The proposed controls will lead to price reductions for most customers of the national £2bn leased lines market, such as businesses, schools, universities and libraries.

Ofcom is proposing overall caps linked to inflation to align the prices of these products with their cost by 2015.

Ofcom believes that price caps will also force BT to make efficiency gains, which should drive further cost savings for the end consumer.

In the Business Connectivity Market Review published last month, Ofcom stated that it believed that BT had significant market power in a number of wholesale leased line services, and that charge controls should be imposed to boost competition and protect customers.

The world’s oldest telco is dominant across the board, especially in traditional interface (TI) communications (such as phone calls). For example, in retail its TI market share has increased from 78% in 2002/03 to 80% in 2006. This makes it very difficult for competing companies to replicate BT’s services.

"BT’s persistently high market share and high level of profit in this market, as well as the existence of economies of scale and other factors which impede market entry and expansion. In both cases, Ofcom considers that a reliance on competition law alone would not be sufficient to promote the development of effective competition," Ofcom said.

Mobile and broadband operators, which use leased lines to transfer data on their networks, would also see savings which should be passed on to customers.
Retail sales in the UK are estimated to be worth approximately £1bn a year.

For BT’s low bandwidth Ethernet lines in west, east and central London, where BT faces greater competition from other providers, Ofcom is proposing a lighter form of price control. It wants to cap each relevant Ethernet service, ensuring that no prices can rise over the three-year period.

OFCOMS PROPOSED CAPS
TI (phone calls): a proposed cap of between Retail Price Index (RPI)+0% and RPI+6.5%, probably RPI+3.25%.

Ethernet (data): a proposed cap of between RPI-8% and RPI-16%, with a central estimate of RPI – 12%.