British Telecom paved the way for cheaper, faster internet access yesterday when it slashed its wholesale price for broadband online access in a move that will lead to lower prices for consumers. The decision is part of a fresh effort to create "Broadband Britain", the Government's vision of a hi-tech nation wired up with the very fastest internet access.
BT is to cut the wholesale price of a broadband line from £25 a month to just £14.75 from 1 April. This will enable the internet service providers that rely on BT lines, such as Freeserve and AOL, to cut the prices they charge consumers for their broadband services.
Freeserve and AOL's broadband packages currently cost £44.99 a month, an offer only a handful of consumers have taken up. BT's decision is expected to lead to prices of £25 to £30, the level required to make broadband a mass-market proposition. Pipex led the way yesterday, saying its broadband service would be priced at just £19.99.
The cuts bring Britain's broadband services into line with other countries such as France, which charges £34 a month, Germany (£29) and the US (£28). Sweden is one of the cheapest with rates of just £19.
BT's new chief executive, Ben Verwaayen, hailed the decision yesterday, saying: "Broadband is the future for Britain and we're putting it at the heart of BT's plans for growth in the UK mass market. This will drive the whole market forward by making broadband affordable, attractive and accessible."
The move was welcomed by rivals, which have long campaigned that BT's wholesale prices made broadband access uneconomic. AOL's chief executive, Karen Thomson, said: "We are presently examining the details, but it's already clear that this takes us much closer to the dawn of broadband Britain."
Freeserve also welcomed the price cut, which is below the £18 a month recently called for by its chief executive, John Pluthero. "Freeserve has lobbied long and hard for BT to reduce wholesale pricing and we can now offer broadband to consumers at a price that will drive high levels of take-up."
Broadband is essentially a bigger pipe that enables a far greater amount of information to be transmitted at far greater speeds. It is approximately 10 times faster than normal "narrowband" access and is particularly useful when downloading graphics or large files. It is faster partly because it is "always on", avoiding the need for lengthy dial-up times.
So far, broadband has been a flop in the UK, largely because of high prices. In addition to the monthly fee, subscribers to the BT network must pay a £150 installation fee if they are visited by an engineer or a £50 fee if they install it themselves. There are just 145,000 broadband customers who subscribe via BT's network in the UK through service providers such as BT itself as well as others such as AOL and Freeserve. The cable companies such as Telewest and NTL have another 100,000 broadband customers each. This compares with 2.1 million broadband customers in Germany.
Mr Verwaayen predicted that a quarter of Britain would have opted for the faster Web page downloads and multimedia potential of broadband within four years. This compares with less than 1 per cent now, putting the UK at or near the lowest among developed economies.
BT said yesterday it was aiming to boost its number of wholesale broadband connections to 1 million by summer 2003. It reckons it could reach 5 million by 2006.
Subscribers to broadband services such as BT Openworld receive unlimited internet access for the monthly fee. The service also means you can receive telephone calls while on the internet. Ordinary voice telephone calls are itemised at the normal rate. The greater capacity enables users to take advantage of services such as online video conferencing and the downloading of films.
Most of the current broadband connections are to big businesses but the "Broadband Britain" vision is aimed at wooing small businesses, people who work from home and families with children who may use the internet extensively for educational purposes.
Some analysts noted the timing of BT's announcement, which comes just as many of its rivals are strapped for cash and in a weaker position to compete. Others said it detected the hand of the Government with the references to the group's broadband vision of the future. "It was very heavily spun, like Shane Warne at his peak," one said.
Oftel, the telecoms regulator, also backed the move despite concerns that it may lead to unfair price competition. David Edmonds, its director-general, said: "Today's announcement has the potential to bring about a step change in the take-up of broadband by consumers and small businesses.... Clearly any prices charged by BT must be fair and not anti-competitive. BT is well aware of that and has already provided Oftel with cost information."
Adam Singer, the chief executive of Telewest, said: "It was getting hard building broadband by ourselves and it's great that BT has finally turned up to lend a hand."
Mr Singer said Telewest would respond by competing with faster speeds rather than on price. He described BT's 512 kilobits-a-second service as "a racing Zimmer frame" and said Telewest would "keep raising the speed until they [BT] run out of puff."
BT expects to announce the new tariff for its Openworld service within a week. Rivals are reviewing the new wholesale prices and will announce their new services soon.
However, analysts said the service providers would face consumer apathy, and potential service problems if consumers choose to self-install their own broadband service for the cheaper price of £50.
BT shares fell 1.5p to 262.5p.