Ofcom’s Wholesale Pricing Rules Risk Creating A UK Broadband Duopoly

By Emma Lewis, bOnline

For much of the past decade, the UK broadband market has been seen as a regulatory success. Wholesale access to national networks allowed dozens of independent Internet Service Providers to flourish, while new fibre builders; so-called “altnets” – deployed networks across towns and cities. Consumers benefited from faster speeds, lower prices and a lot more choice.

But the market is under growing strain. A combination of wholesale price floors and aggressive retail promotions is reshaping the competitive landscape, potentially in ways Ofcom never intended. Policies designed to protect long-term infrastructure investment may, ironically, be accelerating consolidation. If current trends continue, the UK broadband market could increasingly narrow toward two dominant infrastructure platforms: BT (Openreach) and Virgin Media O2.

Wholesale Price Floors And Retail Discounts

At the centre of it is Ofcom’s approach to wholesale broadband pricing. Price floors on Openreach wholesale products were intended to prevent unsustainably low rates that might undermine fibre investment from the new challengers known as AltNets. In theory, this protects long-term returns for such investments, but in practice it locks resellers into fixed costs while allowing BT’s retail division to run aggressive consumer promotions.

Independent ISPs find themselves caught in the middle with artificially high wholesale costs, yet must compete against low retail prices that are most often below sustainable margins.

Large providers that run multiple parts of the business can handle the pressure more easily. Their size, combined services and ability to use profits from one area to support another help cushion the impact. Smaller internet providers don’t have those advantages, which makes them more likely to see their profits squeezed.

Shrinking Margins For Resellers

Most resellers rely on the gap between wholesale and retail prices to fund marketing, support, billing and operations. When that margin disappears, they face stark choices: raise prices and risk losing customers, cut costs and risk service quality or exit the market.

Increasingly, many are finding none of these options viable. The effect is already visible, with a growing number of ISPs struggling to maintain sustainable operations.

Altnets Under Pressure

The same economic pressure is affecting alternative network builders (AltNets). Over the past five years, billions of pounds have been invested in new fibre infrastructure across the UK, also as part of the landline shutdown. These investments were made with the expectation that smaller, independent ISPs and alternative networks could compete and attract more customers.

However, large companies that control both the network and services keep prices low, which makes it more expensive for smaller providers to win customers and slows down their profits. On top of that, higher interest rates and tighter lending make building new networks more costly. Smaller alternative networks now face tough decisions: slow down their expansion, look for mergers or partnerships, or risk going out of business.

Consolidation Accelerates

We’re already seeing signs of consolidation. Smaller networks are merging, selling off assets or shutting down. Independent ISPs that rely on wholesale access could face the same fate if profits keep shrinking. By the end of 2027, the UK broadband market might be dominated by just two main networks, with most smaller providers either absorbed or gone, and many independent ISPs disappearing.

The most likely result is a duopoly: BTOpenreach would stay as the main national network, while Virgin Media O2 would control the main alternative infrastructure. Almost all other operators could be merged or forced out, leaving limited competition for customers.

The Risk Of Unintended Consequences

Ofcom’s role is to protect competition while encouraging sustainable investment, but regulation can have unintended consequences. By enforcing wholesale price floors while leaving vertically integrated retail pricing largely unconstrained, the current framework risks squeezing the very providers that historically drove innovation and competition.

Once lost, infrastructure competition is difficult to rebuild. Fibre networks require long-term investment, and independent ISPs depend on viable margins to operate. A market that narrows to just two major network providers could remain concentrated for years, limiting consumer choice and slowing innovation.

A Crossroads For UK Connectivity

The UK broadband market is at a turning point. Over the past ten years, investment and competition helped create a mix of smaller networks and independent ISPs, giving consumers more choice, faster speeds, and innovative services. But now, that progress is at risk.

If the balance between wholesale rules and retail pricing isn’t adjusted, the market could slowly shrink into a duopoly led by Openreach and Virgin Media O2. Most smaller fibre networks are already being consolidated or being shut down, and many resellers could vanish.

The broadband revolution in the UK could quietly fade into a highly concentrated market. It’s something few policymakers intended, but one current regulations may be pushing toward. If action doesn’t happen soon, the competitive landscape built over the past decade could disappear by the end of 2027.