New rule for competition and investment in superfast broadband
Ofcom today confirmed a new measure to promote competition and investment in the growing market for superfast broadband.
From 1 April, a pricing rule will mean 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 rule preserves BT’s current flexibility to set its wholesale fibre prices, which in turn provides incentives for future investment. At the same time, it means BT will not be able to 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).
Ofcom’s indicative assessment* shows that BT is currently maintaining a sufficient margin between wholesale and fibre prices under the new rule. The rule is therefore 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 is a relatively new entrant to the sports content market. The company currently provides BT Sport free to its superfast broadband customers, and the new rule takes into account the costs and revenues of these sport channels, as well as other elements included by BT in its retail superfast broadband bundles.
Ofcom is confirming the new rule following comments received from the European Commission. In light of these comments, Ofcom has clarified in today’s statement how, when assessing BT’s compliance with the rule, it will take account of changes to how BT distributes and charges for sport content, such as Champions League football.
A growing market
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 more than 3.7 million, with providers regularly offering speeds of up to 76 Mbit/s, and take-up is expected to increase further over the coming years.
Industry and policy-makers are also considering how the next generation of ‘ultrafast’ broadband services - which will provide speeds up to 1 Gbit/s - can best be achieved. This may involve further investment to upgrade the infrastructure currently used to provide superfast broadband.
BT announced in January that it is testing technology for delivering ‘ultrafast’ broadband speeds, with a plan to roll out to most of the UK within a decade. The following month, Virgin Media said it plans to extend its network to around four million new premises over the next five years.
Ofcom’s decision today is aimed at ensuring that different operators can continue to invest and compete in the developing broadband market in years to come, so that consumers benefit from competitive prices and high-quality, innovative services.
The new regulatory condition will apply from 1 April 2015.
A statement on today’s decision is available online.
NOTES FOR EDITORS:
* The data used in the indicative assessment of BT’s compliance with the condition has been updated since Ofcom’s draft statement. The assessment uses data sources from a mix of years, so will not precisely reflect the current position.
- Ofcom’s principal duty under the Communications Act 2003 is to further the interests of citizens in relation to communications matters, and to further the interests of consumers in relevant markets, where appropriate by promoting competition.
- Today’s statement forms part of Ofcom’s Fixed Access Market Reviews, which in June 2014 found BT to have significant market power in the wholesale local access market, and in relation to which Ofcom has found there to be no material change.
- Ofcom’s new VULA pricing rule forms part of the suite of ex ante remedies that Ofcom has put in place to address BT’s significant market power. In imposing this rule, in accordance with section 88 of the Communications Act 2003, it appears to Ofcom from its analysis in the Fixed Access Market Reviews that there is a relevant risk of adverse effects arising from price distortion.