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ISPA Urges Ofcom To Reassess Broadband Regulation

by Robin Pilgrim,, London

18 November 2004

In a statement released on Friday, the UK's Internet Service Providers' Association (ISPA) called on telecommunications regulator Ofcom to review the way in which the provision of broadband internet connections is regulated, arguing that the current system makes it almost impossible for smallers ISPs to expand.

Under the current system, smaller ISPs usually resell products from the IPStream range provided by BT, whilst their larger counterparts offer services based on BT's Datastream range.

Ofcom has forced the former monopoly provider to price the two services at levels sufficiently different to ensure that there is competition between them. However, in its submission to the telecoms regulator, the ISPA argued that this arrangement, known as the 'margin squeeze test' (MST) is effectively pricing smaller ISPs that are hoping to expand out of the market.

Speaking to the ZDNet news service this week, an ISPA spokesman revealed that the difference in price between the two levels of broadband service at a wholesale level can be as much as £26,500.

"If an ISP wants to provide a service to more customers, they can have to make a massive investment," he explained.

Chairman of the ISPA sub-group on broadband, Matthew Hare confirmed this, announcing on Friday that:

“We need an urgent review of the MST which has effectively placed a cap on the growth of SME ISPs. Although the current formula supports the home Internet user market, the impact on business Internet services - often retailed by small and medium sized ISPs - could be devastating.”

He went on to add:

“ISPs operate a variety of business models, but the MST was only developed by assessing the BT model. An effective understanding of the profit margins an industry operates on requires an assessment of the industry as a whole, not just one company, no matter how big.”

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