Latest regulatory move could see BT forced to slash wholesale leased-line fees.

Iain Morris, International Editor

June 12, 2015

3 Min Read
Ofcom Maintains Regulatory Attack on BT

The UK's telecom regulator has proposed cutting the fees BT can charge other service providers using its leased-line products in a further sign it is toughening up its approach to the fixed-line incumbent.

Having ruled that BT Group plc (NYSE: BT; London: BTA) remains a dominant player in the leased-lines market, Ofcom has proposed reducing fees for several products over a three-year period until they are at cost level.

The rules would come into force in April 2016 and affect older services providing connections of up to 8 Mbit/s as well as newer Ethernet products operating at more than 1 Gbit/s.

BT says it expects to be regulated in markets where it is dominant but criticizes the proposals for not taking into account an improvement in the competitive environment.

"We believe there should be less regulation in this market, not more, as businesses already have a diverse and growing choice among a large number of providers," a BT spokesperson told Light Reading. "More regulation could discourage future investment in the UK's telecom infrastructure."

Ofcom's latest move comes several weeks after it proposed forcing BT to provide dark fiber services to other operators, many of which have been calling for even more drastic measures. (See BT Kicks Up Stink Over Dark Fiber Proposals.)

Worried that BT's takeover of the UK's largest mobile operator, EE , will increase its dominance in the UK's communications sector, mobile operator Vodafone Group plc (NYSE: VOD) thinks BT should have to spin off its Openreach access business and agree to give up some of the combined entity's spectrum holdings. (See Vodafone May Buy Content to Fight BT, Telefónica.)

Such a dramatic step seems unlikely but Ofcom has previously told Light Reading it will consider all options during its latest strategic review of the sector -- its first in a decade. (See Ofcom Does Not Rule Out BT Carve-Up.)

Following complaints by TalkTalk , the UK's fourth-biggest broadband operator, Ofcom is also carrying out a margin-squeeze test to determine whether BT is preventing rivals from competing effectively through a combination of high wholesale and low retail prices. (See Quad-Play Cheerleader TalkTalk Falls Further Behind BT.)

BT is annoyed that Ofcom's test includes the cost of its spending on rights to screen top-flight sports events.

Ofcom believes the inclusion of those fees is justified because BT allows its broadband customers to watch sports content free of charge.

But Ofcom's formula means the gap between BT's wholesale and retail rates is narrower than it would be if content fees were not included in the calculation.

For more fixed broadband market coverage and insights, check out our dedicated broadband content channel here on Light Reading.

Ofcom's recent moves could make conditions a lot harsher for BT even as European authorities take a softer line with the region's former state-owned monopolies.

Concerned the region's telecom industry could slip further behind those in Asia and the US unless its biggest operators are allowed to thrive, the European Commission has grown more willing to accept in-country consolidation than various national regulatory authorities.

It has also sided with BT on the margin-squeeze issue, arguing that Ofcom's methodology does not give the operator enough flexibility.

But a UK withdrawal from the European Union (EU), which is now a real prospect, would give the country's telecom players little recourse to European authorities should national watchdogs block takeover activity or make other adverse moves.

The new Conservative government has promised to hold a referendum on EU membership before the end of 2017.

Ofcom says its consultation on leased-line pricing will close on July 31. It also points out that its proposals on Ethernet pricing assume BT will be required to provide dark fiber access and take into account the cost of doing so.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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