Ofcom cuts rural broadband prices

20 July 2011 Last updated at 11:39 GMT Some rural areas struggle to get decent broadband speeds Rural broadband bills could fall after telecoms regulator Ofcom moved to cut the wholesale price that BT charges other internet providers.

The company is the only operator in many smaller telephone exchanges and ISPs have to factor 'renting' BT's equipment into their price plans.

That means customers often miss out on cheaper deals available in towns and cities.

The reduction only affects broadband services of up to 8Mbps.

From mid August until March 2014, Ofcom has ruled that BT must cut its rates by 12% below inflation per year.

Rural campaigners welcomed the news.

The Countryside Alliance said it was "delighted" by the decision.

"People living in the countryside have been left behind in the digital divide for far too long and it is vital that they have effective and affordable broadband if their rural economies are to grow and prosper," said a spokesperson.

Same prices

Many ISPs, other than BT, are able to offer consumers cheap broadband through a system known as local loop unbundling (LLU), where they place their own equipment in the exchange.

In less populated areas, where this may be uneconomical, they have to effectively 'rent' the system for delivering their service from BT

BT Wholesale's costs are passed on, typically adding around £10 to customers' broadband bills, according to the website Broadbandchoices.co.uk.

BT said the impact of the cost reductions on its revenues would be in the "low millions".

The prices BT Retail charges consumers will remain the same.

"Unlike many other providers, despite the higher costs involved, BT Retail's consumer broadband products have always been priced the same in rural areas as in urban areas," the firm said in a statement.

Ofcom has not applied the reduced charges to ADSL2+, a next-generation copper-wire technology which offers speeds of up to 24Mbps.

It said it hopes that this will encourage BT Wholesale to invest more in this.

Fibre network

The government is keen to see next-generation services thrive in rural as well as urban areas as it aims to make the UK the fastest broadband nation in Europe by 2015.

Critics have argued that relying on copper technologies will not future-proof networks and have urged operators to invest in fibre optics which can provide much faster services.

Whether consumers will benefit from the price cuts is not yet clear, say industry watcher.

"Any retail price reductions that follow from this wholesale announcement will be welcomed by consumers, but the extent to which providers will reduce prices is uncertain," said Sebastien Lahtinen, co-founder of broadband news service ThinkBroadband.

"The wholesale cost reductions may be used by broadband providers to ease congestion at peak times by adding capacity instead."

"It is also important to note that the price control only applies to 'up to 8 meg services', which may be seen as a regulatory green light to encourage BT to upgrade rural exchanges to support faster 'up to 24 meg' ADSL2+ services, in the knowledge that they will be able to secure a higher return on investment," he added.

TalkTalk is planning to expand its network to 90% of the country by spring 2012 but it currently does rent capacity on the network to others.

Meanwhile Fujitsu is bidding for government money to create a fibre network for rural areas. Both Virgin Media and TalkTalk have said they will offer services on it if the bid is successful.

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