Regulator Ofcom has proposed severe reductions in wholesale broadband charges for ISPs.
The communications watchdog is looking to create an independent pricing structure for broadband operators to offer connections directly to customers through Local Loop Unbundling (LLU), instead of renting them from major network owner BT.
Under the proposals, prices of connection and rental for broadband services could be cut by 76 per cent for shared-access LLUs and 42 per cent for fully unbundled LLUs, compared with the prices BT charged before voluntarily making reductions in May.
Ofcom hopes to facilitate the introduction of much cheaper voice over IP telephony, as well as reasonably priced video-on-demand and content-rich-media services. This move is likely to create business and upselling opportunities for VARs.
But one member of the Internet Service Providers' Association (ISPA) claimed that instead of nurturing competition, the price cuts could put smaller ISPs out of business.
"We believe that Ofcom has a flawed model," said Richard Sharpe, managing director of ISP altoHiway and a founder member of the ISPA. "Business ISPs have to take a different view of BT services [to consumer ISPs]."
Many ISPs, including altoHiway, buy BT Central pipes that connect to the operator's Colossus network, Sharpe said.
"A BT Central pipe may support 6,000 connections, but once we get to 3,000, we have to buy another pipe for the next 3,000 [to provide redundancy]," he said. "Ofcom has not taken this into account. It assumed ISPs load the pipes to capacity."
Sharpe explained that consumer ISPs do this, but in order to provide business-class service, smaller business ISPs have to spend more on BT Central pipes. Larger ISPs can survive through economies of scale and lower service levels, he added.
LLU lines currently account for relatively few UK broadband connections, against government wishes. This has been blamed on BT's high charges for companies looking to set up in competition.
The new pricing will come into effect in December, subject to consultation. Ofcom wants more than one million unbundled connections live by 2005-6.
However, Charlie Davies, senior analyst at Ovum, warned: "These reductions are quite drastic. There might be raised voices from BT. It will argue for going slower to avoid a price war and operators going out of business."
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