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 Ofcom Decision May Cause Prices To Rise

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PostSubject: Ofcom Decision May Cause Prices To Rise   Thu Jan 20, 2011 2:08 pm

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Internet Regulator Ofcom has proposed that BT decreases the price of its subsidiary, BT Wholesale, charges to ISPs that use its broadband infrastructre in rural areas.

Should BT follow Ofcom's decision, it could cause broadband prices in the country to go up in the long term. The changes are expected to affect 12 per cent of the UK population or three million customers.

The price reductions vary between 10.75 per cent and 14.74 per cent below inflation and worse for BT, the charges are expected to be applied where BT is the sold provider of wholesale broadband services.

This means that the company, unlike rivals like cable network provider Virgin Media, will be expected to shoulder the rise by itself.

Ofcom says that the decrease in pricing will encourage ISPs to reduce their broadband prices thereby more than making up for the loss of revenue.

But there are a number of issues, firstly, the financial gap will be felt immediately by BT and this may force the company to revaluate potential capital expenditures like future investments to boost coverage and speed.

Then, there's the fact that any drop in profitability will have to be recovered somewhere else as BT is a profit-making company, this means that wholesale prices elsewhere may go up.

Although competition may dampen any inflation-busting rises but given how quickly competitors have followed BT's footsteps in the past when it comes to price rises, it wouldn't surprise us if the same happened this time around.
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