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Regulation

Thursday Is D-Day for BT

Tomorrow could be a make-it or break-up day for BT Group plc (NYSE: BT; London: BTA), which will find out at 7 a.m. (U.K. time) if the U.K. telecom regulator Office of Communications (Ofcom) is recommending a process that could lead to the incumbent being split into two separate companies.

Such a recommendation would have a massive impact on BT's next-generation network plans, and could even result in the scrapping of the carrier's aggressive five-year, $19 billion plan for its all-IP 21st Century Network. That, in turn, would have an impact on the eight vendors chosen as the preferred suppliers for the 21CN (see BT Unveils 21CN Suppliers and BT Moves Ahead With Mega Project).

Ofcom says it's announcing the results of its Strategic Review of Telecommunications -- intended to lay the ground for a fair regulatory environment as the U.K. telecom market moves from circuit-switched to IP networks -- early Thursday morning, but isn't giving any hints about the outcome.

The speed at which a decision is coming -- and the potential implications -- puts many people on edge, as it will have a rippling effect on equipment providers and BT's compeitors.

"We're surprised Ofcom's announcing its decision so soon," says Christine Roberts, director of external affairs at the UK Competitive Telecommunications Association (UKCTA) which represents BT's service providers rivals, including AT&T Global Network Services, Cable & Wireless plc (NYSE: CWP), Colt Telecom Group plc (Nasdaq: COLT; London: CTM.L), Easynet Ltd., and Energis plc (OTC: ENGSY), among others.

Roberts had expected negotiations to go on until the end of June, Ofcom's deadline for its verdict. She says that, while a "decision by Ofcom to do nothing is not really an option, it's impossible to predict what sort of decision it will announce tomorrow. The biggest fear for some is that Ofcom could announce the 'Nuclear Option' of an Enterprise Act referral, which would require operations to be split up. It could also opt for the middle ground, where BT will be required to make some structural changes. But the devil will be in the detail."

The regulator made a number of initial proposals in November 2004 that included the potential for an Enterprise Act Investigation, a process that could lead to BT being forced to split its Wholesale and Retail divisions into separate companies (see Ofcom Unveils UK Sector Proposals and BT Escapes Breakup – for Now). That resulted in BT making a number of concessions, including an offer to create an Access Services Division "to provide transparent and equal access to BT’s local network" for all service providers, including its own Retail division (see BT Proposes Stimulants ).

The key issue now is whether Ofcom is convinced that BT could, and would, offer "real equality of access" to its network for all service providers. BT isn't commenting on the potential outcome, saying only that it has been in continuous negotiations with the regulator and other carriers up to and including this week.

Roberts says UKCTA's members aren't hoping for any one decision over the other, just that the eventual outcome "gives our members equivalence, so that they're treated in the same way as BT's Retail division. But there are plusses and minuses to each decision, and whatever Ofcom decides, we know it will take a long time to implement."

Many folks are predicting, and hoping for, what Roberts calls the middle ground. BT has been lobbying the U.K.'s political and business power brokers, saying that a split of operations could jeopardize its 21CN plans and have a negative impact on the U.K.'s economic position. That message certainly seemed to have an impact on one U.K. government committee, which announced in April it was "unconvinced by the case for forcing BT to separate." (See Government Report Cheers BT.)

Investors do not seem to foresee a negative outcome for BT: The carrier's share price closed up slightly at 217.5 pence today on the London Stock Exchange.

— Ray Le Maistre, International News Editor, Light Reading

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