Ofcom confirms BT broadband price margin rule

Following an assessment launched in January, Ofcom has confirmed a new measure it said will ensure good competition and encourage investment in the UK ‘superfast’ broadband market. Under the rule BT is obliged to maintain ‘sufficient’ margin between its wholesale and retail broadband network charges to avoid unfair competitive edge.

The UK regulator said that while the new obligation will preserve BT’s flexibility to set its wholesale fibre prices, it will also ensure others buying access to the ex-monopoly telco’s infrastructure can compete profitably in the retail market.

Rather than reacting to something taking place now, Ofcom said the rule, which has received the European Commission’s blessing, is a safeguard for future. “Ofcom’s indicative assessment shows that BT is currently maintaining a sufficient margin between wholesale and fibre prices under the new rule,” the competition watchdog said in a statement.

“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.”

Under existing rules BT, which owns and operates the UK’s largest fibre broadband network, is required to allow other service providers access to it under a process known as ‘virtual unbundled local access’ (VULA). The new measure will come into force from 1 April.

Ofcom also said it was taking into account BT Sport, which as a free service to all of the telco’s fibre broadband customers was feared to skew the market in its favour.  “…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 said.

According to the regulator, there were less than 100,000 fibre broadband connections on BT’s network when the VULA requirement was first introduced. Since then the number has risen to 3.4 million, and Ofcom claimed the new rules are needed to safeguard future investment to upgrade the network.

“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.”