U.K. ISPs Protest Price Hike They Say Could Bankrupt Them
A British Telecom (BT) proposal to hike wholesale prices on some broadband products sparked a firestorm of criticism from small ISPs who say the move could put them out of business. More than 70 ISPs formed a coalition to fight the increase. Incumbent telco BT says it’s caught between its service provider customers and the U.K. telecom regulator, Office of Communications (Ofcom).
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This month, BT announced higher wholesale prices on its IPStream broadband office products. With IPStream, BT provides end-to-end broadband service, from customers’ connections to phone exchanges to ISP servers, a company spokesman said. BT also offers DataStream services, broadband access products that allow large ISPs to buy local access from BT but provide connectivity to their customers on their own or someone else’s network. To ensure DataStream products are competitive, the spokesman said, BT has a “regulatory obligation” to maintain a difference between its IPStream and DataStream prices, to give DataStream customers a level playing field in competing with BT.
With Ofcom in the middle of a review of the so-called “margin squeeze” issue, BT decided to raise prices on the “small set” of IPStream products in anticipation of Ofcom’s decision, the spokesman said. One “conundrum,” he said, is that if BT waits until Ofcom publishes its findings, it will be effectively trading noncompliantly. Another dilemma is that if, as some have suggested, BT lowered DataStream prices, it could be open to claims of anticompetitive behavior because it would be pricing products below cost. “Whatever we do we're not going to please everyone,” the spokesman said.
The ISPs organized into the new U.K. Internet Federation (UKIF) have a different take. The past year or so, BT has been thinking about how to cut ADSL prices while raising revenue from added traffic, said Steve Dyer, chmn. of Mailbox Internet and UKIF spokesman. The telco consulted with large ISPs about the “capacity-based charging” system, under which ISPs would be charged as if they carried 5,000 customers per main pipe even if their customer base was much smaller. Under that regime, Dyer said, his company’s payment to BT would have soared to Pounds 60,000 monthly from about Pounds 3,000. The increase didn’t concern large ISPs with big pipes, Dyer said, but smaller companies went ballistic.
BT then promised a better deal for smaller ISPs, Dyer said. Usage-based pricing -- which would cost less per wire but more per each bit or megabit transmitted -- was coming, Dyer said the ISPs were told, but it wouldn’t arrive until the end of 2004. BT also promised that its current charging mechanism would remain the same through 2004. (The BT spokesman said he had no information on Dyer’s claims). But this month, BT suddenly stuck a 33% price hike on business ADSL, blaming it on Ofcom’s rulemaking. Last week, UKIF had a teleconference with BT about the situation, Dyer said, and today (Mon.) BT has scheduled a 2nd call, which Dyer predicted will be “another stand-up row.”
The BT spokesman wouldn’t confirm the Mon. teleconference, saying only said the company continues to talk to its customers.
Tiscali, a large U.K. ISP, is unhappy with BT’s move for a different reason, a spokeswoman told us. Tiscali has been buying DataStream products for over a year in order to access its customers. DataStream “gave us an advantage in the market,” she said, and under the previous margin between IPStream and DataStream the company has been able to wholesale DSL as well. Last year, BT closed the margin between the 2 products. Tiscali lobbied both the telco and Ofcom, eventually getting 70-80% of the amount back so it could continue to offer its wholesale product, the spokeswoman said. But BT’s new capacity-based charging system could put a squeeze on wholesale offerings, she said. That will hurt Tiscali but not other key U.K. ISPs -- such as AOL and Wanadoo -- which don’t own their own networks, she said. Tiscali has submitted comments to Ofcom and is awaiting the regulator’s final decision, the spokeswoman said.
In May, Ofcom reviewed the wholesale broadband access (DataStream) market with the intention of stepping up competition, the regulator said. To spur competition, one remedy Ofcom proposed was a “margin rule” under which BT would have to maintain a certain margin between each IPStream product and the DataStream products to allow efficient new entrants to compete with BT’s IPStream products using DataStream, Ofcom said. Draft proposals were published in late May and a final statement is due the end of Aug., the regulator said. To comply, BT can either change DataStream or IPStream prices or both.
It appears BT made a commercial decision to widen the current margin by raising retail prices in advance of publication of Ofcom’s final statement, the regulator said. “We recognise that BT’s decision to raise IPStream prices rather than decrease DataStream prices might be unpopular,” Ofcom said, “but a wider margin which allows competition to develop and gives ISPs a choice of alternatives to BT will, in the long term, deliver substantial benefit to ISPs and ultimately consumers.”