the argument seems a farce.
It seems talktalk are saying they have some divine right to undercut BT, if they cant then BT have broken some rule somewhere?
Talktalk of course also did heavy loss leading when they started offering adsl, if I remember right they were the one's who effectively trashed the adsl market.
Any market where a reseller is able to undercut the wholesaler shows something is wrong (usually either the wholesale having large margins on their own retail product, or the reseller loss leading). to me it seems natural BT are able to sell for less than talktalk as its BTs infrastructure.
Of course if ofcom decide that talktalk are in the right even tho sky in the same position are doing fine, BT could respond by dropping BT wholesale prices a bit to increase BT retail margins and then talktalk are still no better off.
It seems to me talktalk lack innovation, they only can sell by been the cheapest. It woudl be a mistake by ofcom to rule in their favour because it would be to stifle BT's business case for FTTx in favour to satisfy a company that is just piggybacking of BT and trashing the market.
BT Infinity 2 Since Dec 2012