UPDATED: BT told to cut wholesale rural broadband prices

Ofcom has told BT to reduce its wholesale prices for broadband in rural areas where it is the only provider.

BT will have to cut its prices by 12 per cent, with the charge controls coming into effect by mid August, Ofcom said today.

The changes mean other ISPs could bring more options to end users in areas where BT is the sole provider. Ofcom believes the decision will benefit competition, in turn bringing better value broadband to end users.

"Ofcom expects these price cuts to generate more competition between retail ISPs and to lead to cheaper retail prices which will benefit consumers," the regulator said in a statement.

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

Ofcom said the changes could benefit around 3 million homes and businesses in rural regions.

"Ofcom expects the level of the charge control to incentivise efficient investment by ISPs to roll out their own networks in these areas and enable them to compete with BT Wholesale," the regulator added.

"It will also incentivise BT Wholesale to upgrade services where it is efficient to do so."

In December 2010, Ofcom announced it would set a cap on the amount BT could charge for its wholesale product in an attempt to encourage competition.

In January, the regulator proposed wholesale price cuts of between 10.75 per cent and 14.75 per cent below inflation.

BT said the impact of Ofcom's decision today would be almost insignificant in terms of material impact on the telecoms giant.

"The impact on BT Wholesale will be non-material," a spokesperson said.

"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. This ruling is therefore of more relevance to those ISPs who currently charge a supplement in rural areas".

Michael Phillips, product director at Broadbandchoices.co.uk, questioned how much of an impact the cut would have.

"The reality is that a 12 per cent reduction in prices will have limited impact. The economics of serving rural broadband customers means that they already fork out an additional 10 per month over their conurbation-dwelling counterparts if the local exchange has not been enabled by LLU providers," Phillips said.

"I would also question the quality of the service they are currently receiving as Ofcom's recent broadband map of the UK highlighted how huge swathes of the UK countryside are enduring poor connection speeds. If the UK is to be taken seriously as a tech economy, the government needs to dedicate time and resource to bringing the whole of the UK into the online age."

Virgin today announced its 100Mbps service is now available to a quarter of UK homes.

Meanwhile, the rollout of fibre broadband to the UK could be hampered by squabbling over infrastructure, as found by a recent IT Pro report.

UPDATED Virgin has added its two cents to the debate, saying the Ofcom ruling is not the answer for securing the long-term future of rural broadband.

"These changes, which apply to areas of the country where BT is the sole infrastructure owner, are not the long term solution to the inherent problems of broadband in these rural areas," a Virgin spokesperson told IT Pro.

"Here we need more than just patching up the aging existing network, but a game-changing alternative."

The ISP cited Fujitsu's proposal to invest in a new "future-proofed fibre optic service" as an example of what kinds of radical moves it believed were required.