Ofcom demands BT Openreach price cuts

Ofcom has decided that it’s about time it cut the wholesale rates that BT Openreach can charge.

Experts have said that if the proposals go ahead then it’ll boost competition as well as result in savings for broadband and home phone customers.

Openreach manages BT’s network and charges other providers for the use of its facilities. The proposed changes will mean that other telcos rental costs, including Sky and TalkTalk who rent BT’s lines, could be reduced by up to 10 percent per annum.

Ofcom has put forward two ways in which BT’s competitors can cut the cost of their services.

Firstly, it has recommended Local Loop Unbundling, which ultimately allows BT’s competitors to place their own equipment in local BT exchanges.

The second option is what is known as Wholesale Line Rental, which gives BT’s competitors the option to rent lines from Openreach, with the price of such rental to drop by 3.1 to 6.1 percent per year.

Ofcom pointed out that currently the number of ‘unbundled’ lines has increased from 123,000 in September 2005 to 7.59 million today and there are 6.14 million WLR connections in the UK, enabling a range of communications providers to offer landline and broadband services.

According to uSwitch, this is the third time Ofcom has taken BT Openreach to task over its charges.

Ernest Doku at uSwitch said that the provider is “a dominant force in the market” and it is therefore imperative that the right regulations are put in place in order to ensure it does not “have free reign to dictate prices broadband providers are charging their customers.”

He said that if the proposal is successful Openreach will be forced to charge its wholesale customers less. By cutting the costs to providers, we will see benefits as cuts will be evident on broadband and home phone bills.

In a statement, BT claimed that it invested “more than any other company in the UK’s communications infrastructure.”

It argued that this makes it “critical that it [was] able to achieve a fair rate of return in order to continue its investment in copper and fibre-based services.”

“Upon initial review, we are encouraged by Ofcom’s recognition of this fact, but would question some of the underlying assumptions being used,” it added.

A consultation process is now underway which should be resolved by 9 June.

However, it’s not just OpenReach cuts Ofcom has announced. In a move that should surely show BT that cuts are occurring everywhere, the watchdog has announced that it will see a cut in its budget for 2011/12 too.

The cut follows an Ofcom programme launched in early 2010 to identify significant expenditure savings in response to the challenge facing the public sector more generally.

Other factors taken into account were Ofcom’s track record of reducing its budget year-on-year, which it claims helps “reduce its burden on taxpayers and stakeholders.”

According to the statement Ofcom will reduce its total budget by 28.2 percent by 2014/15 with the majority of cuts being made this year.

It said as a result the 2011/2012 budget will be £115.8 million, a 22.5 percent reduction of £26.7 million.

“Savings will be made across a wide range of Ofcom’s expenditure while maintaining Ofcom’s capability and effectiveness,” it said.