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The local loop is the wiring between the exchange and a subscriber's premises. Over the years BT has resisted losing its monopoly of the local loop. However, due to regulatory pressure the local loop is now being offered more competitively to rival suppliers.

Previously, BT has charged a high price for unbundling the local loop to competitors. At the beginning of the year a shared access connection would cost £117. Following the announcement of a price review by Ofcom, BT cut its price to £83.33. However, this was not enough for potential competitors who said BT could do more. Under the new Ofcom proposals, this will be slashed to just £37.03 wholesale. A fully unbundled transfer of the wires will fall from £88 at the beginning of the year to £50.70, a cut of 42 per cent.

'This announcement comes as absolutely no surprise,' said BT spokesman David Orr. 'Ofcom had already indicated the kind of cuts that they had in mind back in May. We said then that price cuts in the order of 70 per cent might be achievable. We are currently looking to re-engineer the LLU products in order to get closer to Ofcom's aspirations and hope to make an announcement in September.'

One figure not in the proposed charges is the price for fully unbundled line rental. Currently it is £105.09, down from £119 at the beginning of the year. However, BT has said that a large proportion of the costs in a local loop is laying and maintaining the cable. Ofcom has said that it will undertake an assessment of the value of the local loop itself and has delayed a final decision on the wholesale line rental price until the spring of next year.

Duncan O'Neill, AOL's Director of Regulatory Affairs, broadly welcomed the Ofcom proposed pricing. 'We are still going through the Ofcom document and we are still digesting the detail but we are certainly going in the right direction. In the long term, it will make local loop unbundling a more economic product.'

However, O'Neill also pointed out the difference between the proposed shared connection charges for local loop unbundling at £37.03 and the current connection charges for the IPStream and Datastream products. The wholesale broadband connection costs have been stubbornly stuck at around £50 for some time now.

'Over the past couple of years the rental [on IPStream and Datastream] has gone down whilst the connection charge has remained static and we don't know why', he said. 'For all these products BT uses the same bits and bobs and the same engineers, so we can't see why the prices can't be the same.'

Ofcom will be making its final decision on pricing levels, excluding line rental, in December, following consultations. BT says it will be 'talking closely' with Ofcom in the intervening months.