Fast broadband - who can compete with BT?

BT has a big headstart in the race to roll out fast broadband

The price of broadband down your copper telephone line is about to come down, thanks to those nice folks at Ofcom.

The latest price controls on BT's wholesale division mean that companies like Sky and Talktalk, which supply broadband via the Openreach ADSL network, should be able to trim the cost to their customers.

That sounds like bad news for BT and good news for consumers. But could the regulator's actions end up helping to make BT the only national player in superfast fibre broadband, and might that be damaging for the UK as a whole?

One small firm trying to compete with BT to bring fast broadband to rural Britain thinks that might be the case. At the end of last year, Geo Networks pulled out of the race for the government-funded superfast broadband contract in Wales, complaining that the way it was set up made it impossible to compete with BT.

And when I spoke to Geo's Chris Smedley yesterday he explained why Ofcom's latest move could have an unintended effect. Cutting the price of the existing technology, he explained, would make the investment case for building new fibre networks even harder to sustain.

"On the face of it," he said, "it looks consumer friendly but if the long term objective is to move us to fibre you wouldn't do this."

Mr Smedley said that a decade ago, when we were moving from dial-up to broadband, the then regulator Oftel acted very differently, putting a floor under the price of the old technology to encourage take-up of the always-on internet.

With competition in the broadband market fierce, there's already quite a gap between the bargain basement copper price and what you pay for a premium fibre product. Sky tell me their new fibre broadband service - using the BT infinity infrastructure - will cost £20 per month, compared with £7.50 for a standard ADSL service. Now that gap could get bigger.

And it is increasingly clear that in much of the UK, companies hoping to compete with BT to roll out fast fibre are struggling to make headway. Fujitsu, for instance, announced last April that it was going to bring fast fibre broadband to 5 million homes in rural Britain. But since then we've heard very little about how that plan is going.

There is £530 million in public money available to bring superfast broadband to the "final third", areas which will not be served by the market. But in the four pilot areas, Highlands and Islands, Cumbria, Herefordshire and North Yorkshire, a number of BT's rivals have taken a look, whistled at the scale of the task - and withdrawn from the race. Bidding against such a well-established incumbent looks a fool's game to many.

So it looks likely that in the four pilot areas and then across the UK, the lion's share of that £530m will go to BT. That will further reinforce the company's position as the only show in town when it comes to rolling out Britain's next generation network - even Virgin Media has no plans to cover more than about half of UK households.

But does that matter? Wouldn't Ofcom be better advised to give up on the idea of competition and hand the job of fibring up Britain - and the public money - to BT? After all, the process of sorting through the suppliers for the superfast pilots has proved time-consuming and inefficient, while in Cornwall, where BT was awarded a contract with little fuss, customers are already being connected.

Even Chris Smedley - whose firm wants to get better access to BT's infrastructure so that it can provide some real competition - accepts that having a national broadband champion might make sense.

But he says what is really needed is a clearer strategy from Ofcom and the government, one that does not create perverse incentives to continue investing in the old copper-based broadband networks. "Every penny spent on upgrading copper is a penny lost to new fibre networks," he says.

The government has promised to give Britain the best broadband in Europe by 2015. With three years left to hit that target, we look well-placed to have the best and cheapest copper-based connections - but a fast fibre Britain still looks a long way off.