Ofcom Demands Rural Broadband Price

Ofcom has cut the wholesale price that BT charges Internet Service Providers (ISPs), in a move that should see a fall in monthly broadband bills for those living in rural areas.

Ofcom made the decision to “significantly reduce the prices” BT Wholesale can charge ISPs in parts of the country where it is the sole provider of wholesale broadband. It should be noted however that the reduction only affects broadband services of up to 8Mbps.

According to Ofcom, the price reduction will be 12 percent below inflation per year and will apply to services provided using BT’s wholesale broadband network.

Growing Digital Divide

Ofcom hopes these price cuts will generate more competition between retail ISPs and to lead to cheaper retail prices.

It also feels these changes may also lead to better quality services by enabling ISPs to allocate more bandwidth per customer which could deliver faster broadband services.

At the moment rural broadband users in the UK are facing three headaches.

Firstly the BT telephone exchanges that service rural areas are less likely to have other ISPs offering LLU (local loop unbundling), because the population density in the countryside makes them economically unattractive.

This means that rural users usually have to opt for BT’s wholesale broadband service, from whichever ISP they choose. And until now, BT has been able to charge higher rates in these areas. Ofcom hopes its decision will encourage more ISPs to invest their own equipment in these rural exchanges.

The second headache for rural users is the fact that they are being left in the broadband slow lane, the so called “digital divide” between urban and rural areas.

Rural users are often located further away from their telephone exchange compared to their urban cousins, and consequently have to cope with much slower broadband line speeds. City users may argue that they have to deal with worse contention ratios, but urban exchanges are often better equipped to deal with these problems.

And this leads onto the third headache, namely fibre.

Many rural areas are likely to miss out on BT’s fibre deployment, precisely because of the above population density argument. After all, BT is a commercial organisation and has to “cost justify” its expenditure to its shareholders.

Yet the dilemma is that fibre offers a much better way to bridge this “distance gap” between the rural telephone exchange and the typical rural residence. That said, fibre deployments are not cheap, and therefore BT is unlikely to invest in more rural locations.

Copper Slow Lane

Most rural users are thus currently connected to a copper-based network.

Rural users were buoyed by BT’s announcement in April that is extending the rollout of ADSL2+ over its copper based network, which should translate to faster broadband  for 80 percent of the country.

But unfortunately Ofcom is exempting ADSL 2+ technology from these charge controls. Ofcom believes this decision “should encourage BT Wholesale to invest in this new technology where it is cost effective to do so,” but of course in reality this does little to encourage a fibre deployment in a rural location.

ADSL 2+ offers the chance for those users stuck on a copper-based network to gain access to slightly faster broadband speeds than conventional ADSL, with maximum possible speed of (upto) 24Mbps, compared to the (upto) 8Mbps for ADSL users.

BT Reaction

BT felt that Ofcom’s decision will not impact BT Wholesale greatly, and insisted that the higher prices in rural areas was down to ISPs, not BT.

“This outcome is in line with the proposals that were widely reported on earlier this year,” BT told eWEEK Europe UK in an emailed statement. “The impact on BT Wholesale will be non-material.”

“Unlike many other providers, despite the higher costs involved, BT Retail’s consumer broadband products have always been priced the same in rural areas as in urban areas,” it added. “This ruling is therefore of more relevance to those ISPs who currently charge a supplement in rural areas.”

But the Ofcom decision has been welcomed by some  countryside campaigners.

“People living in the countryside have been left behind in the digital divide for far too long and it is vital that they have effective and affordable broadband if their rural economies are to grow and prosper,” said a Countryside Alliance spokesperson told the BBC.

Expert Reaction

And Ofcom’s decision has also been endorsed by some analysts.

“Ofcom’s charge control decision is good news for consumers living primarily in rural areas,” said Ovum lead analyst Matthew Howett. “These are parts of the country where only BT is present, largely because of the comparatively higher cost of providing service to these customers. As a result, Ofcom has intervened to stimulate competition by reducing the amount internet service providers have to pay BT.”

“Ofcom expects this reduction at the wholesale level to be passed onto the consumer in the form of lower retail prices,” Howett added. “Alternatively, internet service providers may be in a position to offer faster broadband services to these customers as they will be in a position to rent more capacity from BT.”

“Elsewhere in the country BT faces competition from a number of alternative operators who have unbundled the local loop,” he concluded. “As a result of this competition, charge controls on BT have been relaxed in these areas. By exempting faster broadband speeds from the new charge controls should act to incentivise BT to invest in new technologies to deliver faster speeds which is set to further benefit consumers living in more rural areas, and helping to reduce the digital divide.”

Stalking Horse Fujitsu

Earlier this week an Ofcom survey showed that 14 percent of customers in the UK with fixed broadband connections receive speeds of less than 2Mbps. The Government has set itself the target of providing the whole country with at least 2Mbps broadband by 2015.

Meanwhile earlier this year Fujitsu revealed that it is seeking government money to create a fibre network for rural areas.

Both Virgin Media and TalkTalk, who are currently clashing with BT over its charges for access to its telegraph poles and ducting, have pledged to offer services on it if Fujitsu’s bid is successful.

Ofcom expects the charge controls to come into effect by mid August 2011. However it remains to be seen how soon ISPs will follow and reduce the monthly broadband bills for rural customers.