Regulator Ofcom is proposing severe reductions in wholesale broadband charges for internet service providers.

The communications watchdog is looking to create an independent pricing structure for broadband operators to offer connections directly to customers through Local Loop Unbundling (LLU), instead of renting them from major network owner BT.

By doing so, Ofcom hopes to facilitate the introduction of much cheaper Voice over Internet Protocol telephony, as well as reasonably priced video on demand and content-rich media services.

Under the proposals, prices of connection and rental for broadband services could be slashed by as much as 76 per cent for shared-access LLUs and 42 per cent for fully unbundled LLUs, compared to the prices that BT charged before voluntarily introducing reductions in May.

The regulator said in a statement: "Although Ofcom can determine the framework it is the commitment of BT to make it work, and the commitment of the competing operators to invest, that will decide the range and reliability of services, their price, and hence their attractiveness to residential and business customers."

But Charlie Davies, Ovum senior analyst, warned: "These reductions are quite drastic. There might be some raised voices from BT. It will argue for going a bit slower to avoid a price war and operators going out of business."

BT, however, is unfazed by Ofcom's proposals. "We had expected to reduce the main product price by about 70 per cent," a spokesperson told vnunet.com.

"[Ofcom] has said today that that [reduction] looks about right and was, in the main, very much where our thinking was. We believe we will be able to do it and don't believe it is impossible."

LLU lines currently only account for a small number of UK broadband connections, despite government wishes. This small number has been blamed on BT's high charges for companies looking to set up in competition.

Ofcom hopes that today's reductions will also encourage more operators to move from using BT's Datastream, IPStream and wholesale connections. These restrict connections speeds to 512Kbps and 1Mbps, as well as the numbers of users who can share a connection at one time.

"I think it will take a while for new services to emerge from this," said Davies. "There's [consumer] demand to think of too, where things like pay-TV are already dominated by the likes of Sky."

The new pricing is scheduled to come into effect in December, subject to consultation. Ofcom wants more than one million unbundled connections live by 2005-6.