BT Price Hike Threatens to Stall Convergence

BT has unilaterally increased their cost of capacity based broadband charges by up to 24% within two days of announcing a profits warning in their interim results – BT’s share price dropped 30% on news that its Global Services division, which provides about a third of BT’s sales, wasn’t doing as well as expected.

Documents that Comms Business Magazine has seen dated 31 October show that not only has the cost of ‘tails’ (the connection between user and the exchange) risen but so have the bandwidth charges.

ISPs have been given just 28 days notice of the price hikes which come in to effect on 1 December 2008. Normally the industry expects a three month consultation process via Ofcom but this appears not to be the case in this instance.
BT will say that whilst these specific charges have risen the cost of Wholesale Broadband Connect (WBC), their new 21CN service, has fallen. Again, whilst this is true, WBC is not yet available in anywhere like the geographical coverage that the channel needs.

This leaves the UK at a distinct commercial disadvantage with regards to the consequent price of DSL as the cost increases inevitably filter through to business and consumers. We believe the UK is the only country in the EU where the price of broadband is now set to rise.

Most affected by the rises will be companies such Griffin Internet and Murphx who buy big pipes of bandwidth from BT. Least affected will be those ISP’s that have their own LLU networks – albeit none of these ISP’s have 100% of the BT exchanges equipped.

Carl Churchill, Director at Murphx told Comms Business Magazine that he has immediately complained to Ofcom about the rise, written to BT and initiated a petition on the Number 10 Downing Street web site.

“This is a ludicrous situation that the UK finds itself in. In a market where everyone is reducing the cost of broadband we are facing a significant price rise. This is a very big price rise for us to bear and pass on to customers. The increase in cost for Murphx will run in to hundreds of thousand of pounds a year.

I can’t see any justification from BT for the price rise apart from the fact that they now have no confidence in the Global Services business revenues and we represent a soft target.

Clearly we are now looking closely at LLU options for our business as we must continue to deliver value to our customers. This will only be a short term revenue opportunity for BT.”

Richard Bligh, Marketing Director of Gamma Telecom told Comms Business Magazine, “This feels like the bean counters at BT have been let loose with their calculators. I can’t see how any change in their cost structure could account for a price hike of 24%. I can however see this as being a knee-jerk reaction resulting from their City profits warning.”

Bligh continues, “This will have a serious impact on all ISPs and I am certain that in the short to medium term it will result in ISP’s turning away from BT Wholesale in favour of sourcing bandwidth from the LLU operators such as Tiscali and Carphone Warehouse.”

Another ISP who did not want to be identified told us, “The timing and manner of this increase has left a very bad taste in the mouths of most ISPs’ No consultation, no advance warning – just BAM!”

In a statement BT said, “BT Wholesale is introducing pricing changes across its broadband product range. These price changes are aimed at encouraging communications providers to switch from current generation 20C wholesale broadband products to IPstream Max or to our new, next generation products which offer better value, higher speeds, enhanced functionality and, in the case of the Wholesale Broadband Connect family, a solution for communications providers’ growing bandwidth requirements.”

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