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back to article Broadband rivals 'pleased' over Ofcom's market shake-up plans. Maybe too pleased

Rival British telcos BT and TalkTalk have both said they were "pleased" this morning with regulatory proposals submitted by communications watchdog Ofcom on the future of the country's fixed broadband wholesale market. However, the ISPs reasons to be cheerful were starkly different as Ofcom laid out its plans to bring in new …

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These would be expected to flow through to consumer benefits in the form of lower retail prices

Does anyone think this will happen? Really? Surely it means the wholesalers just get a better margin?

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Anonymous Coward

There's only one Wholesaler - BT - as Virgin choose not to make their broadband available to other ISPs.

In ISP land money is tight - which is why there have been failures, buyouts, mergers, for at least the past five years. The UK is very competitive for broadband - which means low prices for us but not much in the way of profit for ISPs. Any cost reduction *is* likely to get passed on because pretty much always the cheapest ISP "wins".

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Re:There's only one Wholesaler - BT

Yes people tend to forget that, for the majority of households, there are effectively only two national infrastructure providers for the fixed line into your house: BT and Virgin. Because Virgin don't make their network available to others, everyone just piggybacks on to BT through a combination LLU and SLU connections, with a second tier of ISP's reselling circuits on BT or a third-party LLU. (As yet I'm not aware of any third-party reseller of SLU circuits.)

All this combined with the mergers and acquisitions have made it hard at times to determine who actually owns what and hence what the chain of providers is for any particular service (unless the client is directly contracted to BT).

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BT cannot really lose. Ofcom cannot really sanction them properly because they cannot be allowed to fail.

I don't think the cheapest one wins people like me are lazy. (Pay Virgin more than I need to because I hate their customer services.)

Going to switch to BT before next seasons premiership rugby union starts on them but I want whatever guarantees I won't get carrier grade nat and will get native ipv6. (Don't mind paying for Business or a static ip if I need to still probably be at least £50 less than I pay Virgin.)

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OFCOM seem obsessed with attempting to drive down the cost of broadband, and presumably squeezing everyones margins along the way. Why can't they just accept that's how much it costs for a broadband connection? Personally, I think £20 per month for my 16mb/s (upto 20) service is amongst the best £20 a month I spend, for what I get in return and what it gives access to. If I needed to save £20 a month, there are plenty of things I would sacrifice before my internet connection.

The people I feel sorry for are those also paying £20 or whatever, and getting a pittance of a service, or no service at all (though obviously not paying £20 in that case!). If OFCOM had some balls they would "price cap" at the wholesale or retail point, and make the amount they charge dependent on the speed they actually deliver. ie £20 for upto 20mb/s, but if they can only deliver 5mb/s, then they only get to charge £5. That might actutally make some of the ISP's pull their fingers our and invest in getting a better network.

By continually squeezing everyones margins, they are making it even more difficult for an ISP to justify giving punters better speeds, or for those who live in a black-spot/have-not, any prospect of service at all.

Just my tuppence worth.....

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As I said above, the margins will get better for the wholesalers and in this I also mean ISPs. We may get a little tiny reduction passed to the consumer.

You may think £20 per month is good others may not and opinions vary.

On your point about charging for the speed they can give (from your post this looks like £1 per mbps) I feel that this would just mean the ISP would say, you can only get 1mbps, we are not going to supply service to you.

In my opinion you would not get them to spend more on the network. The network would only then extend to the places they know they can make a profit. You can't say they have to serve someone because well isn't it a free market?

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FAIL

"OFCOM seem obsessed with attempting to drive down the cost of broadband, and presumably squeezing everyones margins along the way"

BT and VM don't look under-nourished to me, so your touching concern for their well being may be misplaced. And even poor TalkTalk, allegedly one of the reselling victims of BT's wholesale margin squeeze, have an EBITDA margin of 21% (aiming for 25% in future), and a profit after tax of 8% of turnover.

I'd suggest OFCOM are insufficiently obsessed with driving down the cost of anything, being instead a bunch of useless t***s, thoroughly in the pocket of the industry they are supposed to be savaging.

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"You can't say they have to serve someone because well isn't it a free market?"

It very clearly is not a free market, with central government funding available for services in some areas of the country but not others - if it was a free market, that would be all areas get funding or no areas get central government funding. If local councils want to subsidise their areas, that's fine - as long as they do it out of their own funds raised locally - but while central government is doing such things, it is not a free market.

Also while there are people saying broadband is a human right - and there have been politicians saying such idiotic things - then it can't be a free market, a universal service obligation should apply. Or the politicians should stop spouting nonsense and meddling in things (like that's going to happen).

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If it is to be a universal service obligation then surely it should be supplied by the government and paid for out of taxes or, at most a license like the BBC?

They have let private companies in, it is a free market and the fact that government is subsidising areas does not diminish that. If they did not subsidise then you can bet your arse that they would not serve those areas as I said.

Until the politicians bring it under this remit it is still a free market. Most markets have subsidies in one area or another at some point.

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Most countries have a USO for PSTN, that's not supplied by government but it's a requirement for most telcos that are deemed to be monopolies / near monopolies.

It's not a free market if there are government subsidies - the fact that some other markets have government subsidies means they aren't free markets either, and ultimately can lead to gross stupidities like the Common Agricultural Policy, where policies that were sold to the public as helping people actually end up hurting more than they help.

The real stupidity is the politicians talking about it being a human right - it isn't, so governments should get their paws out of it and let competing private providers come up with offerings that make economic sense - and if, in some cases, that means local councils have to subsidise things out of local taxation, then that is a decision for those local councils to make.

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OFCOM seem obsessed with attempting to drive down the cost of broadband

No they are obsessed with driving down the price of broadband to consumers; It still costs circa £37,000 to install a street cabinet (SLU) in a 'rural' area, which can serve a few hundred lines...

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Re: OFCOM seem obsessed with attempting to drive down the cost of broadband

And at £25 a month multiplied by a few hundred lines the problem with that is...?

Many businesses are happy with any investment that starts being profitable after a couple of years. If it starts being profitable after only a year, that's gravy.

Of course there are other costs besides the cabinet. But they're on a comparable scale. So for most of the UK we're looking at investments that have an absolute maximum pay-off period of a few years.

That's a lot less than many big infrastructure projects, some of which aren't profitable for decades.

If BT management had been in charge of the National Grid, we'd still be lighting half the country with candles and gas light.

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Anonymous Coward

"On your point about charging for the speed they can give (from your post this looks like £1 per mbps) I feel that this would just mean the ISP would say, you can only get 1mbps, we are not going to supply service to you."

Yep, they'd decline to offer service. I don't know how you'd measure the achieved speed either - is that line speed, sustained throughput, transient peak? I know people with a line speed of 40Mbps who get a lower sustained throughput than people with a line speed of 5Mbps. The trouble being that sustained throughput is subject to influences outside the ISP's control and so would be a bad measure for billing. You could bill per bit, but that introduces a ton of other unintended consequences as well.

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Anonymous Coward

Re: OFCOM seem obsessed with attempting to drive down the cost of broadband

"And at £25 a month multiplied by a few hundred lines the problem with that is"

£37K - or whatever the real figure is, I've heard higher - gives you a cabinet that *can* serve a few hundred lines. Only 15% of households actually take up high speed broadband though, so that £37K ends up divided by 37 households. The £25 a month doesn't just pay for the cabinet, it has to pay for all the costs of running a business and providing a service. The payback period for BT or VM installing new infrastructure of this type is over 8 years, and the presumes no further falls in price. If price falls, it might never pay back.

The reason your national grid comparison is wrong - apart from the technical one of trying to consider a backbone network and a distribution network as broadly equal - is that the national grid was 100% funded with public money. BT & VM have to go to a bank to borrow the money to do this and promising that you'll probably pay them back, if nothing bad happens, in 8 years' time isn't a sure fire route to success.

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Re: OFCOM seem obsessed with attempting to drive down the cost of broadband

"And at £25 a month multiplied by a few hundred lines the problem with that is...?"

Well if the cabinet was fully populated and the majority of households took up the service then you might have a point. However, typically a rural cabinet will be serving under 100 households. I would expect most city cabinets to also be running at between 50~75% capacity.

In the rural area, the service can potentially pay for itself, just don't expect a return on the capital investment, hence why there is the need for outside funding and why further funding will be necessary to upgrade it again...

"So for most of the UK we're looking at investments that have an absolute maximum pay-off period of a few years.

That's a lot less than many big infrastructure projects, some of which aren't profitable for decades."

Basically, you are on the right track, which is why the government's decision not to properly fund universal broadband but to full back HS2 just didn't and still doesn't make financial or economic sense.

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Thank you! Bloody right. Why don't ofcom pull their finger out and do something about the people who have NO servcie whatsoever? Useless tossers.

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WTF?

"isn't it a free market?"

How exaxtly do you equate a monopoly carrier that is so huge the government can't let it go under (a la UK banking) with a free market?

What bloody free market?

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And the headline reduction is in the connection fee. Who gives a stuff about the 1-off charges? it is the recurring cost & service level that matters.

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Anonymous Coward

> BT and VM don't look under-nourished to me, so your touching concern for their well being may be misplaced.

BT has debts of £2.85 billion, $5.62 billion and €2.35 billion.

VM has debts of £2.81 billion, $4.9 billion and €180 million.

Most of these debts are for infrastructure.

BT isn't to concerned about the level of its debt as it has many different profit streams to "nourish" the debt.

VM, on the other hand, only has the income generated by its cable. Nearly all of its profit is wiped out servicing this debt.

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Nice to see the repair issues raised

it would be good to see a sense of urgency with Broadband issues, my experience is that faults were very low priority.

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Anonymous Coward

Re: Nice to see the repair issues raised

Are the lines being repaired in accordance with the SLA you contracted for? Better repair response is one of the reasons that ISPs sell business broadband with a much higher price tag, because they have to buy those better SLAs from BT or whoever.

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Re: Nice to see the repair issues raised

They are mostly, however the ISP has always had to ride BT.

My experience (and that of others) of BT broadband direct is unprintable.

Zen & co have been excellent but hog tied by BT.

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Anonymous Coward

What about the KCOM Monopoly?

It would be nice to have a bit of competion in the peoples repulic of Kingston Upon Hull. Thanks to there being no competition for the monopoly supplier Kingston Communications, there is no incentive for KCom to provide a fast, affordable service.

Fair enough, the rest of the UK doesn't care, but for the 200,000 KCom customers in the 8th largest city in England, it's a pain and no amout of complaining to OFCOM has got us anywhere as apparantly "It's up to BT / Virgin etal to decide if it is in their business interest to deliver a broadband service to Hull".. What's the point of having a regulator that allows a monopoly?

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Anonymous Coward

Re: What about the KCOM Monopoly?

""It's up to BT / Virgin etal to decide if it is in their business interest to deliver a broadband service to Hull".. What's the point of having a regulator that allows a monopoly?"

I understand the problem, but what remedy would you propose? You can't *force* VM or BT to start selling stuff in Hull. A regulator can set market conditions - cost, price, service, product features - but it can't compel private businesses to enter a market.

The water industry has a regulator, but it oversees a number of regional monopolies. As a consumer I have zero choice over what water company I use. Regulation is only used where there is or could be a market failure - in a market that operates perfectly there are no regulators.

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It is time UK realised a contra-inflationery model is the only way forward.

Well done Ofcom!

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It sounds like a step in the right direction. It is hard to get a short term contract these days to just try an isp for a month or two and keep your options open. This should allow more of them to let you cheaply join on a monthly contract without bit sign up fees which would be great.

What would be even better would be to end the market system for exchanges. It annoying that the person five miles away in town pays half the price for the same broadband. I'm not convinced my higher price is really achieving anything.

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FAIL

Router Costs

Given the average user has no chance of changing their router username/pw combo then you're looking at new routers if you want them to swap to your broadband. That's another £35 quid inc shipping (ex VAT) even for a fairly average thomson router, plus ooodles of e-waste.

What's ofcom going to do about then.

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Boffin

Re: Router Costs

new vendor sends a new auto provision request to the router.

TR 069 works quite well.

now it just needs ISPs to implement it.

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Black Helicopters

Re: Router Costs @Why Not?

That's one of the reasons why I always provision my own router. It's a cost I bear, but one I believe is reasonable to maintain independence from any ISP.

I don't trust them not to put some nasty spying functions in their firmware to leak information about my network and the devices installed on it.

Paranoid, me?

Yes, probably.

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Unhappy

BT "We own the cable and the access. ISP's are our bitches."

No obviously they won't say that.

But while Openreach is a BT tightly controlled BT division instead of something more like National Grid that's

exactly what ISP's are.

There is the illusion of competition, but their is only 1 gatekeeper for most UK homes.

Don't get me wrong. It would take a very brave ISP to start to lay their own network, either the last mile as a "fibre only" service and its growth would be slow. So far they all bowed down (except Virgin).

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Re: BT "We own the cable and the access. ISP's are our bitches."

The "last mile" and specifically the "last 100m" ie. street cabinet to house will be the most expensive to upgrade to fibre, because to lay a new cable requires digging a trench etc. [Aside: I'm not aware of any change in BT's requirements for new build estates to include conduit for blown fibre etc. - I'd welcome an update with references if I'm wrong on this.]

Obviously FTTC solves part of the problem and in places such as Rutland with small communities they have been able to achieve some success in extending their SLU service to include FTTP/H. But in the main the upgrade of the "last 100m" is going to be the most problematic moving forward. Which effectively means for practical purposes, significant numbers of residential users will be limited to whatever data rates can be driven from a street cabinet over ancient telephony grade twisted pair, whilst also permitting a normal phone to function.

So yes I also expect FTTP/H to be a niche market for many years. Hence get used to a maximum connection speed of 40Mbps; which is still a massive improvement over 56kbps dial up we were all using a few years back.

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Anonymous Coward

Re: BT "We own the cable and the access. ISP's are our bitches."

"There is the illusion of competition, but their is only 1 gatekeeper for most UK homes."

You're forgetting the mobile operators who also sell broadband. Ford are the only people in the UK making and selling Fiestas, but that doesn't mean they have a monopoly.

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Re: BT "We own the cable and the access. ISP's are our bitches."

>You're forgetting the mobile operators who also sell broadband.

Not really, as they don't provide 'fixed' broadband (yet), but yes they do have role to play. Certainly I prefer to use 3 Mobile Broadband (via dongle not phone) as it typically gives me 2.5Mbps (and sometimes nearly 4Mbps !) compared to the sub 1Mbps of the fixed line.

Knowing which mast I'm using and it's capacity and coverage, I'm glad that very few neighbours have spotted this speed difference... Naturally I've learnt to give visitors access to the fixed broadband connection - where they are welcome to use iPlayer etc. as much as they want :)

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