Ofcom has finalised a set of rules to promote competition and investment in superfast broadband markets by monitoring and controlling the margins BT maintains between its wholesale and retail broadband charges.
The comms regulator first set out plans to bring in such a rule in January 2015, saying its changes would allow other internet service providers (ISPs) to match BT’s retail broadband pricing profitably.
As the largest broadband retail provider and national incumbent, BT must let other ISPs use its network to sell broadband to consumers. This process is known as virtual unbundled local access (VULA).
Ofcom claimed that applying these rules would let BT maintain its current flexibility to set wholesale fibre prices while giving it an incentive to invest in fibre roll-out.
At the same time, it said, it would make sure BT could not adjust its prices such that other ISPs would no longer be able to compete profitably.
Ofcom said there was nothing to show BT was not playing fair, but a safeguard was needed to limit the incumbent’s ability to reduce retail margins, and ensure that any increases in BT’s costs would be reflected in its pricing. This would include costs associated with BT Sport.
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BT voices regulatory concerns
Following a review of its earlier proposals by the European Commission – which said BT should be allowed more flexibility to recover its sports costs over a longer period – Ofcom will apply an amended version of its proposed economic replicability test on BT.
BT said the amendments proposed to the original proposals did not adequately reflect its concerns, and it would consider its future options.
“We are not opposed to the principle of a margin squeeze test – and in fact Ofcom has confirmed that we currently pass the test. The proposed test is however flawed and, among other things, fails to recognise that BT is a new entrant in the pay TV market. The effect is to provide unwarranted regulatory protection to the likes of TalkTalk and Sky,” said a BT spokesperson.
BT argued that UK communications regulations were becoming alarmingly lopsided, and said there had been too little action to address, for example, Sky’s dominance in pay TV services.
Competitors call for further action
Rival TalkTalk welcomed the amended proposals as an essential step towards creating a fair and competitive market.
“We doubt whether this will initially lead to lower prices for consumers, and we look forward to seeing the first compliance report when it is submitted to Ofcom before June, and hope that will create the necessary pressure to make the market more competitive,” said a TalkTalk spokesperson.
The ISP stuck by its previous calls to fully separate Openreach from BT, which it claimed would help create a more effective regulatory environment around digital services and, ultimately, would lead to more investment in fibre, healthier competition and lower costs for consumers.