BT cuts wholesale broadband prices by 40 percent

British Telecommunications PLC (BT) has cut the price of wholesale broadband connections in the U.K. by 40 percent in an effort to stimulate the growth of "Broadband Britain," the company announced Tuesday.

Beginning April 1, BT will reduce the price of its wholesale asymmetric digital subscriber line (ADSL) product from £25 (AUD$69.35) to £14.75 ($40.92) a month in an effort to push end-user prices below £30 ($83.22) per month, BT said in a statement.

Earlier this month, BT's new Chief Executive Officer Ben Verwaayen promised significant broadband price cuts as part of his growth strategy for BT.

Verwaayen has said he sees broadband as key to BT's future and reiterated that point in Tuesday's statement, promising to drive growth across the entire market and to work closely with the "broadband community including particularly content creators and providers."

Through joint projects between BT Wholesale and more than 40 service providers, BT will encourage ISPs (Internet service providers), including its own BTopenworld, to pass the lower wholesale costs on to businesses and individual consumers, it said.

BT has set itself a goal of serving 1 million ADSL (Assymetric Digital Subscriber Line) broadband connections by the third quarter of 2003, it said.

The uptake of broadband Internet access has been slow across Europe. This is due, in large part, to consumer reluctance to pay what are seen as exorbitant prices for high-speed Internet access, according to two separate studies released this month by the European Competitive Telecommunications Association (ECTA) and analyst firm Gartner Inc.

The Gartner study indicated that unless European ISPs drive pricing to under €30 ($50) a month, from the current fees of between €45 and €60 per month, Internet use will stagnate and by 2005 only 10 percent of households in France, Germany and the U.K. will have broadband Internet access.

BT's price cuts received a positive reaction from the U.K. division of America Online Inc. (AOL), one of the largest ISPs in Europe, with 1.7 million subscriber households in the U.K. alone. "We are currently examining the details, but it is already clear that this takes us much closer to the dawn of Broadband Britain," said Karen Thomson, chief executive of AOL U.K., in a prepared statement.

Some analysts have expressed concern that BT's move will undercut the broadband market as a whole by keeping the U.K. industry dependent on its wholesale ADSL product, rather than offering broadband through collocation sites where the local loop, or "last mile," has been unbundled.

BT's rivals have decided that building their own high-speed Internet-access switching equipment in the exchanges would be too expensive. Companies such as Scotland-based Thus PLC, WorldCom Inc., Bulldog Communications PLC and Netherlands-based Versatel Telecom International NV have all announced that they will not pursue plans to offer their own DSL (Digital Subscriber Line) consumer service in the U.K. due to cost.

The U.K. national telecommunication regulator, the Office of Telecommunications (Oftel), sounded a note of caution while welcoming BT's price cuts. "We are for any cut in prices provided they are fair and not anticompetitive," an Oftel spokesman said.

Originally, 40 companies were involved with local loop unbundling collocation sites, he said, but that number is now down to three, and of BT's 25 million exchange lines, only 150 are currently being run by BT's competitors.

BT has provided Oftel with "a certain amount of information about how they arrived at the price cuts and other details," and Oftel will determine if the new pricing meets regulation requirements within the next month, he said. "The main issue is that BT cannot offer any product below wholesale," the spokesman said.

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Laura Rohde

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