Price rise of up to 32 per cent could be passed on to customers and stunt growth of small and medium sized ISPs

The Internet Services Providers� Association (ISPA UK) is highlighting significant fears for its smaller members and broadband Britain following price rises introduced by BT to their IPStream products in order to comply with an Ofcom Direction.

IPStream is the wholesale package sold to ISPs who can then offer retail broadband services to end users � including small and medium sized businesses.

On the 3rd of August 2004 BT made an announcement, that there would be a rise of up to 32 per cent in the pricing of its �IPStream S� and �IPStream Office� products. BT is only required to give its wholesale customers 28 days notice of such increases.

ISPA has conducted a consultation of its membership on the price rises.

ISPA�s consultation showed that small and medium sized ISPs (SME ISPs) are likely to be significantly affected by the price increases. Such an escalation implemented on this scale and in such a time frame may mean ISPs will be forced to charge significantly more for their services, diminish service levels or even close. This would offer less choice of provider for end users, cause a negative impact on competition in the Internet industry and potentially cause SME ISPs to offer services that are not on a par with their larger competitors.

Ofcom launched a consultation about such pricing and published a Direction which justified the BT IPStream price increases on Thursday 26th of August (entitled Direction Setting the Margin between IPStream and ATM Interconnection Prices).

ISPA believes that Ofcom should seriously consider the manner in which it conducts industry consultations and ensure that it takes account of small and medium sized ISPs when conducting such consultations.

The Impact on Small and Medium Sized ISPs

SME ISPs � already operating on tight margins � will have particular difficulty managing these price changes. Many have customers on annual contracts, and so will have great difficulty asking their customers to pay more.

Some ISPs undergoing incremental growth may not be able to afford the level of investment in BT Wholesale services required to maintain service levels to their customers. This would in effect place a cap on the growth of SME ISPs. SME ISPs are operating in a tight market that is undergoing significant broadband price reductions for end-users � and yet are facing increasing costs for wholesale services from BT.

The options for SME ISPs appear limited. ISPA sees three alternatives for small ISPs:
ISPs may have to reassess their business plans and opportunities to grow their businesses
ISPs may risk losing customers if their prices are increased in line with BT�s price rises
ISPs may try not to pass price rises on to their customers but may have to downgrade their standards of service.

ISPA is calling on BT to value its SME ISP client base and recognise the particular needs of SME ISPs, which are very different to those of their larger competitors. ISPA is also urging BT to think again about how they are introducing the price increases. Alternatives to implementing any such significant price rises on SME ISPs must be considered particularly in light of the introduction of two new BT Wholesale charging structures � capacity based charging (CBC) and usage based charging (UBC).

Jessica Hendrie-Lia�o, Chair of the Internet Services Providers� Association Council said, �Until the new usage based and capacity based charging structures are well established BT Wholesale services � to the point that they offer realistic alternatives to IPStream services � great care should be taken over the charging structures SME ISPs must face.�

ISPA is calling on BT to consider delaying the introduction of steep IPStream price rises for the SME ISP sector significantly.

Alternatively, BT could assist SME ISPs by easing their transition into the new pricing structures. Offering incremental price increases in IPStream services over the next year, developing new or interim IPStream products for the SME ISP market and offering financial assistance and support via discounts and promotions would ease the transition of SME ISPs into different pricing structures.

In addition, BT should consider special redundant pipe services with their IPStream services so that SME ISPs can economically offer backup services to their customers.

Mrs Hendrie-Lia�o continued, �Thirty days notice for such potentially steep price increases is a very bitter pill for the SME ISP community to swallow. ISPA believes that BT Wholesale could alleviate the concerns of SME ISPs by allowing greater time for the implementation of the price changes, easing the transition to new charging structures for SME ISPs and supporting ISPs through promotions and discounts.�

Mrs Hendrie-Lia�o concluded, �Ofcom should have a higher regard for small businesses in the Internet and telco industry. Ofcom should appreciate the significant contributions SME ISPs have to the development of the UK Internet industry, to creating a competitive marketplace and to service levels in the Internet industry.�