BT Let Off the Hook

BT Group plc (NYSE: BT; London: BTA) has avoided the damaging prospect of being split up by promising to make a legally binding offer to the U.K. regulator that will ensure fair and equal access to its network for all service providers (see Ofcom Proposes New Regs).

BT's commitment comes as the regulator, the U.K.'s Office of Communications (Ofcom), this morning gave details of a new regulatory approach for the U.K.'s fixed line telecommunications market that concludes its Strategic Review of Telecommunications (for more background see Thursday Is D-Day for BT).

As part of that review, the incumbent carrier faced the prospect of an investigation under the U.K.'s Enterprise Act, a process that could have resulted in BT being split into two companies, one wholesale and one retail. Ofcom, though, has been convinced that BT has the will and means to deliver a level playing field for all service providers, and has opted for a less drastic, though still influential, proposal.

The news will cheer not only BT, but the lead vendors in the carrier's 21CN network plans, which would have been scrapped if the carrier had been split up (see BT Unveils 21CN Suppliers). It also cheered investors: BT's share price was up nearly 3 percent to 223.25 pence in early morning trading on the London Stock Exchange.

But Ofcom is determined to show that, after years of wishy-washy regulation by its predecessor, Oftel, it's a watchdog with real teeth: It has retained the right to refer BT under the Enterprise Act if the carrier doesn't follow through on its promises of providing equal access to its network for all service providers.

The regulator noted in today's press release that, on Tuesday this week, BT "agreed in principle to offer to the Ofcom Board legally binding undertakings in lieu of a reference under the Enterprise Act. On Wednesday 22 June 2005 the Ofcom Board accepted this offer. The proposed undertakings commit the company to substantive changes in organisation and behaviour; full detail of the proposed undertakings will be published on 30 June 2005."

Ofcom notes that if BT breaches its legally binding commitments it could take BT to the High Court and that competitive operators affected by any breach could seek damages through the Court to cover any losses incurred.

The key organizational change at BT will be the creation of "a new -- and operationally separate –- business unit, provisionally entitled Access Services," staffed by the current 30,000 BT Wholesale employees "presently responsible for the operation and development of BT’s local access networks." The unit's management team will have to be located in "separate physical locations" from the rest of BT, says Ofcom.

Ofcom adds: "The new business unit will be required, through a set of formal rules on governance and separation, to support all providers’ retail activities (including those of BT Retail) on a precisely equivalent basis." This is the scenario BT's competitors want, but they'll take some convincing that BT can be forced into providing true equivalence.

The new unit will also be subject to scrutiny by a new body, the Equality of Access Board, which will consist mainly of non-BT members appointed with Ofcom's approval.

The telecom team at Lehman Brothers believe Ofcom's "new regulatory approach is more aggressive than expected." In a research note issued this morning, Lehman noted that Ofcom has "a very significant stick to threaten BT with, and the threat of competition commission referral remains. Importantly BT's undertakings will be legally enforceable meaning other operators will be able to take BT to court for damages. Ofcom [is] very focused on detail to ensure objectives [are] fulfilled in practice -- very different from history."

One of BT's competitors, business service provider Thus plc (London: THUS), welcomed the news, but added a note of caution. "Ofcom has correctly identified equality of access at a key principle underpinning future regulation, and we hope it will drive substantial improvements in the way that BT treats us as customers," said the operator's Head of Regulation and Interconnect, Richard Sweet.

"We also support Ofcom's decision not to make an Enterprise Act reference, which would have caused further uncertainty and disruption. However, Ofcom must be prepared to take firm and swift action if BT fails to deliver on its undertakings. The most pressing issue facing industry today is next generation networks, and how to ensure that BT's 21st century network supports full and fair competition. We urge Ofcom to engage actively with BT to industry to provide greater clarity regarding the regulatory regime for NGNs," added Sweet.

BT CEO Ben Verwaayen said in a prepared statement: “This has been a meticulous process during which BT has engaged in depth with Ofcom and the industry. We came up with bold proposals in February that reflected the reality of the market and we have now committed to a framework to ensure others have confidence in the settlement. It is time to draw a line under twenty years of micro-regulation and to welcome a new era where regulation is focused where needed and rolled back elsewhere.”

BT also noted that it has cut its local loop unbundling (LLU) and wholesale line rental prices as part of its "continued commitment" to the market.

— Ray Le Maistre, International News Editor, Light Reading

materialgirl 12/5/2012 | 3:09:35 AM
re: BT Let Off the Hook The UK Government made a nice first step by trying to separate access from long-haul. As old POTS keeps reminding us, however, the devil is in the details here. How do regulators keep BT from cross-subsidizing services via obscure accrual-based accounting? Visibility is one step, but not a total solution. BT could chose to starve part of its business to feed another.

Another sticking point comes in moving "up-stack". Higher lever services, whether they are IMS or CSCO's AON, are by definition hard to be compatible with. This is how MSFT maintained software dominance, by constantly shifting their APIs to destablize application competition. By owning the network, and by embedding higher-level AON-like or XML-like, services in their network, BT could effectively do the same thing.

That said, it is nice to see a close trading partner do something half way intelligent. Now if our regulators could only wake up and smell the coffee, instead of trying to cement the future monopolistic position to our incumbents under the umbrella of "information services" ala IPTV.
netorange 12/5/2012 | 3:09:30 AM
re: BT Let Off the Hook Your commens seem right on target. If BT can only respond positively and constructively then this could be a case of enlightened regulation.If they respond with the kind of foot dragging legalistic arguments with too clever cost accounting that we have seen from the ILEC's then this enlightened move by Ofcom will be a failure. We can only hope the FCC will get their act together and use this approach as a model to move our telecomm services market forward.
Sign In