Ofcom proposes price reductions for wholesale data links

Communications regulator Ofcom has notified the European Commission of proposals to reduce prices for high-speed data links after finding that BT had "significant market power" in the £2bn-a-year market.

Wholesale leased lines allow businesses, mobile operators and broadband providers to transfer data quickly over their networks.

Ofcom said that prices offered by wholesale data network providers that offer speeds above 1Gbit/s - of which BT is the biggest - should be cut by 11 per cent below inflation per year over the next three years.

Services should be capped in all areas across the UK, aside from those in London and Hull. London is an exception because BT faces greater competition within the capital, while Hull is excluded as the largest leased line operator in the area is Kcom. Ofcom said that the draft measures are designed to promote competition.

Ofcom's proposal to reduce prices comes after a market review that found that imposing price controls on wholesale leased lines would significantly reduce the price of the latest products based on modern Ethernet technology, helping to meet a growing demand for fast data services from a variety of sources such as schools and universities.

The draft proposal states that BT's prices for its leased lines based on older technology can rise modestly to reflect higher costs in a declining market. Ofcom hopes that reductions in Ethernet charges will provide customers with an incentive to switch to more up-to-date and efficient technologies.

Ofcom has already put price caps on BT's standard Ethernet services, but this is the first time it has acted to cap high-speed services, an unnecessary measure according to BT.

"We believe Ofcom's decisions to regulate very high bandwidth Ethernet and optical services outside of London for the first time is mistaken; we provided clear evidence to Ofcom that the market is highly competitive and that there is no market failure that needs regulatory intervention," BT said.

The communications regulator is also proposing to deregulate the market for longer-distance legacy leased lines, and BT believes that Ofcom could have gone further in deregulating these services.

"Newer, more efficient alternatives now exist, removing the need for the regulation of such legacy services altogether," BT said.

The proposed cuts are subject to approval from the European Commission. If approved, the new charge controls would commence from April and remain in place for three years.