Ofcom too slow over price cuts say BT competitors
It is two months since Ofcom announced a proposal to lower the wholesale price of the GEA-FTTC 40/10 product and started its feedback process so that industry could respond and ask for a bigger reduction or plead for it to not be reduced. It now seems that we presume as well as responding to the consultation two largest LLU broadband providers, Sky and TalkTalk and Vodafone who are aiming to expand their fixed line broadband consumer base to catch-up to and pass rivals like EE and Plusnet are responding in the public domain via the Financial Times. The combined might of the three operators is around 9 million broadband customers with around 2.5 million GEA-FTTC customers and around 750,000 on 40/2, approx 350,000 on 80/20 and 1,400,000 on the 40/10 product (figures based around a mixture of financial reports and observation on product ratios from speed test analysis).
Of course wholesale price changes to one of those might change how or what providers sell. The proposed price cut is worth ?1.87+VAT per month in the 2018/2019 year rising to ?3+VAT per month in 2020/2021, so if there are no product changes and Openreach does not reduce the price of any other products (reducing 40/2 seems likely but we doubt that 55/10 and 76/10 will drop voluntarily – note our following figures are based on Ofcom proposal for dropping the price of the 40/10 service) this translates to around ?31.4 million in the first year, ?44.5 million in year two and ?50.4 million in year three – which at a total of ?126.3 million is very close to the ?140m Vodafone talk about in the FT article, but this figure is a three year saving. If Vodafone are as text suggests talking about the cost of the 1 year delay during consultation and implementation then it is just ?31.4 million, or if they believe the cut will affect ALL FTTC products then it would be ?56.1 million.
Oddly Vodafone also talk about a windfall for Openreach due to this delay which appears to overlook the minor cost of deploying VDSL2 in the first place and thus the 12 months at existing pricing is not a windfall that can be re-directed to fund more full fibre roll-out. No doubt Openreach will be highlighting the impact on the pay back period for VDSL2, but we believe that is part of what Ofcom want to achieve i.e. make VDSL2 less attractive so that Openreach concentrates more on rolling out FTTP in the future and thus the industry consultation Openreach is undertaking to see if more providers will come on board. Looking beyond the politics for the consumer who has endured years of rising retail broadband prices (mainly via the rising price of the line rental component) we predict a minimal price cut for 40/10 users in 2018 of maybe 50p to ?1/month, as the pressures that have caused those price rises are likely to continue (e.g. support costs, wage inflation, network upgrades as we use more data) will likely erode the wholesale savings, just like the changes in wholesale voice line rental did.
The risk of minimal price cuts means talking up the potential price cuts by operators is a dangerous game as if people are built up to expect a ?2 to ?4 price cut in 2018 there may be an ugly reaction if the reality is a lot smaller. Correction 3:15pm It seems we managed to confuse the GEA-FTTC 40/10 price cut with a different set of price controls, the FT article apparently actually refers to price controls for MPF (full LLU) which are not changing this year and thus affects around 9 million broadband customers with those providers. This means the talk of a delay giving a windfall of ?140m now makes more sense, since that only equates to around ?1.29 line rental reduction.
We have not removed the previous analysis as it still stands with respect to the proposals for a GEA-FTTC price cut.
The effect therefore is that if this complaint bears fruit both ADSL and FTTC customers on those three providers might see a price cut, or at least no more price rises in 2017 and then potentially cuts in 2018.