects to publish a statement in the summer. The charge controls are planned to come into effect shortly after publication of the statement.
2. In December, Ofcom decided that charge controls were needed in parts of the country not served by wholesale competition. Today's consultation sets out proposed levels of charge controls. Ofcom's December statement on Wholesale Broadband Access can be found here.
3. *Local Loop Unbundling (LLU) enables operators to connect directly to the consumer by adding their own equipment in BT's exchanges to offer broadband and other services. Ofcom sets charge controls on Openreach for access to their copper network in this way.
4. **Asymmetric Digital Subscriber Line (ADSL) is a technology that turns an ordinary copper phone wire into a high speed digital line, capable of delivering broadband speeds of up to 8 Mbps. ADSL2+ is a further improvement on this technology which increases speeds to up to 24Mbps. 5. Under section 3 of the Communications Act 2003, Ofcom is required to further the interests of citizens and consumers, where appropriate by promoting competition.