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This article was published on July 3, 2013

Will UK consumers benefit from Ofcom proposals for lower-cost fiber broadband and shorter contracts?

Will UK consumers benefit from Ofcom proposals for lower-cost fiber broadband and shorter contracts?
Ben Woods
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Ben Woods

Europe Editor

Ben is a technology journalist with a specialism in mobile devices and a geeky love of mobile spectrum issues. Ben used to be a professional Ben is a technology journalist with a specialism in mobile devices and a geeky love of mobile spectrum issues. Ben used to be a professional online poker player. You can contact him via Twitter or on Google+.

The UK’s telecoms watchdog Ofcom has suggested changes to fiber broadband regulation on a wholesale level that could spur adoption of superfast connectivity, but whether or not consumers will ever see the benefit of the proposed changes remains to be seen.

The regulator announced the proposed changes, which could include a reduction in the cost and minimum contract length when changing provider, as well as speeding up installations and repairs by setting BT Openreach stricter targets.

However, currently the proposals only deal with the issue on a wholesale level, so there’s no guarantee that the new measures would filter down to the consumer unless market forces dictate that ISPs have no choice but to respond.

The problems stem from the fact that most superfast (25 Mbps and faster) broadband providers, with the exception of Virgin Media, use BT Openreach’s network as the basis for their service. This is a service that BT charges ISPs for, so naturally comes with fees attached, just like your home broadband.

For example, under current rules if you want to change your superfast broadband provider, the company you’re switching to must pay a £50 fee to BT Openreach – which is why you usually have an activation fee when signing up for a new connection, whichever company you choose. Under the new proposals, this fee would be cut down to just £10 or £15 which theoretically could allow ISPs to offer free, or at least greatly reduced installations.

Another of the suggested measures could allow ISPs to offer fixed-line contracts for much shorter time periods, as short as one month, if they so wished. However, while this would be a much simpler solution for people only in the country for a few months or in temporary or short term rented accommodation, it would also cut down on the amount of cash the networks can rake in through early termination fees, which to be fair, at least part of goes to BT as the minimum wholesale commitment between the two companies is also 12 months.

However, by trusting in market forces to control the prices (and savings) offered by broadband providers, Ofcom gives little incentive to pass them along in the short to medium term.

The consultation process, which ends on 25 September, even notes that the proposals “would be expected to flow through to consumer benefits in the form of lower broadband prices and easier switching” but also says they are “not to set controls on the wholesale price of VULA (virtual unbundled local access)” as it is “concerned not to undermine the investment case for rolling out fiber”.

Slow start for superfast

While rolling out a fiber network is an undeniably expensive business, it’s also a long-term investment that can see decades to recoup its potential value. With superfast broadband now available to a majority of the country (measured by population, not geography), it’s concerning to see uptake languishing, with some 48 percent of people deeming it “too expensive”, according to a spokeswoman for deal comparison and advice site uSwitch.

If ISPs want to see more people flocking to their faster, more often bundled (and therefore ultimately more profitable) services , they’ll need to stop relying on the profits from their (read: BT’s) existing copper network customers and drastically reduce the pricing for fiber products.

We contacted TalkTalk and Sky as two of the UK’s large ISPs but neither would say whether the savings would be passed along to consumers. A Sky spokesman said it had no comment to add at this early stage and a TalkTalk spokesman said:

“TalkTalk is pleased Ofcom is taking the issue of fiber regulation so seriously and that it has recognized the need for margin squeeze regulation in its proposals. TalkTalk has consistently maintained that fibre is too important for future economic growth to be monopolized by BT, and that for this reason access to fiber must be regulated. We welcome Ofcom’s proposals which we believe will lead to a more competitive market and better outcomes for consumers, businesses and the UK economy. We have long supported margin squeeze regulation which balances BT’s need to get a fair return whilst at the same time also ensuring there is a level playing field for competition.”

When we went back to TalkTalk to ask if that means it would definitely pass the savings along to consumers the company had nothing more to add at this time.

Nevertheless, with proposals from Ofcom pointing BT and other ISPs in the right direction, we could at least see the abolition of connection fees and the introduction of one month contracts, if the ISPs want.

Featured Image Credit – Thinkstock

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