Cost of broadband looks set to rise

The cost of broadband looks set to rise after Ofcom announced that it plans to review the prices that BT charges its rivals to gain access to its lines in order to provide internet access and fixed line telephony.

Announcing a consultation that will take until the end of the year, the regulator admitted today that "the evidence we have reviewed to date suggests that there is likely to be a case for some increases in the charges" that BT levies.

If BT is allowed to increase its prices the companies- including BT's own retail arm - that rely on its network to run their services are likely to have to increase their own prices, ending the recent boom in cheap broadband services.

Ofcom's plans drew scorn from Carphone Warehouse, whose TalkTalk operation uses lines provided by BT's Openreach unit to provide its "free" broadband service but still make a profit.

"Of course Openreach should be able to make a fair return," TalkTalk said in a statement. "But that return should not be at the expense of innovation and customer choice and value."

BT has maintained for some months that its Openreach unit - which was set up to deal with local phone lines after intense negotiations with Ofcom - is not making enough of a return on its investment.

Openreach allows BT's rivals to lease its local copper lines - a process known as local loop unbundling - or take over full billing control of a customer's line through a product called wholesale line rental. BT, however, has been lobbying hard for some of these prices to be increased.

The price of renting out a BT line under local loop unbundling - which is used by companies such as Carphone Warehouse and Tiscali - has already increased recently by £1.69 a year to £81.69 and TalkTalk warned that any further increase "is unjustifiable given the current poor levels of service".

"TalkTalk has already put further network expansion on hold, and we believe other local loop unbundling operators will slow their move to next generation networks if prices are increased".

"We believe it is too early for Ofcom to start changing the rules ... while Openreach remains inefficient. Consumers have benefitted greatly from competition in this market and allowing Openreach to increase prices would be a retrograde step," TalkTalk added.

Ofcom, however, is mindful of the government's desire to see the UK remain in the upper echelons of the global broadband league, which means companies - especially BT - will need to invest in the next generation of super-fast telecoms networks which could cost billions of pounds to build.

Ofcom said in its consultation document that "Openreach and other communication providers are facing important decisions including those relating to potential investment in unbundling further local exchanges and other new infrastructure investment."

But the regulator added "we will also need to consider the impact of any changes on competition and on consumers, particularly bearing in the mind the benefits that the current regime has brought to consumers over the past two years in terms of new services, choice and reduced retail prices."