Ofcom are to look into if BT have been abusing their dominant position with superfast broadband after a recent complaint from rival TalkTalk claimed they were building a monopoly and using their dominant position when setting prices for fibre optic broadband.
Ofcom, the UK telecoms regulator have launched the competition inquiry after they thought that there was reasonable suspicion that BT have been price fixing with it’s fibre broadband lines. The complaint last month from TalkTalk was for an investigation to be done into the wholesale prices that BT Openreach charge rival providers for using their network, they complained that “BT has failed to maintain a sufficient margin between its upstream costs and downstream prices, thereby operating an abusive margin squeeze.”
The prices charged to the 80 or so rival broadband providers who use the BT network are the same as BT Retail also pay and it has only been TalkTalk who have raised a complaint.
This was not the only beef that TalkTalk had with BT, they also questioned about the money the government are giving to BT under the BDUK scheme and saying that they are helping them create a monopoly.
A BT Spokesman said:
“We are confident there is no case to answer. It would be better if the industry’s, and Ofcom’s, focus was on investing in the future of the country rather than on spurious actions designed to hold up fibre in the UK.“
Ofcom have told BT that they can’t raise the wholesale prices of it’s broadband and landline services to help cover the pension costs that BT are having to pay.
BT are having to pay in the region of £5.2 billion per year in pension contributions with this to rise to around £5.8 billion in a few years. BT wanted to help fund it’s pensions deficit by charging the companies who use it’s equipment on a wholesale level more, but Ofcom have stood by their current approach and refused to allow BT to charge more for wholesale access.
An Ofcom statement said:
“Ofcom sets the prices that Openreach, BT’s wholesale access division, can charge other communications providers to deliver services to consumers. Regulatory controls also apply to certain other services provided by BT Wholesale such as leased lines*.
BT’s pension deficit contributions have increased in recent years and Ofcom has considered whether there are good reasons for changing the way that it currently treats BT’s pension costs. At present Ofcom allows for ongoing pension service costs, as reported in BT’s statutory accounts, but excludes payments made by BT in respect of any pension fund deficit.
After considering the evidence, including responses from stakeholders, Ofcom has decided to maintain its current approach.“
BT are going to have to lower the charges that are put on rival broadband providers for accessing their phone and broadband lines according to a court ruling.
In May 2009 Ofcom put in price caps that BT could not charge more than to rivals wanting to access their network, however a “Competition Appeal Tribunal” yesterday in London came to the decision that these price caps were too high and needed lowering. They said that Ofcoms calculations that took in inflation and efficiency were not correct and that they should get new lower price caps done ASAP.
TalkTalk and BSkyB had gone to the Competition Commission who was in support of their claims even though BT said that the price cap that was imposed last year was too low for them already to be able to recover their costs, so this new ruling will no doubt be an even bigger blow to BT.
Officials from BT said that any adjustments that are made by Ofcom should only be small because the errors that were made by Ofcom were smaller than what rivals such as TalkTalk had argued in court. It is believed that the final adjustment will be in the region of £4 million pounds.
BT Openreach is the sector of BT that deals with allowing rivals to use their equipment which includes the new fibre optic broadband network they are installing (BT Infinity). BT are investing £2.5 billion in their new fibre network and want to make sure that they can make enough back from their investment which includes the charges they will give to rivals for accessing the new fibre lines.
TalkTalk the UK broadband provider could launch it’s own fibre broadband network according to Charles Dunstone, the Chief Executive of the Carphone Warehouse.
Mr Dunstone told the Financial Times that they are looking into the feasibility of TalkTalk launching it’s own fibre optic network possibly by even joining up with a rival broadband provider to fund install it.
The talk comes after it is believed that TalkTalk are one of the broadband providers who are not happy about the proposed agreement from BT Wholesale for using their new fibre network and claim that it does not give them enough scope for their own innovation.
BT are investing around £1.5bn in their new fibre optic network, and have called it BT Infinity and have already started rolling out and hope to have it available to 10 million UK homes by 2012.