A new pricing framework for BT Openreach
OFCOM have opened a consultation looking at the future pricing structure for BT’s Openreach division.
Openreach owns and runs the BT “local loop” copper network and charges other divisions of BT and other operators for use of the lines. As the local loop is an effective monopoly the pricing is regulated by OFCOM.
Currently the prices charged by Openreach for Wholesale Line Rental (WLR) are capped by OFCOM, as is the price for local loop unbundled (LLU) connections using a “shared metallic path” (SMPF) where BT provide the phone service and a LLU operator like Be, O2, Sky etc provide broadband.
The price of a full metallic path (MPF) LLU connection is currently below the OFCOM cap but Openreach have indicated the price will rise to the cap in August 2008. MPF is used by Talk Talk to provide both phone and broadband directly without using any BT equipment other than the phone line.
Analysis by Openreach and OFCOM shows that both SMPF and MPF LLU connections are priced at below cost, meaning that Openreach loses money on them and they are effectively cross-subsidised by WLR line charges.
Future projections of inflation in the Openreach cost base point to increasing differences between the cost of providing connections and the capped charges that OFCOM allow. OFCOM have therefore concluded that the whole cost regulation needs to be reviewed.
The price caps are currently :-
| Residential WLR | £100.68 per year, exc VAT |
| Business WLR | £110.00 |
| MPF | £81.69 |
| SMPF | £15.60 |
The consultation documents are reasonably complex and focus on areas such as inflation accounting principles, cost allocation to different products and the valuation of the Openreach assets. As with all OFCOM consultations anyone can make comments by following this link.
Tags: BT Openreach, OFCOM
