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BT chopping broadband prices

After weeks of rumor, British Telecom confirms it is slashing the price of wholesale broadband. But will the low prices allow it to sustain its high-speed Net access business?

After weeks of rumor, British Telecommunications confirmed Tuesday morning that it will slash the price of wholesale broadband by the end of March and has set itself a target of one million broadband customers by 2003.

Prices for high-speed Net access will fall to 30 pounds ($42) per month or lower, as BT said it is cutting the cost of its wholesale consumer product by 50 percent.

The cost of BT's wholesale consumer broadband package, which is offered by about 200 Internet service providers in the United Kingdom, will drop to 14.75 pounds plus value-added tax (VAT) per month April 1. Self-installed broadband costs 25 pounds plus VAT, and the engineer-installed version costs 30 pounds plus VAT.

The new prices will apply to both versions, and both new and existing customers will benefit.

Broadband providers in the United Kingdom have been cutting prices to lure more high-speed Net access subscribers. But in the United States, industry consolidation and the high expenses for building networks have caused prices to increase.

BT said its pricing move should provide a boost to Britain's broadband market. It hopes the price cuts will help it attract one million broadband customers by 2003. The company also said it has made "significant" price cuts on its business ADSL (asymmetric digital subscriber line) products, but it didn't provide details.

Significant price cuts have been expected ever since BT's new chief executive, Ben Verwaayen, promised radical changes in the company's approach to broadband.

"Broadband is the future for Britain, and we're putting it at the heart of BT's plans for growth in the U.K. mass market," Verwaayen said in the statement announcing the cuts. "This will drive the whole market forward by making broadband affordable, attractive and accessible."

Broadband is always connected and allows people to surf the Internet many times faster than is possible using a standard dial-up connection. BT's ADSL product is supported by 1,010 local exchanges around the United Kingdom, mostly in urban areas, and is one of the few ways U.K. consumers can get a broadband connection. ADSL turns standard phone lines into high-speed digital connections.

Cable companies such as Ntl and Telewest Broadband also offer broadband services in some parts of the country, using a cable-based technology, while Tele2 provides wireless broadband in some areas.

Some of BT's opponents have said that the only way the company could achieve significant price cuts would be to sell its products at a loss, something it is forbidden by law to do.

According to Verwaayen, though, it will still be possible for BT to operate a sustainable business while charging ISPs 14.75 pounds.

"Through substantial reductions in the cost of providing service, we can set prices that will stimulate the market strongly and make money on it," he said.

Consumer broadband services in the United Kingdom typically go for as low as 40 pounds per month, and if BT's price cut is passed on to customers, retail prices should drop by around 10 pounds per month.

Industry sources already predict that some ISPs may cut retail prices by more than this, though. In what seems likely to become an increasingly competitive market, rival ISPs may decide to charge as little as 20 pounds per month for a 12-month broadband contract.

BT also repeated that it is prepared to offer ADSL to rural areas if it can find partners to assist with the infrastructure costs.

Graeme Wearden reported from London.