Broadband News
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Rounded down prices and better download limits likely responses to December’s VAT reduction
28 Nov 2008 | 17.38 Europe/London
Next Monday is shaping up to start off one of the most interesting weeks the broadband market will have seen all year as ISPs grapple with how to pass on the 2.5% reduction in VAT (which equates to a 2.13% reduction in the total price when VAT is included).
Whilst none will go in to specifics of next week’s price cuts it seems increasingly likely that customers may well benefit by more than a 2.13% reduction because operators are keen to maintain round figures for monthly tariffs.
If one were to take a £15 connection, for example, the new price would leave the operator promoting a £14.68 service and so there is growing speculation, which the ISPs are not refuting, that prices are likely to be rounded down to give a more marketable tariff. If not rounded down, there is the potential for service levels to be increased, perhaps by increasing download limits.
Certainly O2 and Be Broadband (owned by O2) are hinting that there will be a new general tariff structure announced on Monday that will go beyond simply passing on a the reduction. Whilst it would not confirm exact figures, a spokesman for the company predicted that the reductions will be announced on Monday, once the arduous task of revising its billing platform is carried out.
“We’re keen to pass the savings on but want to get the process right before it’s announced, rather than announce it too soon and risk getting the process wrong,” he explained. “It will however make a positive difference to the affordability and attractiveness of the broadband service.”
Whilst O2 and Be Broadband look set to reduce tariffs, Carphone Warehouse looks set to maintain the current price points of its TalkTalk broadband packages and instead increase its service level by more than the equivalent of a 2.5% cost saving. Having reshaped its strategy earlier this month around offering a series of £4 per month voice and broadband upgrade services, the company is clearly keen not to have to go through another major strategy relaunch.
In a statement prepared for SamKnows, Carphone Warehouse confirmed that whilst voice call charges were being reduced in line with VAT, other services would instead be improved.
“From December 1st TalkTalk will be reducing its call charges by the full VAT reduction of 2.5% announced in the Chancellor's pre budget report. One-off and recurring charges will not be reduced and TalkTalk will be offering customers a range of special offers – many much greater in value than 2.5% - to reflect this.”
Hence, it seems likely that rather than pass on the VAT reduction, features, such as download limits (which can currently be boosted from 40Gb to 80Gb for £4 per month) will be increased sufficiently to offset the VAT reduction.
Virgin Media has also promised to pass on the VAT reduction next week but is not going to drawn on figures, simply issuing a statement that although the cut represents a “significant logistical challenge,
we intend to ensure the Government's rate cut is passed on to our customers as quickly and simply as possible”.
The spokesperson refused to be drawn on whether its eye-catching marketing and theming of broadband services along clothing sizes of M, L and XL would sit well with the latter being priced at £16.64 rather than its previous £17.
BT looks set to reduce prices by just the basic 2.13%. Although a spokesman said the company does not know yet the exact implications of the VAT reduction, a BT statement did not hint at a further reduction.
“BT will pass on the benefit of the reduction in the rate of VAT to customers. Because customers are billed for their rentals in advance, some bills already sent will be at the old rate so we will be adjusting the next bills of those customers affected to reimburse them,” the statement read.
Monday looks set, then, to be a tense day for ISPs as they announce their response to the 2.5% reduction in VAT, hoping their new-look prices and service provisions remain competitive in a market that is so tough new customer growth forecasts are already having to be reduced.
The VAT reduction does not have so much of an effect on ISPs which specialise in the business sector because corporate clients will almost certainly be VAT-registered and so not pay the tax.
Whilst none will go in to specifics of next week’s price cuts it seems increasingly likely that customers may well benefit by more than a 2.13% reduction because operators are keen to maintain round figures for monthly tariffs.
If one were to take a £15 connection, for example, the new price would leave the operator promoting a £14.68 service and so there is growing speculation, which the ISPs are not refuting, that prices are likely to be rounded down to give a more marketable tariff. If not rounded down, there is the potential for service levels to be increased, perhaps by increasing download limits.
Certainly O2 and Be Broadband (owned by O2) are hinting that there will be a new general tariff structure announced on Monday that will go beyond simply passing on a the reduction. Whilst it would not confirm exact figures, a spokesman for the company predicted that the reductions will be announced on Monday, once the arduous task of revising its billing platform is carried out.
“We’re keen to pass the savings on but want to get the process right before it’s announced, rather than announce it too soon and risk getting the process wrong,” he explained. “It will however make a positive difference to the affordability and attractiveness of the broadband service.”
Whilst O2 and Be Broadband look set to reduce tariffs, Carphone Warehouse looks set to maintain the current price points of its TalkTalk broadband packages and instead increase its service level by more than the equivalent of a 2.5% cost saving. Having reshaped its strategy earlier this month around offering a series of £4 per month voice and broadband upgrade services, the company is clearly keen not to have to go through another major strategy relaunch.
In a statement prepared for SamKnows, Carphone Warehouse confirmed that whilst voice call charges were being reduced in line with VAT, other services would instead be improved.
“From December 1st TalkTalk will be reducing its call charges by the full VAT reduction of 2.5% announced in the Chancellor's pre budget report. One-off and recurring charges will not be reduced and TalkTalk will be offering customers a range of special offers – many much greater in value than 2.5% - to reflect this.”
Hence, it seems likely that rather than pass on the VAT reduction, features, such as download limits (which can currently be boosted from 40Gb to 80Gb for £4 per month) will be increased sufficiently to offset the VAT reduction.
Virgin Media has also promised to pass on the VAT reduction next week but is not going to drawn on figures, simply issuing a statement that although the cut represents a “significant logistical challenge,
we intend to ensure the Government's rate cut is passed on to our customers as quickly and simply as possible”.
The spokesperson refused to be drawn on whether its eye-catching marketing and theming of broadband services along clothing sizes of M, L and XL would sit well with the latter being priced at £16.64 rather than its previous £17.
BT looks set to reduce prices by just the basic 2.13%. Although a spokesman said the company does not know yet the exact implications of the VAT reduction, a BT statement did not hint at a further reduction.
“BT will pass on the benefit of the reduction in the rate of VAT to customers. Because customers are billed for their rentals in advance, some bills already sent will be at the old rate so we will be adjusting the next bills of those customers affected to reimburse them,” the statement read.
Monday looks set, then, to be a tense day for ISPs as they announce their response to the 2.5% reduction in VAT, hoping their new-look prices and service provisions remain competitive in a market that is so tough new customer growth forecasts are already having to be reduced.
The VAT reduction does not have so much of an effect on ISPs which specialise in the business sector because corporate clients will almost certainly be VAT-registered and so not pay the tax.