BT has warned Ofcom that hiving off its Openreach access networks business would damage the UK's "digital health," as the operator responds to the regulatory authority's strategic review of the market.
BT has also urged authorities to back its £12.5 billion ($19.2 billion) takeover of EE, the country's biggest mobile operator, and to take a harder line with pay-TV giant Sky . (See BT Locks Down £12.5B EE Takeover Deal.)
Ofcom is carrying out its first strategic review of the communications sector in a decade in response to a series of recent developments, including a proposed £10.25 billion ($15.7 billion) merger between Telefónica UK Ltd. and Three UK -- the country's second- and fourth-biggest mobile operators -- as well as BT Group plc (NYSE: BT; London: BTA)'s EE bid and the rollout of higher-speed broadband networks. (See Telefónica Seals $15.2B O2 Sale to Hutchison.)
It has not ruled out mandating the "structural separation" of the fixed-line incumbent as a way of improving competition in the UK market, with complaints from rivals about BT's dominance growing louder. (See Europe's Broadband Hangover and Ofcom Does Not Rule Out BT Carve-Up.)
Vodafone UK , the UK's third-biggest mobile operator, has been the most outspoken critic of BT and one of the main advocates of structural separation, arguing the radical measure would stop BT from being able to generate excessive profits through Openreach . (See BT Split Could Spur Vodafone to Invest in Fiber – Colao and Split BT to Lessen Regulation, Says CityFibre.)
BT has repeatedly insisted that carving it up would undermine broadband investments in the UK and in its latest submission to Ofcom it claims that rivals have failed to make a convincing case for structural separation.
Critics say BT's unique position as infrastructure owner and broadband retailer gives it an unfair advantage, allowing it to "squeeze" its consumer-facing rivals through a mixture of high wholesale and low retail charges.
BT has already been "functionally separated" -- so that its access, retail and wholesale businesses operate as distinct units within BT Group -- to prevent it from discriminating against rivals.
It says that model "has served the UK exceptionally well over the past decade."
Thanks to the creation of Openreach, superfast broadband coverage in the UK exceeds that in most other EU markets, says BT, while prices are among the lowest in Europe.
The operator has also recently promised to invest in even higher-speed broadband networks, using a copper-fortifying technology known as G.fast, provided regulatory moves are to its liking. (See BT Gets G.fast Confidence Boost From Trials and BT Outlines Conditional Gigabit Vision for UK.)
Concern about BT's dominance has grown since the operator announced its £12.5 billion ($19.2 billion) offer for EE earlier this year.
Still being reviewed by competition authorities, that deal would put BT in control of the UK's biggest fixed and mobile networks and force the likes of Vodafone to purchase backhaul services from a mobile rival.
In its submission, BT says consolidation would benefit competition and boost investment. (See BT, EE Defend $19.9B Merger Plans.)
Instead of picking over its move for EE, authorities should be doing more to rein in Sky, says BT CEO Gavin Patterson.
"Ofcom has the opportunity to level the playing field by tackling Sky's dominance of pay TV," he said in a company statement. "That dominance has led to poor outcomes for UK consumers and it is about time that converged regulation was introduced to deal with a converged market. The current lopsided approach isn't serving customers well."
BT has spent heavily on sports rights in an effort to tackle the pay-TV dominance of Sky, which is now the UK's second-biggest broadband player, but claims it has struggled to obtain content from Sky on a wholesale basis. (See BT Demands Action on Sky's Pay-TV Dominance.)
By contrast, Sky has been able to prosper in the broadband market through "easy and highly regulated access to the Openreach network," says BT.
— Iain Morris, , News Editor, Light Reading