The Mis-selling of Up to 8Mbps Broadband

IanFogg | July 27, 2006, 11:59 AM

[update 6.02pm 27/7] This isn't intended to be an attack on BT Wholesale. The issue here is about clarity and transparency in marketing broadband and is one *everyone* in the industry needs to tackle. More tomorrow.

Back in March BT Wholesale launched the line max services that offer speeds theoretically up to 8Mbps. Today, in the BT results BT Wholesale argue this has been successful and a stable product, I think the industry would beg to disagree.

BT Wholesale launched broadband max services in March 2006, providing the UK market with the highest stable speed broadband service across the widest national footprint in the world. Service providers are currently migrating broadband subscribers to BT Wholesale’s IPMax services, which deliver services at speeds of up to 8 Mbit/s. To date, more than 750,000 subscribers have been migrated to max services, aided by the availability of a new automated mass customer migration tool.

The vast majority of DSL broadband connections in the UK are based on BT Wholesale packages. If this wholesale product has issues it affects almost every ISP in the industry. Several ISPs are offering free re-grades back to the old flat rate broadband products, and one of the leading forums for savvy broadband users reports multiple problems with line max that are continuing.

BT Wholesale advised that the reasons a consumer might not be able to receive that speed was due to telephone line quality issues, ie a technical limitation of ADSL1 that is, correctly, outside of BT's control.

In reality, speeds are being limited by other factors (as well) such as exchange congestion. Plus, BT have set their systems to include some apparently rather arbitrary speed throttling settings, which are intended to improve reliability but appear to create a lowest common denominator for download speeds and have caused a lot of teething problems.

The problems for the industry as I see them from this are:

1. Advertising standards issues with the 8Mbps claim. An actual 8Mbps download speed is impossible to achieve on ADSL1, so these products should not be advertised as 'up to 8Mbps'. The fastest actual download speed is around 7.1Mbps.

2. Misrepresentation of the reasons why the maximum speed may not be achieved. An end users’ speed is not determined solely by the quality of their line at the moment. Yet, that is what most ISPs selling these services imply, see: Demon, Nildram, Pipex, Plusnet, Orange, etc.

Actual speeds appear related to congestion and internal BT network settings. While previous products were sold as “contended" with a stated 50:1 or 20:1 ratio of users to capacity. That has been dropped from the product description now. In practice, contention issues appear very common now, while they were rare before.

Additionally, those ISPs that use traffic shaping, or prioritization, on their own network may reduce usable speeds for consumers. For those ISPs, blaming the quality of a customer telephone line is a convenient decoy. This reduces transparency in the market.

3. The above will create further downward price pressure on the broadband market (see our forecast for broadband ARPU). If consumers think their line is the reason they cannot get higher speeds, which I suspect most consumers will think (as few will know to check their router sync speed and compare it with the actual download speed), then they are extremely unlikely to think it’s a good idea to switch to a more expensive ISP offering faster speeds. It makes it hard for an ISP focused at the quality end of the market to justify why a consumer should pay more for broadband; this puts further pressure on broadband prices which is not in the industry's interests (as a whole).

4. Poor performance of BT Wholesale-based DSL will increase market concentration around the largest ISPs, reducing consumer choice between providers. If the BT Wholesale-based packages have too many problems it increases the need for ISPs to invest in LLU networks to be competitive. But that requires significant economies of scale to be worthwhile. Medium-sized and small ISPs will find it harder and harder to remain viable; unless the LLU players start offering a compelling wholesale service to compete with BT.

5. BT Wholesale will likely use the line max teething problems to justify their late ADSL2+ launch timescales. In today's announcement, BT reiterated that the DSL2+ max products (up to 24Mbps) would be tied to the 21CN roll out and therefore start in January 2008. Be (Telefonica-owned) launched DSL2+ a year ago in the UK. The hidden jewel in Sky's announcement last week was the mass market launch of its DSL2+ at up to 16Mbps for just 10UKP a month extra for existing Sky TV customers. This will increase the benefit to ISPs of using an LLU network, rather than BT's. Elsewhere in Europe, ADSL2+ services similarly launched years ago.