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Summary of Ofcom’s review of the wholesale broadband access market
In November 2007 Ofcom launched a consultation on the wholesale broadband access market (WBAM) in the UK. It found that KCOM/Karoo still had significant market power (SMP) in the wholesale and retail broadband markets in the Hull area and stipulated that a number of regulatory conditions be applied to the businesses operations in this market. A total of 111 Hull residents responded to the consultation, raising concerns about the appropriateness of this regulatory framework. They perceived that this may be having an impact on both the quality of products available in the area and the lack of competitor activity at a retail level in the fixed line broadband market.
As a result Ofcom undertook a further scrutiny exercise designed to explore these claims and provide a response to their concerns. Their findings were published on May 21st 2008. Ofcom reiterated that they had found that the KCOM group, operating as Karoo, had SMP in the Hull area related to the provision of fixed line broadband access. They also stated that - in addition to the various broadband service conditions placed on Karoo as a result of this determination - there was also a requirement on request to grant other providers access to exchanges in the local area to install their own equipment. This accordingly would allow them to sell and provision their own services. The report noted that despite this requirement being in existence for several years, there had been little interest from other providers.
To gain a better understanding of the possible reasons for this they conducted further analysis in two supplementary areas:
– The pricing structure of KCOM’s wholesale “reference” offering
– The views and plans of alternative providers
Ofcom found that the wholesale offering is broadly similar to that offered nationally by BT in terms of structure and price. None of the providers questioned claimed that KCOM was acting to prevent them from entering the Hull market or that the regulatory framework was insufficient. The providers did state that:
– The market is small (c.190k premises)
– They perceive that a significant portion of KCOM’s customers are loyal to the brand
Ofcom concluded that evidentially the reasons why no alternative providers have entered the Hull market are beyond regulatory control. Taking into account the lack of choice at a retail level, Ofcom then undertook further analysis to determine whether Hull residents were paying “Excessive” prices for broadband. They concluded:
– It was difficult to make fair comparisons between retail broadband prices as a number of factors – connection charge, speed, offers etc. – all have an impact but are very different.
– In many cases the attractively priced offers available in other locations throughout the country were contingent on purchasing additional services from that provider.
– These offers are more viable for providers because they have decided to install their own equipment in BT’s exchanges.
– Whilst Hull residents may not have a choice of broadband provider or be able to take advantage of certain product bundles that are available in parts of the UK, they are being offered deals that are comparable with those from a large majority of competitive providers elsewhere.
Anita Pace, Group Director of Communications for the KCOM Group welcomed Ofcom’s findings and added "We are pleased with the outcome of this exercise and would point to the level of scrutiny which Ofcom in reaching their conclusions have placed on the specific market drivers in Hull. We believe that the internet services offered by the Karoo brand represent value for money for our customers in Hull and we will continue to work with both the regulator and other interested communications providers to ensure that there is a fully transparent wholesale model".
A copy of the full Ofcom report can be found on the Ofcom website (opens in new window)
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