BT has revealed a massive cut in the prices it charges its rivals for using its broadband network, in an effort to avert a possible break-up of its business by Ofcom, the UK telecoms watchdog. The move will result in a short-term dip in revenues, but may well prove profitable in the long run.
Last month, Ofcom chief executive Stephen Carter attacked BT for overcharging rival telecoms operators to access the local loop. The local loop is the last mile of copper wire connections linking households to telephone exchanges, and the phone lines are used to supply high-speed broadband.
One of the options under consideration was a possible breakup of the wholesale and retail divisions of the former telecoms incumbent in the United Kingdom.
BT has responded with the announcement that it will cut by up to 70 per cent the prices it charges rival telecoms groups and ISPs to use its local exchange to reach their customers.
It said the initial cuts represent an overall saving of 35 per cent on current prices. From 1 June, it will reduce the monthly rental price for the existing shared local loop unbundling product from £4.42 to £2.26 per line. Connection fees will also drop from £117 to £83.33.
Rival telecoms providers have long alleged that BT's prices for providing access to its local loop have hampered broadband competition. France Telecom's ISP, Wanadoo, which also owns the popular Freeserve ISP in the UK, has been at the forefront of the campaign to get BT to reduce its prices.
Broadband prices in the UK are still expensive compared to Europe. In France for example, ISP access costs are five times cheaper than in the UK. According to one European Union report, the price of Internet access in the UK is up to £60 more expensive than the European average.
The move is bound to hit BT's revenues in the short-term, but in the long run could boost them, especially if Ofcom decides then to slash the amount of regulation surrounding BT. Meanwhile, whether BT's rivals decide to pass on the cuts in access costs to their users remains to be seen.