Ofcom is attempting to clip BT’s financial wings by proposing to regulate the margins it banks from superfast broadband sales to consumers, essentially to prevent the firm from future profiteering and elbowing rivals out of the market.
The Brit telco monopoly is the largest provider of fibre broadband services over its network but is required to let rival operators use the infrastructure to sell their products in a process dubbed as virtual unbundled local access (VULA).
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“We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA and retail superfast broadband prices,” Ofcom stated.
In a draft decision sent to the European Commission today, Thursday, Ofcom defined the obligations to be imposed on BT, recommending a “new pricing rule” for the firm to maintain a “sufficient” margin between its wholesale and retailer charges.
The comms watchdog said the measure would stop BT from setting prices that might prevent other operators from turning a profit on broadband sales, but allows BT to “flexibly” set wholesale prices to give it an incentive to invest in its fibre network in the future.
There are now more than 2.4m superfast broadband connections, but there were only 100,000 when Ofcom told BT to open up its upgraded network to other operators.
According to Ofcom’s assessment, BT is already making sufficient margin under the draft rules, but said “the condition is a safeguard” to restrict the company’s ability to reduce retail margins in the future, and for any increases in BT’s cost to be reflected in its prices.
BT Sport is currently offered free of charge to subscribers of its superfast broadband services, and “the new rules take into account the costs and revenues of these sports channels, as well as other elements included by BT in its retail bundles".
A BT spokesman sent us a statement dismissing Ofcom’s plans as “misconceived but not unexpected”.
“It largely confirms the approach it outlined last year. We will now consider our response, which may include an appeal," said the statement.
In typical PR fashion, the spokesman missed the point of the pricing rule by saying BT passed the standard Competition Act test recently and will do so again when the new test comes into force.
“We’re not opposed to the principle of a test ... however, we do not think our sports costs should be part of any assessment and we reject the notion that Sky and Talk Talk require further regulatory assistance. They have more than 40 per cent of the broadband market between them, compared with BT’s 31 per cent'," the spokesman said.
“BT is trying to ensure real competition in pay TV sports for the first time in 25 years. Yet the UK’s lop-sided regulatory regime means Sky remains largely unregulated, while further hurdles are proposed for us, the pay TV challenger," the spokesman continued.
A Sky spokesman told us: “Ofcom’s action is welcome recognition of the competition problems that can prevent customers from getting the best choice and value in super fast broadband. As with any complex and untested regulation, Ofcom will need to be continually vigilant to ensure the remedy is effective when put into practice in a fast-moving market.”
In gloating mode, TalkTalk claimed the comms watchdog is 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 businesses”. ®