Fuming ISPs attack BT over internet price hikes

BT's decision to hike the cost of some of its wholesale business-broadband packages has caused anger and alarm among many of the UK's smaller internet service providers (ISPs).

Over 70 of these ISPs have banded together into a new organisation called the UK Internet Federation (UKIF) in an attempt to fight the price rises. UKIF has argued that the situation flags up the lack of effective competition in the UK broadband sector.

"Since BT Wholesale has 90 per cent of the DSL market, Ofcom is at best ineffective and at worst supportive of the monopoly it is charged with regulating," said UKIF spokesman Stephen Dyer, according to ADSLGuide.org.uk.

"Allowing BT unconstrained control of the wholesale price of broadband will severely hinder the development of the internet industry as a whole, and can only serve to restrict consumer choice and raise end-user prices," Dyer added.

As previously reported, BT announced last week that it was raising the cost of several of its wholesale business broadband packages - known as IPStream - by as much as 30 per cent. These products are bought from BT by ISPs and then resold to individual businesses and home users.

ISPs have few alternative suppliers of wholesale broadband products apart from BT. Ian Fogg, European broadband analyst for Jupiter Research, said that this means that price rises for BT's products have a direct impact on these ISPs.

"A slight movement in the wholesale cost can damage the business model of these ISPs quite dramatically," said Fogg.

According to informed sources, BT had to make these price rises because Ofcom will soon rule that the telco has been pricing its various broadband products unfairly.

The regulator is expected to rule later this summer that IPStream products have been too cheap relative to Datastream - a separate product that rival operators can use to compete with BT Wholesale to offer their own alternative broadband products.

BT has declined to go into too much detail about its motivation in bringing in such unexpected and unwelcome price rises, but it has said that the move was made "in order to meet our regulatory obligations".

One of the major factors behind the current boom in broadband take-up in Britain has been a sharp drop in prices. Some ISPs, including Entanet and Zen Internet, have already said they will not pass the price rises onto consumers. This, though, begs the question as to whether other ISPs will also be able to absorb the rises without risking financial ruin.

However, Fogg points out that these IPStream price rises are just one factor in a broadband market that is moving very quickly at present. Local-loop unbundling and Datastream prices both dropped recently, and could fall further.

"We're in a period of change at the wholesale broadband level."

"I would expect the processes and prices of a range of broadband services to change over the next few months. This isn't the end, it's just another step," Fogg said.

Graeme Wearden writes for ZDNet UK