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back to article BT demands end to Ofcom wholesale broadband subsidies for BSkyB, TalkTalk

BT is pressuring communications regulator Ofcom to end what it described as a "pricing distortion" in the wholesale broadband market that has protected rivals BSkyB and TalkTalk for nearly 10 years. The former national telco would like the watchdog to end maximum limits set on the prices rivals BSkyB and TalkTalk have to pay for …

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Anonymous Coward

As much as I hate to say this....

....but BT are right.

IF BT are forced to allow others access to their networks, so should BT have access to the others networks and the bigger players should no longer be allow to pocket the cash.

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Re: As much as I hate to say this....

Except BTs network was originally provided by the tax payer.

If BT are worried they lack the capital for infrastructure investment then maybe they should have just spent a godzillion £ on TV rights.

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Anonymous Coward

Re: As much as I hate to say this....

Or, it could be that BT have spent more on the football rights than they can hope to recoup, in the hope of disadvantaging sky, and having realised that they are now hopelessly out of pocket, want us all to pay more so they don't have to stand the loss.

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Re: As much as I hate to say this....

"Except BTs network was originally provided by the tax payer."

You do realise that was 30 years ago? FFS how long do we have to keep banging that pathetic drum out? Stop giving Sky & Virgin ancient, lame excuses not to open up to competition.

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Re: As much as I hate to say this....

BT's infrastructure was provided by the taxpayer almost 30 years ago and it came with an expensive universal service obligation (rememberr the "Thunderbirds" advert?) and a license which prevented them offering entertainment services. After 30 years the bits of the network which are still in use are more of a hindrance than an asset (all that dodgy "last mile" copper and aluminium wiring we all love to complain about) and it's only recently that they've been able to offer services like BT Vision which allow them to add value to the basic services.

In the meantime BSB, TalkTalk et-al appear to have done precisely nothing in terms of infrastructure while (what's now become) Virgin Media picked up the assets of failing regional cable TV franchises at knock-down prices and have done nothing to extend their presence outside the areas originally served by those franchises. If they don't like the idea of doing business on BTs terms maybe they could at least make a start on putting their own infrastructure in place?

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Re: As much as I hate to say this....

Apart from providing an un-bundled service which provides higher speeds for less money to the consumer.

Sounds like an investment to me.

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The network was sold. It wasn't a gift.

@ninjasFTW

"Except BTs network was originally provided by the tax payer."

There's always one idiot that makes this statement. Firstly, the network was not paid for by the tax payer. It was funded by the Post Office (and before that the GPO) using the charges levied against what the state organisation cared to call subscribers. Indeed, in most years the UK government took a levy off of the PO telecommunication operations which were profitable due to the high charges (whilst simultaneously limiting investment through borrowing caps, as it was considered part of public finances - that's why party lines persisted well into the 1970s and beyond).

However, even if the tax payer had paid for the network, its irrelevant. The whole operation, network and all, was sold to private investors. It wasn't a gift. Indeed, if you adjust for inflation, the amount raised by the sale of BT shares over three tranches is considerably more than BT's market capitalisation. This is not helped because the shareholder was landed with a huge pension liability, largely because of the inflated UK workforce (over 250,000 at the time of privatisation). Be glad its not like the Royal Mail, where the pension black hole has had to be taken over by the government to make that organisation financially viable.

Bear in mind, those that bought shares in originally did so in a completely different regulatory environment, and this was changed retrospectively, much to the shareholders disadvantage.

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Re: As much as I hate to say this....

Except BTs network was originally provided by the tax payer.

That has long since been retired and replaced. The original network provided by the tax payer was old electromechanical exchanges, long since replaced, mechanical phone boxes long since replaced and copper cabling virtually all replaced barring the odd "pole to property."

Broadband didn't exist when BT was privatised and all of Openreach's network which OFCOM applied the limits to were entirely funded by the privatised BT so your argument about the original provision is irrelevant.

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Re: As much as I hate to say this....

Putting a few network cards in a rack in a BT Exchange is hardly investing in infrastructure anywhere near the level BT have.

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Flame

@ NinjasFTW -- Re: As much as I hate to say this....

Except BTs network was originally provided by the tax payer.

This is the crux of the problem. When deregulation occurred, network cableways, cable rights-of-way and other cable (distribution/network-specific) infrastructure should have been initially retained by the State.

To ensure (a) equal access to the network cableways by all telcos, (b) uniform pricing to all telcos, and (c) ensure that government doesn't screw everything up with another inefficient government bureaucracy, it should have established an independent, revenue-neutral, network/cableways authority with the government with 51% shares and the remainder issued pro rata to all participating telcos.

The authority would uniformly charge telcos for access, it would also maintain and develop the network as needed. The telcos, being on the board, would ensure efficiencies were maintained, government's role would be to ensure that the authority would act as a proper utility by ensuring equal/equitable access to all.

Naturally, this is not a new idea (nor is it specific to the UK). And it never happened because government's are greedy--BT wouldn't have raised anywhere the same sale revenues without the cable network. Trouble is that until all cableways are combined into a unified utility, there will be perennial disputes about costs, access etc, and naturally the poor mug punter consumer fits the overpriced bill.

Of course, the current arrangement is a no-man's-land, a deliberately screwed and concocted compromise which allowed BT to retain control of the cableways but where access/costs determined (seemingly) by regulators etc. This arrangement was nothing more than a smoke-and-mirrors fabrication to deliberately fool the public (so government could keep the extra monies from the cableways sale).

But as the 'revolting' hoodwinked public never revolted, 'tis now too late to substantially correct the shambles. And nothing will happen, except more bickering and price hikes.

QED.

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Re: @ NinjasFTW -- As much as I hate to say this....

The original competition model against BT was at the infrastructure level. Hence all the cable franchises which were granted. To make these more attractive, they were granted local monopolies on TV transmission along with the right to offer fixed line telecommunication services. Of course the powers that be vastly underestimated the cost and complexity of doing this (not to mention the fragmentation). Then there we also fixed radio link models (which failed economically), not to mention what Mercury was meant to do.

Back in the 1980s, nobody gave any thought to the copper pair network for high speed data or video. The future was meant to be cable, and BT were essentially prevented from delivering a fibre network due to the threat to cable investment.

Hence the new regulatory regime which came about with Ofcom. The option was open to have taken this to the Monopolies Commission who may have enforced a separation between infrastructure and retail. However, even that isn't so simple. The regulatory regime already has two separate layers of wholesale services (Openreach and BTW), and to some extent they overlap, especially now as the FTTC broadband wholesale service now falls under Openreach versus the ADSL exchange services which are regulated under BTW. Such complexities would also affect full separation models.

Of course the new regulatory regime was not what was sold to the original BT shareholders.

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Re: As much as I hate to say this....

"Except BTs network was originally provided by the tax payer."

And (more importantly) the taxpayer is STILL paying for network enhancements to provide FTTC service to consumers.

The "correct" solution to this issue is to forcibly split BT's lineside into a completely separate company, instead of the extremely leaky "chinese wall" that's there at present.

You could even call it "Chorus"

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Anonymous Coward

Re: You could even call it "Chorus"

Someone put me out of my agony, please. My memory is good+long enough to know there's some significance in the name here, but bad enough to have forgotten the important details. At least Openreach has the advantage of not being a commonly used word (search engines etc aren't immediately helpful when searching for BT Chorus).

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Unhappy

@ Steven Jones - - Re: @ NinjasFTW -- As much as I hate to say this....

Right, I'm here in Oz and I was trying to keep the comment generic. Our model is a little different to the UK/Ofcom/etc. model but the basic principle remains similar for most Western countries (UK & Commonwealth & W. Europe), the US being somewhat of an exception.

Telephone telecommunications and before them telegraphy is typically 100/150 years old, and for most of that time (up until deregulation of the 1980s) governments held a strict, if not fearsome, monopoly over them. (I can remember a time not that long ago when here one could not legally move a phone from one room to the next unless the govt.'s PMG Department did it for you and charged accordingly.)

The essential issue is that when deregulation occurred, governments almost everywhere also sold off the most vital of all assets—the one required by all competing telcos for a level playing field—the cableways, ducts and rights-of-way. These represent over a hundred years of public utility infrastructure and public expenditure and are incredibly expensive and difficult to replace. Even in a small densely populated country such as the UK the problem becomes almost overwhelming but it's almost astronomical in large sparsely populated countries like Australia.

Moreover, much of this cabling/duct-work/Cu network infrastructure was paid for by BOTH 'profits' from subscribers as well as government funding from the public purse. To make government telcos sales attractive, the real costs of the networks were never properly amortized or factored in, so many telcos were sold off at firesale prices.

The quintessential example is here in Australia where Optus had to built a completely separate cable network from that of the once-government-owned Telstra* network. Optus opted to use power poles as opposed to ducts as it was less expensive—it had to, as when sole off to become Telstra, Telecom Australia was also sold complete—together with all its cableways and ducts.

(* Before the sell-off, Telstra was the government's Telecom Australia and before that the PMG—Postmaster Generals Department as BT was once UK PMG.)

The failure of successive Oz governments to keep the cableways in government hands has cost the Australia people dearly. Leaving aside the duplication of the wireless services such as Vodafone, Optus and Telstra for a moment, there is:

(a) The cost of Optus' duplication of Telstra's cable network, and,

(b) Now there's the cost of retrofitting the new NBN (National Broadband [fibre] Network) into the existing Telstra ducts at an initial charge to the government by Telstra of about $11 billion! Not a bad profit for Telsta Eh? Given that we the public should already own the cableways—and that's just the tip of the problems (I've not mentioned the years of indecision, government fuck-ups and that Telstra's been underhandedly white-anting the project to its benefit).

At a conservative guesstimate, the additional cost loading on the Australian people of the unnecessary duplicated infrastructure together with the wasted costs of 'repurchasing' the cableways is probably between $30 and $40 billion.

A Royal Commission ought to be held into the terrible wastage but as we all well know Hades would freeze over beforehand. The best we can possibly hope for is that some enterprising PhD student will research the shambles and layout succinctly what went wrong together with what it's eventually cost the nation over and above proper judicious planning (which I may say was obvious to many of us at the time the telco firesales were first announced).

Whatever the merits or otherwise of selling off public utility infrastructure, what's never been in doubt is that its owners, the public, aren't those who ever profit from such sales.

Trouble is so few really care that ultimately nothing ever gets done about the problem. Down under, here in the dreamy nonchalant Land of Oz, most simply shrug and cite the national mantra:

"She'll be right, mate!"

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Re: As much as I hate to say this....

If they had not invested a penny in that time your statement is correct, about the only thin left will be the ducts. BT are an impossible position being forced to give space and to competition but not getting anything back.

The reason so many cable companies failed is because it costs huge amounts to put the infrastructure in. The investment risk is all with BT.

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WTF?

When BT can...

Give me "unlimited" 20+Mb ADSL, free evening and weekend calls, including line rental, for £12.25 / month, then they can talk about fairness.

Until then, they can fuck right off!

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Re: When BT can...

Of course you do realise that the reason that others can afford to undercut BT is exactly because the wholesale prices are being kept artificially low.

But lets not let the facts get in the way of a good BT bashing eh

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Re: When BT can...

Well said...BT can't even compete with their own Plusnet subsidiary on price.

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Anonymous Coward

Re: When BT can...

"BT can't even compete with their own Plusnet subsidiary on price."

Apparently that's not a bug that's a feature.

BT Retail's prices are regulated by Ofcon to ensure that BT don't squeeze other players out of the market by abusing their monopoly. So they're not allowed to reduce prices too far.

BT Sheffield (Plusnet), on the other hand, don't have a monopoly to abuse, and are therefore unregulated. Not that there's any risk of BT HQ using them to keep other low-cost players out of the market. Oh no. No risk at all. 'Cos they're "separate" you see.

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Re: When BT can...

Except the Plusnet subsidiary would go broke if it persisted in making losses as it's a separate company, albeit wholly owned. It would be blindingly obvious to regulators if it wasn't economically viable as there's no way to cross-subsidise.

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Re: When BT can...

They could but they're not allowed to by OFCOM.

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Anonymous Coward

Re: When BT can...

"It would be blindingly obvious to regulators if it wasn't economically viable as there's no way to cross-subsidise."

Your faith in the transparency of BT Group's accounts, and in the competence and motivation of Ofcon's experts, is very touching.

Are there fairies at the bottom of your garden too?

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I have no sympathy for then, they have installed fibre broadband in the street, and not bothered to get it installed into the apartment block on the street. So they insist on sending mails out claiming I can get fibre in my street, which is true, just not to the buildings most people on the street live in. Until they sort out getting their infrastructure in place sensibly rather than branching out into TV services that adds no competition value at all for the customer they can get lost.

More players getting into the TV sport business does not seem to be good for the customer, its just good for those selling the rights. What customer wants to see only some games or sports during the year when they used to be able to watch it all. You now need to subscribe to at least 2, possibly 3 different providers to watch it all. Crazy, hardly makes it better for the customer. So they can fuck off out the TV market and concentrate on phone and broadband ideally.

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Stop

Complain to the landlord, it's often them that are the problem. As you don't own the building, then technically, BT (or anyone else for that matter) can't do any works into it.

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Indeed I know, but shouldn't BT really be contacting the management companies and requesting permission? It is in their advantage to get in after all. The management company isn't going to care, its in their interest to have it happen too, keep the people who live there happy.

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What customer wants to see only some games or sports during the year when they used to be able to watch it all. You now need to subscribe to at least 2, possibly 3 different providers to watch it all.

Sounds similar to the moan some of us were having when the paid networks started outbidding the BBC/ITV/C4 for sports (Cricket comes to mind).

Call me bitter if you want, but frankly Sky deserve a kicking for that one and I'm glad to see it happen - though I agree it's pretty poor for the consumer.

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LLU?

Not in my village, if I use sky then I'm actually a BT connect customer and that means I get a 40GB download limit and traffic management, compared to the same service from BT which is unlimited and unmanaged.

So meh!

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Re: LLU?

Blame Sky. All exchanges are open to any provider.

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knee jerk reaction

Could it be a BT knee jerk reaction to this:

http://www.bbc.co.uk/news/technology-26366893

I also agree that the price they paid for the football was bloody disgraceful, especially as they still need to rollout a ridiculous percentage of fibre customers by 2017... 95% no bloody chance!

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Investment

Flip side is if BT can recoup more of their costs then high speed broadband can be rolled out to more places. If OFCOM is setting the price for LLU too low then BT have no incentive to invest as the competition will come in and not pay enough to justify the FTTC or FTTP investment.

No, I'm not saying BT should be able to charge whatever they want. However, there is a case to be made that if the prices paid to BT are too low then they have no reason to make the investment in the first place.

My exchange is FTTC enabled but my cabinet doesn't have the connection density to justify the upgrade, so I'm stuck. Something has to change, and that could include the ROI that BT get on the investment.

Of course, the fact they deployed a new cabinet as copper in the first place is just dumb

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Anonymous Coward

Re: the little guys had "suffered a competitive disadvantage"

" the little guys had "suffered a competitive disadvantage" due to a lack of capital to invest in local loop unbundling."

The "little guys" have suffered a competitive disadvantage because of BTwholesale's continued refusal to acknowledge, let alone fix, problems e.g. with the connectivity between BT exchange and non-LLU ISP (architectural single points of failure, bad network design, ongoing unacknowledged problems with congestion even today (hello Neil123)) and so on.

revk.www.me.uk is a starting point for the recent stuff but some of us remember as far back as BTw's Cisco Express Forwarding/packet fragmentation issues over a decade ago, which took months of pain before BTw acknowledged the issue, and many more months of pain before it was finally fixed nationally.

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Having a Laugh

I'm amazed that BT have the gall to use the word fair in anything they say. This coming from the company that turns up in towns up and down the country, upgrades a handful of cabinets then claims the rest aren't financially viable, only to upgrade them when the government hands over wads of cash. Would it not be fair to pay back this money from the profits made from these cabinets rather then splurging it on uefa champions league rights!

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Anonymous Coward

Re: Having a Laugh

"I'm amazed that BT have the gall to use the word fair in anything they say. This coming from the company that turns up in towns up and down the country, upgrades a handful of cabinets then claims the rest aren't financially viable, only to upgrade them when the government hands over wads of cash."

Erm, isn't that kind of the point? There are areas that would never recoup the investment required to deliver service. Selling below cost tends to drive businesses to bankruptcy and in BT's case would probably lead to complaints and court cases from competitors under the Competition Act. Excluding competitors by selling under cost is exactly the monopolistic behaviour the country doesn't need and exactly thing the regulator is in place to prevent.

The government is handing over money precisely so that those areas can be served. If there was money to be made without subsidy companies would be investing - not just BT, but any company capable of delivering service. The price of broadband in the UK doesn't universally support the investment required to deliver it - no bank will lend money to build infrastructure that might just about pay for itself twenty years from now. Look at the experience of the cable companies, the last large scale local network deployment in the UK - every single company went to the wall or got bought out.

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I'd like to say, may the best company win, but...

<eom>

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If you think it's unfair, split the company

If BT think they're getting such a tough deal, then all they have to do is spin off OpenReach. Ofcom can then regulate that as a monopoly, allowing it to make a reasonable (if small) return. The rest of BT could compete on the same basis as all the other service providers. Strangely, BT don't seem to like that pretty obvious solution to their purported problem; I wonder why?

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Re: If you think it's unfair, split the company

I agree, BT Group has such a split personality when it comes to Openreach and their Ofcom excuses.

Spin off Openreach into an independent entity then BT Group, et al can compete on more level terms.

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Anonymous Coward

Re: If you think it's unfair, split the company

Telcos buy LLU from BT Wholesale, not Openreach - so it would make zero difference in this case.

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My experience suggests that TalkTalk has been able to make its huge profits by the simple expedient of not spending money. They don't say anything about IPv6, their network becomes overloaded every evening and weekend (My ADSL connection itself has a rock-solid speed), and packet loss was becoming very noticeable. So I changed ISP a few weeks ago.

I am beginning to wonder if TalkTalk were doing something with the line settings, the relationship between SNR and speed setting, because my ADSL connection is running around 150% of the speed TalkTalk provided, and the data delivery isn't choking at peak times. My new ISP has told me I should be getting an ADSL speed about 300% of what TalkTalk gave me, but I haven't seen that myself.

What I do see is a big improvement on what is delivered. We're expecting FTTC here before the end of the year. The improvement I already have makes me wonder if I need it. I am glad I quit TalkTalk.

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Anonymous Coward

You would all make terrible CEO's

Firstly "I DONT GET FIBRE IN MY AREA" - ok, go find out why, cost issues for BT? why would they invest where they will not make a return.....Business 101.

"OH NOEZ THEY BOUGHT FOOTBALLZ RIGHTS" If the business does not expand into new areas, it would go down the pan.....eventually

Also when was the last time you saw Sky or Virgin or any other telco investing in the infrastructure?

Do sky offer BT and Virgin cut rate prices on the channels it offers due to having a larger market share? Oh nono....

The common pattern seems to be British companies been slapped around by ofcom but the love is not been returned sadly

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Market distortions

I'm not sure I have this exactly right, but I believe that BT scooped an extra bit of sugar when they got title to all the ducts and cableways. As I understand it, none of that legacy infrastructure is liable for NNDR* on the grounds that it wan't liable for NNDR at the point of acquisition as it had been owned by HMG. That "point of acquisition" was not the privatisation, but a few months before, since BT had to exist before it could be sold.

However new duct/cableway infrastucture installed by a Telco, including anything installed - but not simply repaired/replaced - by BT post-privatisation, is liable.for NNDR as it is physical business real estate. Mobile networks similarly pay NNDR on their mast sites. Athough it may only be pennies per Km of duct or per manhole, it still adds up to a lot. Presumably Virgin are being hit by that.

Anyone know anything about this aspect?

*"National Non Domestic Rates", the business equivalent of Council Tax. It is collected by Local Authoriries but is all paid over to the Treasury.

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