The row concerns BT's August announcement of two new wholesale broadband packages that will effectively put the sale of the service onto a metered, rather than a fixed price, unmetered basis.
The changes followed immediately on from a direction statement in August by communications watchdog Ofcom, which set the margin between interconnection prices for two of BT's broadband products, IPStream and DataStream.
Small ISPs criticised the ruling, arguing that while it was designed to increase competition in the sector, the "Margin Squeeze" test used by Ofcom was only based on a large, first tier ISP and therefore did not take account of the needs of small to medium ISPs.
In early August worried ISPs set up a new industry association, the United Kingdom Internet Federation (UKIF), and have since been lobbying for action.
According to the group, the ruling and the consequent price increase favour larger ISPs and will actually squeeze many smaller providers out of business, reducing consumer choice and effectively holing the Government's Broadband Britain policy below the waterline.
UKIF believes there is a case for a parliamentary enquiry into how Ofcom has regulated and consulted on the issue. In particular, UKIF is concerned that, with BT announcing the price increase with only 28 days notice, BT's implementation of the Ofcom ruling is precipitate, especially as many ISPs have year long contracts with their customers and so will be unable to make up the lost profit margins.
"This is chaotic and unplanned intervention in the marketplace," said Steve Harris of UKIF yesterday. "Ofcom must re-think the timing of the impact of their actions or they will seriously damage an entire industry in the name of 'regulation'. They should have anticipated that BT would use their well meant actions to bolster its monopoly position."
Sir George Young stepped into the row yesterday, expressing concern that Ofcom may have misjudged the market implications when basing its decision on the 'margin squeeze test'.
In a statement on his web site, the MP for North West Hampshire said:
"Given that (according to BT) it is Ofcom's regulatory position that has led to the price and product changes and to the need for them to be rushed through at the minimum 28 days' notice, I now regard it as very urgent to have a clear statement from Ofcom that recognises the issues brought forward by ISPs and their representative organisations and explains how the margin squeeze test and other relevant decisions and rulings are intended to benefit the industry and its customers."
"With only 28 days notice of this price increase we have had to work very quickly to get government to sit up and take notice of this disastrous decision that will affect many businesses and in particular hinder the successful roll-out of broadband in the Britain as a whole," said Harris.
"Time is running out and there are only five days left before BT implements this disastrous price hike. We now urge as many people as possible to contact their local MP to voice their concern," he concluded.