virtual unbundled local access (VULA).
What a missed opportunity, when they could have gone for Variable Unbundled Local Virtual Access.
Ofcom is attempting to clip BT’s financial wings by proposing to regulate the margins it banks from superfast broadband sales to consumers, essentially to prevent the firm from future profiteering and elbowing rivals out of the market. The Brit telco monopoly is the largest provider of fibre broadband services over its network …
BT would far rather Fixed Unitary Consultant Kickbacks though, to make up for the money they'd 'lose' when (hopefully) they get a slap from the regulator.
At the moment with BT, there are no Fixed Unitary Consultant Kickbacks given.
Steven R
(think it's too early/not enough coffee for me yet...)
Did Ofcom just order BT to increase their prices to consumers in order to create a bigger gap?
Not quite. OFCOM are saying that the price BT Wholesale sell at mustn't be used to offset any prices by BT Retail. By doing so, other ISPs can't potentially compete with BT Retail so BT Retail gain a monopoly on the super-fast broadband service.
I thought this was already impossible as this was why BT became all these fragmented groups so they couldn't cross-subsidise.
"I thought this was already impossible as this was why BT became all these fragmented groups so they couldn't cross-subsidise."
In theory yes, in practice very much no. In most regulated businesses that a (competent) regulator wishes to see prevented from dodgy transfer pricing and cosy intra-group sales, the regulated business has to be a separately accounted legal entity, filing its own statutory accounts. OFCOM never required BT to do this with Openreach, and as a result they are wholly dependent upon BT's management accounts. As a result it is very difficult indeed to know the truth, even as the regulator - ultimately they have to trust that BT are telling the truth. As an outsider it is impossible, because BT will qualify information they provide to OFCOM as commercially sensitive, and that then doesn't go into the public domain.
My personal opinion is that this new OFCOM ruling is pointless - any competent management accountant can massage management account numbers to prove black is white, and there's no statutory evidence to the contrary in a complex group. BT's complaints are probably to disguise their ongoing satisfaction that OFCOM still haven't had the cojones to force the demerger of Openreach, and it would look like bad form to be seen publicly springing open the bubbly.
I don't think Ofcom give two hoots about consumers. They let BT get away with charging people £2 a month extra on a landline for the privilege of not paying by Direct Debit. This was done via a "separate" Payment Services company. More recently they seem to have recognised that this looked like a ripoff, so now you pay £2 extra for a selection of services you don't really want and the privilege of not paying by Direct Debit.
On cross-subsidies, I'd be interested to know whether landline fees are supporting the great broadbandwaggon.
"I don't think Ofcom give two hoots about consumers. They let BT get away with charging people £2 a month extra on a landline for the privilege of not paying by Direct Debit."
I think all the telcos have the same policy. Paying by cheque costs a vendor more than paying by direct debit. I think allowing the option to pay by cheque at all is pretty rare these days - supermarkets, petrol stations, other telcos - most places now just flatly say 'no'.
I don't think it's within Ofcom's remit to address payment charges as it's not just telecoms. Don't RyanAir charge everyone a levy unless they pay with one specific, obscure, debit card? I've been charged 5% extra at a local garage for paying by credit card recently.
Even if you pay by BACS with BT, you still have to pay the surcharge - it's about screwing the customer, not about covering the costs of their payments. And given the horrific overcharging I've suffered from BT in the past, I refused to let them dive into my bank account at will.
In the end, fed up with the extra fees for a line I never even use, which slowly edged the price up towards the £20 a month level, I had the phone service unbundled and taken over by my ISP as well.
Incidentally, my understanding is that - originally at least - payment services companies were a super duper VAT wheeze (certainly in the way supermarkets used to use them). I'm not sure if hole's plugged now.
Because of some major screwups of the BT offshore Indian muppets - at one point I didnt have a phone bill that was correct for over 4 years!!
I pay my phone bill (which unfortunately, I had to have, no cable here) online, on the website using a debit card (note: not credit) simply because I cannot trust BT to actually take whats really due to them.....and for that "privilege" I have to pay them money!
Now, BT retail have an online "shop", so they have to have the infrastructure anyway to have a pay by card mechanism........
The charge for not paying by direct debit is pure out and out GREED .... but if I could trust them not to screw the bill (example - 21p of calls.....£400 charges ....when it should have been £40!) - then I might actually do that......but just how many suckers let BT take what they want from their bank accounts and by the time they get the money back, next payment is due!
Paying by cheque costs a vendor more than paying by direct debit.
I think there's also the issue that DD means BT get the money when they ask. Billing a user who then pays by cheque or credit card runs the risk of late or non-existent payments. In the old days when most bills were paid by cheque/cash there was always pressure to get as many payments processed before mid-day, since money banked by then would earn a full day's interest, I'm not sure if that's still the case. Even a few days late on a payment probably costs a large company a non-negligeable sum, so my guess is that the £2 extra charge is a deterrent to avoid that, and to make up for larger bad debts which that means of payment produces.
Unless BT wants to give higher prices to their customers (which they are unlikely to do, due to competition) they will have to reduce their Wholesale price, so their margin is still there.
BT still gets the same amount of money from the retail customer, but third parties can now compete on an "even" footing.
From the BT Spokesperson who obviously didn't pay attention in maths at school or to actual facts, it seems:
"They have more than 40 per cent of the broadband market between them, compared with BT’s 31 per cent"
The maths alone tells you that 31 is likely to be more than either of the others if they're splitting 40 between them and both have a significant slice of the proverbial pie.
According to Ofcom:
http://media.ofcom.org.uk/facts/
TalkTalk have 15% market share
Sky have 20%
BT have almost as much as the two combined and 2x the market share that TalkTalk have.
Please shut up, whiny BT spokescreature, you're not being hard done by.
This sort of crap isn't going to help the Fibre roll-out. Tell BT they can't charge their competitors very much and they'll stop rolling out Fibre. Why would you invest in new network expansion when you then have to allow your own competitors to undercut you using the cables you just installed?
"Why would you invest in new network expansion when you then have to allow your own competitors to undercut you using the cables you just installed?"
You're still selling those customers a service, and making a profit on it, either way - you just might have to sell through a middleman for some of them, instead of being able to force them all to buy directly.
Personally, I'd prefer Openreach to be a genuinely separate company, with proper independent accounting - which, after all, is what BT claim their structure already delivers, so they have nothing to complain about there.
Right now, BT are offering an FTTC package for £7.50 per month. The wholesale price for the connection between your home and the exchange alone is £8.28 per month. So, do you think the bandwidth from the exchange to the Internet, plus authentication, DNS etc genuinely costs them less than minus a pound per month, or are they abusing the monopoly to undercut their rivals? (Oh, they include their BT Sport TV channel for that negative amount per month too...)
There is a HUGE misunderstanding of Telco pricing....
It's trivially simple: The infrastructure costs are insignificant. If you get the customer to pay for their installation (and they all do, in one way or another) all subsequent revenue is pure profit. That's very close to 100% profit.....
Telecoms plant is pretty reliable these days, and as long as Murphy doesn't put a pickaxe through your ducts too often, there's no real maintenance involved. The only thing that costs the Telco anything at all is the hardware (incredibly cheap these days) and their "Customer Services" helldesk which they'll outhouse to the cheapest third world bidder (or even Scotland!).
All "line rental charges" are pure bunce!
Then the bastards try to monetise their error messages and run DNS servers that send you where THEY want you to go.....
The infrastructure costs are insignificant. ... all subsequent revenue is pure profit.
Whilst the 'infrastructure' costs in the grand scheme of things may be relatively small, you will be surprised at just how costly the OSS systems are and specifically the costs associated with customer billing...
There is a HUGE misunderstanding of Telco pricing....
It's trivially simple: The infrastructure costs are insignificant. If you get the customer to pay for their installation (and they all do, in one way or another) all subsequent revenue is pure profit. That's very close to 100% profit.....
This is getting close to the real problem. Land line cabling is often old crappy and unreliable. If BT were in a truly competetive market they would replace land lines from the fibre cabinets to premises rather than from the exchange which 21C SHOULD have been about. But BT are a monopoly supplier for a high proportion of the country and they want to milk the landline revenue all they can for as long as they can.
The costs of land line infrastructure (£16.50pm) should be tumbling with change from analogue to digital but is is being pushed to the limit by BT with the useless regulator not giving a shit.
The only way out is to have a completely independent supply of infrastructure similar to National Grid.
Then I would not have to pay for PL football I do not want.
The National Grid is not a good comparison.
National Grid moves electricity from the electricity generating companies to the regional electricity distribution network operators, so they own and operate a large part of the pylons that you see striding across the country.
The regional electricity distribution network operators (in my region, that is Western Power Distribution) own and operate all of the local distribution network, which in the telecommunication industry is often called (inaccurately) the Last Mile, which links all of the consumers.
I agree that we could see a similar tiered structure in the UK for telecommunications, where you would have regional companies operating all the hardware and lines linking the exchanges and the consumers, and trunk companies operating the inter-exchange networks, with the overall service being provided by virtual operators who use the facilities operated by the other two, but I think that is a very different proposition to the one you propose, one that the US tried to follow and failed at.
"Personally, I'd prefer Openreach to be a genuinely separate company"
So do I, and after seeing what's happened in New Zealand since the lines side was divested from the parent company, there are good arguments for doing so.
1: The lines company is not just offering the same rates to all, but actively going out and seeking business.
2: There is no more of the "It's not economic to put stuff in this area, oh look, someone just proved it it is, so we're going to rollout and kill competition" tactic being routinely pulled by BT (Head office can act anticompetitively by simply refusing to allow openreach to supply services in areas)
3: The lines company is selling dark fibre and duct access, which has led to cable TV rollouts in the ducts without having to tear up streets, etc - this was completely inconceivable previously.
4: The lines company is actually investing heavily in infrastructure projects (It is never in the incumbent's interest in a LLU environment to roll out extra infrastructure unless the existing stuff is falling apart, because doing so means that competitors get access to the expanded infrastructure too)
5: long waits, poor service, etc are a thing of the past.
Pundits were expecting the lines company to struggle financially. The fact that it's been unshackled
and is now able to sell services to all-and-sundry instead of just the ones the incumbent is force to deal with means that it's had an amazing new lease of life.
Forcing BT to fully divest Openreach would be one of the best shots in the arm that the UK could give its economy, but as it's far too sensible a thing to do, it won't happen.
Personally, I'm more interested in making Virgin/Liberty unbundle THEIR fibre network. You don't have true choice and competition until the ISPs have choice in network provision. In my road, for example, BT won't enable the cabinet as the road has Virgin cable so it's not profitable to do so, but I don't want Virgin as they don't offer services meeting my requirements...so I'm screwed until I move. :(
Having two wholesale providers should drive some actual competition and innovation rather than relying on BT's bloated mass to get around to providing services as and when they bloody well feel like it ("and we should be grateful for it too"). I suspect we'd have got fibre far sooner (and without them requiring large subsidies to do so) if everyone started getting their internet via a NTL (as it would have been back then) as BT started losing more and more of their appalling line rental fees as people switch to another wholesale fibre connection.
Just look at the choice you get from ISPs thanks to LLU unbundling...
>Why should a bunch of johnny come lately parasites be allowed to destroy the system that created it?
Because it's not fair! why should they have the first mover advantage and not us (ie. the bunch of johnny come lately parasites) !?!!
"According to Ofcom’s assessment, BT is already making sufficient margin under the draft rules, but said “the condition is a safeguard” to restrict the company’s ability to reduce retail margins in the future"
In other words, everyone agrees that there isn't any problem at the moment and no-one needs to change anything. But there's potential for abuse in the future and Ofcom wants to make sure that doesn't happen. Also it's only a draft; no actual rule has been made at all. So for all the complaining here about BT, Ofcom, stupid rules, and so on, there isn't actually anything there to complain about.