The UK broadband market is now sufficiently competitive for BT to be allowed to set its own wholesale prices in some areas of the country.

Until now, the incumbent supplier has been required to offer its wholesale product to ISPs at a rate fixed by regulator Ofcom.

But rivals’ infrastructure investment, under the local loop unbundling scheme, has created enough competition for plans to deregulate about two-thirds of the country to receive European Commission approval.

“In the more densely populated areas of the UK, consumers have a choice between different broadband suppliers, so for these areas ex-ante regulation is no longer warranted,” said European competition commissioner Neelie Kroes last week.

Ofcom’s proposal is to divide the country into four regulatory areas.

For 65 per cent of the country ­ where there are four of more broadband operators or individual exchanges serving more than 10,000 premises ­ BT will no longer be subject to price caps.

The three other regions will be regulated on the basis of local market conditions, assessed by the watchdog.

Giving BT more freedom allows the market to be more flexible, which could boost
competition, and ultimately drive down prices.

But the success of the scheme will be down to Ofcom, according to the Internet Service Providers’ Association.

“If there is enough competition then it makes perfect sense to deregulate,” said a spokesman. “But that depends on whether the analysis of competition levels is correct.”

The market is not entirely straightforward. Many of the larger ISPs use a combination of their own equipment in unbundled local exchanges and BT’s wholesale product to boost their capacity.

So price changes could cause a competitive imbalance, said Datamonitor analyst Fernando Elizal de.

“If BT changes its strategy and refuses to offer cheap wholesale access, because it is under no obligation to do so, then these providers may be hurt,” he said.