British fixed line incumbent BT has been ordered by telecoms regulator Ofcom to reduce the wholesale prices it charges for broadband services in rural regions. The watchdog has said that, with the new charge controls due to come into force by mid-August 2011, a price reduction of 12% below inflation per year will apply to services using BT’s wholesale broadband network. The new price cap is expected to benefit around three million homes and businesses in some of the country’s most rural regions, including parts of Scotland, Wales and Northern Ireland, as well as the South West of England, Norfolk, Yorkshire, Cumbria and Northumberland. Ofcom claims the move could enhance competition between retail internet service providers (ISPs), which in turn may help lower retail prices for high speed internet services. In addition, the regulator has argued that the new caps may help narrow the difference in prices that consumers in rural and urban regions pay for broadband services; presently rural users often face a limited selection of offers, in turn raising costs for subscribers. Ofcom claims that with the new pricing structure in place broadband speeds in rural areas could also be improved. It said that with wholesale broadband costs reduced, ISPs should be able to buy more capacity for their respective customers without increasing their costs. Further, ADSL 2+ technology has been exempted from the charge controls, a move which Ofcom said should encourage BT to invest in the upgraded technology where effective to do so.
The regulatory decision comes on the back of Ofcom’s December 2010 revelation that it was lifting wholesale regulation in more areas of the country where it had concluded that broadband competition was working effectively for consumers. According to the regulator around 78% of UK households are now served by effective competition in mainly urban or densely populated areas.