Broadband Providers in the UK
Introduction
We discuss the broadband market in the UK and how the retail and wholesale aspects affect UK broadband providers.
Contents
- Introduction
- Objective
- The Broadband Market in the UK
- Background History (circa year 2000)
- Evolution of Broadband Services
- The Modern Broadband Provider in the UK
- Bandwidth Capping:- Masking the True Price of DSL?
- Minimum Contracts
- Fair Usage Policies
- Conclusion
Objective
On reading this article you should have an understanding of the way in which broadband providers in the UK operate and compete to meet the demands of business & domestic broadband requirements.
The Broadband Market in the UK
Background History (circa year 2000)
The history of broadband evolution shapes today’s market. Hence why we’re touching on it here.
Significant migration of domestic internet connectivity from dialup to broadband started in year 2000 here in the UK.
For the business user at that time, high speed internet connections were expensive dedicated leased lines that typically were the domain of larger businesses that had big budgets to spend on connectivity.
Broadband options had been around since the late nineties with a few cable operators offering cost effective high speed connections. However, the options for small businesses and homes at the time were fairly limited with only sporadic availability of broadband connections. Getting a high speed connection at that time was a lottery of geographic location (i.e. one had to be within a particular catchment area of a Cable Company [CableCo]).
Everything changed in late 2000 when British Telecom (BT) came to the market with its generic DSL products.
Rather than BT retaining exclusive retail rights for DSL, it opened up a wholesale channel programme allowing Internet Service Providers(ISP)s to resell BT generic DSL products.
There were (and still are) are two product types offered by BT wholesale:-
- DataStream
- IPStream
The channel programme meant that BT could leverage sales and support of its broadband products via its reseller partners. This approach has proved to a highly effective means of matching the demand for broadband with the supply in the UK marketplace.
BT have created DSL broadband as almost a tangible “commodity” whereby it is the producer / supplier and between it and the end customer is a supply chain. The model was (and still is):- Producer(BT) -> Wholesaler(BT) -> Retailer(ISP) -> Consumer.
Evolution of Broadband Services
Commercial and technical issues have changed the market in the last few years.
As wholesale bandwidth has become cheaper due to technological advances, the prices for provision of DSL bandwidth have also fallen.
With Local Loop Unbundling (LLU) now in full swing, ISPs are now free to install their own equipment in local BT infrastructure. With this new freedom, higher DSL speeds of up to 24Mbps are possible. Availability of these LLU based services is currently sporadic and mainly around large cities and towns.
The Modern Broadband Provider in the UK
Demand for broadband in the UK continues to increase year on year. As the demand continues to increase, so do the number of broadband providers. With increased supply and capacity comes increased competition.
The provision of broadband services can be very profitable. The product demand base continues to expand as the Internet increases in significance in peoples daily home and business lives.
As the supply of DSL broadband continues to burgeon, it is increasingly becoming a buyers market. Furthermore, the migration code of practice makes it easier for customers to switch their providers if they are not happy with the service or package being provided by their existing provider.
In this competitive environment, providers are:-
- Dropping prices (hence reducing their profit margins)
- Bundling in freebies (e.g. routers, web hosting, spam & virus filtering) to entice new customers
- Offering Free incentives (e.g. exclusive content like access to the BBC broadband portal) to retain customers
- Providing free re-grades to faster speed DSL
Bandwidth Capping:- Masking the True Price of DSL?
Some ISPs believe that the broadband consumer market in the UK is highly price sensitive. They have therefore, come up with a methods to offer potential new customers “Fast & Cheap” broadband.
The method is to offer highly competitive connection and rental fees in their “headline promotions”. However, like most things that seem too good to be true there is a catch. The catch is that the services are crippled or restricted in some way. The most common approach is to restrict (or “cap”) bandwidth. For example, a product may be restricted to downloading {n}GB / month. Users exceeding this restriction will either be cut off or invited to pay for the extra bandwidth.
Another way of managing bandwidth is by stipulating restrictions on the times of day that connections can be used. For example, some broadband products may only be used during evening or weekends. Use of the product outside these times will incur additional charges.
Whether capping or restriction of broadband services is acceptable or not is debatable. However, it does ensure that making a like-for-like comparison of broadband products is becoming increasingly difficult for consumers. Obviously, this model follows a similar approach adopted by mobile telephone operators in the UK whereby the sheer number of options (such as Pay as You Go, fixed contract, “Talk-time” etc) make it impossible for most customers to deals that are most appropriate to their circumstances.
Minimum Contracts
Until recently, most domestic and business broadband services operated on 12 month contracts.
Many ISPs now offer one month contracts. However, there can be a catch for customers. The catch is that, where a connection fee may be waived on signing up a new customer, if the customer chooses to leave a broadband provider within the first 12 months, then they are obliged to pay the connection fee (on average around £50).
Fair Usage Policies
In an effort to mange excessive bandwidth demands from the minority of customers using their connections to “hog” bandwidth, ISPs now have Fair Usage Policies.
It is debatable as to how effective these policies are in reducing “bandwidth hogging”.
Conclusion
Operating as a broadband provider in the UK is becoming more difficult than it used to be in the early days as competition increases.
Many broadband providers will attempt to “wow” new customers with “faster and cheaper” broadband offers. However, “cheap” broadband usually comes with other restrictions such as bandwidth capping.
Competitive provision of broadband services is good news for UK consumers. However, making like-for-like comparisons (and therefore well informed decisions about appropriate broadband products) is becoming increasingly difficult for customers.
