Ofcom are to look into if BT need to reduce the price of their wholesale superfast fibre optic broadband prices after claims that they were charging rivals too much for use of their network.
In May last year TalkTalk complained to Ofcom that BT were abusing their dominant position when setting prices for wholesale fibre optic broadband and now a report in the Financial Times claims that the communications regulator will launch a consultation into the price’s of BT’s wholesale fibre optic pricing which is to be done before the end of May.
Redburn Partners, who are an equities partner told the Financial Times that:
“We think Ofcom’s margin squeeze test could reduce BT wholesale fibre prices by at least £2 per month initially, with ongoing monitoring potentially leading to further cuts.”
BT are naturally not going to be pleased with Ofcom doing their investigation, especially if it does result in Ofcom agreeing with TalkTalk’s complaints and making BT Openreach reduce the wholesale prices if charges competitors for access to its fibre network.
BT has for the first time topped the complaints chart for broadband services in a report compiled by Ofcom, and it will have been a double blow for them as their big rivals Virgin Media received the fewest complaints.
Ofcom are the communications regulator and they report down all the complaints that they receive for broadband, telephone, mobile phones and pay TV. It was the first time that BT has been the most complained about broadband provider as a proportion of their customer base and it was the twelfth quarterly report produced by Ofcom.
BT received an average of 0.32 complaints per 1,000 (or 32 complaints per 100,000 customers) during Q4 2013 followed by EE with 0.29 and then TalkTalk with 0.21. The industry average was 0.17 and there was only Sky (0.08) and Virgin Media (0.07) who were below the industry average.
BT’s complains in general related to service faults and the way that complaints were handled.
The positive side to this is that this figure is down from Q3 2013 when they received 0.41 complaints per 1000.
Previous to Q4 2013 it was EE who had topped the charts for the previous 5 quarters with 0.45 per 1,000 in Q3 2013 and so again the positive side to this is that this meant that they had improved by reducing their complaints down to 0.29 per 1,000 in the 3 months that followed.
What should be noted is that only the big broadband providers who have a market share of 4% or above and receive more than 30 complaints a month are included so just because some of the smaller ISPs are not included in the report does not necessarily mean they don’t get complained about very much.
Virgin Media will have been pleased to continue their usual good record of very few complaints, even more so they will be enjoying the fact that BT Broadband, their big rival in the fibre broadband sector were the most complained about, how long before we see this as another marketing stick being used by Virgin to beat BT with.
Broadband providers have been challenged to make switching broadband providers easier for consumers and for them to work with Ofcom to help make this possible.
Ed Richards, the Chief Executive of Ofcom, said in a speech at “Consumers and Citizens in the Communications Sector” conference yesterday (Monday 16th September) that despite the UK having one of the most competitive communications markets in the world that consumers were still not able to take full advantage of it because of the difficulties and process involved with moving between broadband providers.
Initially what is to be done to help make the switching process simpler for broadband providers who use the BT Openreach network is for the broadband provider who is “gaining” the new customer takes control of the switch and processes the transfer for the customer. They will do the work with the “losing” provider to get the customer switched over as quickly and easily as possible. Although this is a start, Mr Richards wants further actions to be done to make the process even simpler and remove any other issues that consumers face such as switching between different bundles and different networks (for example from a BT Openreach network provider to the Virgin Media network).
In his speech, Mr Richards asked of broadband providers:
“…to transform switching; to remove the inconvenience, delays and uncertainty that currently can bedevil consumers when trying to change their provider.”
He also said:
“a system that enables consumers to take advantage of the increasing competition and innovation available“.
Many consumers pay far more than they need to for broadband and communications bundles because they don’t switch, it is recommended after each time that the current deal reaches the end of its contract for consumers to shop around and see if there are any other deals that would work out more beneficial to them.
Broadband and telephone bills could reduce even more if proposals from Ofcom go ahead that will see further reductions in the wholesale rental prices that BT Openreach charge to rival suppliers who use their network.
Currently rival providers pay up to £93.27 per year to rent the copper wires that are used to bring telephone and broadband services to around three quarters of UK homes but Ofcom is hoping for consumers to see real price reductions with their proposals which could see line rental charges reduced for customers.
The actual proposed price changes would be set to run for 3 years and be linked to inflation. Ofcom ar elooking for them to start next year on the 1st April 2014 and run until 31st March 2017.
The price changes take in fully unbundles lines, shared unbundled lines and wholesale line rental. The suggested pricing changes are as follows:
- Fully unbundled lines: the regulated wholesale price for this service today is £84.26 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 0% and CPI ? 6% every year;
- Shared unbundled lines: the regulated wholesale price today is £9.75 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 8% and
CPI ? 12% every year;
- Wholesale line rental: the regulated wholesale price today is £93.27 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 2% and CPI ? 8% every year.
It should be noted that these reductions are only set to be for BT’s copper network and not their new superfast fibre optic broadband network that is currently undergoing a nationwide deployment.
Line rental charges are what bump up many monthly costs with broadband and phone packages. For example currently people can take out Plus.net broadband and phone half price off for £2.99 per month for 12 months but on top of this there is then a £14.50 monhtly line rental charge.
Ofcom have announced new lower prices that BT Openreach can charge to rival communications providers for access to their network.
The proposed new prices were suggested by Ofcom in February this year and have since been sent to the European Commission for approval as is now required. The European Commission made no changes to the price caps recommended by Ofcom which are now due to come into effect on 1st April 2012. The reason BT have their prices regulated by Ofcom is because of BT’s market power being so great in the UK.
The new prices imposed are as follows:
Fully Unbundled line (where a rival communications provider has installed their own equipment and take control of the BT line) previously cost £91.50 per year and this has been reduced to £87.41 per year.
Part unbundled line (where a rival provider only supplies the broadband) was £14.70 and has been reduced to £11.92 per year.
Wholesale line rental (where a rival communications provider can offer telephone services by renting the lines from BT Openreach) previously cost £103.68 per year has been reduced to£98.81 per year.
The new prices will come into effect on 1st April 2012.
However, despite Ofcom having had their new prices approved it is thought that BT could make an appeal against the price reductions with BT claiming that they need to make a decent return on their investment to be able to continue investing in their infrastructure in the future.
MPs from different parties yesterday called on Ofcom to make the requirement of the 800MHz mobile broadband spectrum to be available to 98% of the UK, up from the 95% figure that is currently being attached to it ahead of it being auctioned off next year in a plea to help a further 2 million rural people who live out of range of high speed broadband connections.
The current target of 95% coverage that is being attached to it would leave around 6 million people without the 4G mobile broadband access which works well over long distances and works well for those living in rural and more remote areas to get a reliable internet connection.
MPs claim that Ofcom is putting money before coverage by saying that Ofcom are worried about losing money from the auction as the mobile broadband providers may not pay as much for the 800MHz spectrum if they are required to extend the coverage from 95% to 98% of the country.
Ofcom will finish their consultation stage of the auction at the end of this month and once this is done the terms that will be attached to the new 800MHz spectrum will be decided. Ofcom are unlikely at this late stage to increase to required coverage from 95% of the population. The estimate cost to increase from 95% coverage to 98% coverage is around £215 million with this figure potentially lowering the final sale price of the spectrum.
In future however if the government need to go to the winners of the auction and request that coverage is extended then they will be having to pay for this as apposed to it being done by the companies own costs now.
The price of home phone and broadband services could be set to come down after Ofcom, the telephones regulator, look to reduce the wholesale prices charged by BT Openreach.
Openreach are the wholesale division of BT and are responsible for charging other providers access to the BT network and the wholesale price charged to some broadband providers could be reduced by up to 10% per year which will benefit broadband providers such as Sky and TalkTalk.
Two of the ways in which rival broadband providers can get access to BTs network are both set to have the prices reduced, the first is through Local Loop Unbundling, this is where rival providers are able to install their own equipment into the local BT telephone exchange and take control of a customers line, these prices are set to drop by between 1.2% and 4.2% every year if Ofcom gets its way. In instances where the telephone line is shared the price is set to be reduced by 11.6%-14.6% each year with the current price charged being £89.10 per year.
With around 7.6 million unbundled lines in the UK this will mean that there is a lot of people who will benefit from these reductions.
The other way rival providers access BTs network is through Wholesale Line Rental (WLR) which is where the rival providers are simply renting the line from BT. There are around 6.1 million WLR line in the UK and Ofcom are looking to see yearly reductions in price of between 3.1%-6.1% with the price for this currently set at £103.68 per year.
A statement from BT had the following to say:
“BT invests more than any other company in the UK’s communications infrastructure, so it is critical that it is 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.“
Ofcom are looking to change the process for switching broadband providers to make it easier and more hassle free for consumers.
Ofcoms research found that 45% of consumers with a broadband or landline think that switching their broadband or telephone provider is too much hassle. Of those people who have switched broadband provider by using the Migration Authority Code (MAC), 39% of them felt that it was too much hassle when going the change.
22% of those who switched broadband providers by using the Notification of Transfer process felt that this was too much hassle.
What Ofcom are proposing is that the broadband or communications provider who will be gaining the new customer should take the lead role in switching would give better results for customers as it would be in the interest of the gaining provider to get the switch done as quickly and smoothly as possible, however there would need to be measures in place to stop “slamming” occurring, which is where customers get switched with out their consent.
Other factors which make it an even more complex process now is that half of consumers have more than one service in a bundle with one provider.
The speed of fixed line broadband has seen an increase of over 25 per cent in the last year in broadband speed test done by Ofcom.
After Ofcom conducted it’s own broadband speed test research in partnership with the broadband site SamKnows the results showed that broadband speeds on average were raised from 4.1Mb to 5.2Mb.
This speed increase comes as broadband providers continue to try and offer customers faster and faster broadband speeds, a statistic which is proved with the fact that in April 2009 just 8% of broadband users fixed line connections were advertised as above “up to” 10Mb, with that figure now raised to 24% on services offering above “up to” this speed.
With these increasing advertised headline speeds comes the fact that although on average broadband speeds have increased there is a growing gap between what users are advertised as their “up to” speed and what they are actually receiving.
In April 2009 the average advertised “up to” speed was 7.1Mb with the actual average broadband speed customers received being 4.1Mb which meant that users were receiving 58% of the advertised speed.
However, in May 2010 the average advertised broadband “up to” speed was 11.5Mb and the actual broadband speed customers received ion average was 5.2Mb which is just 45% of the advertised speed.
Unsurprisingly was the fact that Virgin Medias fibre broadband provided the fastest broadband, with the 10Mb and 20Mb which provided download speed around twice as fast as broadband packages offering similar headline speeds.
The fastest broadband speed was found to be on Virgin Medias 50Mb fibre broadband service which offered an average broadband download speed of 36Mb when done on a single thread test (when just 1 file is downloaded) and about 46Mb when a multi-thread test (when three files are downloaded at the same time which is more in line with how heavy broadband users use the Internet) was performed.
Ofcom performed some mystery shopping tests with the various UK broadband providers to check how many were following the “Broadband Speeds Voluntary Code of Practice” (COPBB), this is where customers are given a broadband speed estimate at the point of sale amongst other things.
For telephone calls, an average of just 43% were given the estimated broadband speed when signing up to a broadband provider over the telephone without having to ask for it.
O2 broadband led the way with 54% given this broadband speed without needing prompting, BT were at the opposite end of the sale in last position with just 28% of calls being given this information without needing to ask for it.
Customers who requested the estimated broadband speed they would receive changed who lead the way, with Plusnet providing overall 93% of lines with their estimated speeds through either voluntarily or requested broadband speeds.
The broadband providers who were included in the results were done so only when there was enough data to give an accurate conclusions and these included: Plusnet, Talk Talk, BT, Orange, O2, Sky and Virgin Media.
For those mystery shoppers who went online to do their research overall it found that 66% were given a broadband speed that was not the headline speed and 21% not able to get a broadband speed online from the broadband providers website.
Virgin Media came out worst in this test finding that they just gave their headline speed to 35% of website users and just 34% given a single figure and 30% not given any speed at all!
The Voluntary code is designed to try and make it clearer for new broadband subscribers what broadband speed that they are likely to receive when signing up to a broadband provider instead of just seeing the advertised headline speed which most users will not receive (unless they live pretty much next to the local telephone exchange).