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Ofcom Does Not Rule Out BT Carve-Up

Iain Morris

The UK's telecom regulator has declined to rule out a carve-up of BT as a way of bringing more competition to the national market.

Asked by Light Reading if it would rule out something as dramatic as BT Group plc (NYSE: BT; London: BTA)'s "structural separation" during its latest strategic review, Ofcom indicated that all options are on the table.

"That review will consider questions such as the one you described, and we aren't ruling anything in or out at this stage as we've yet to complete a thorough analysis of the market," said a spokesperson for the regulatory authority.

Calls for a "structural separation" of BT have grown louder since the fixed-line incumbent announced a £12.5 billion (US$19.6 billion) takeover of EE, the UK's biggest mobile operator, in February. (See BT Locks Down £12.5B EE Takeover Deal.)

Operators including Vodafone UK fear that BT's fixed-line dominance may give it an unassailable position in the mobile market and have argued that forcing BT to spin off its Openreach access division would be in the interests of competition.

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

Currently, BT maintains a functionally separated business, whereby Openreach operates as a distinct unit within BT Group, but this allows BT to squeeze broadband rivals through a combination of high wholesale and low retail prices. Profits generated by Openreach can also be used to support other BT Group activities, including a recent push into the mobile market.

The move to structurally separate the incumbent would be a radical one but has been tried in other parts of the world, such as Australia.

Ofcom recently launched its first major strategic review of the telecom market in a decade and could look to make some big changes in response to a spate of M&A activity.

While BT is looking to acquire EE, Hong Kong's Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY) hopes to complete a £10.25 billion ($16.1 billion) takeover of Telefónica UK Ltd. (O2), the country's second-biggest mobile operator, and merge this with Three UK , a smaller rival it already owns. Both deals have yet to secure the approval of competition authorities. (See Telefónica Seals $15.2B O2 Sale to Hutchison.)

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Gabriel Brown
Gabriel Brown
5/19/2015 | 5:57:35 AM
Re: Too radical
Agreed. I can't see Ofcom mandating structural separation. It is fundamentally a conservative organisation that has the odd radical and progressive moment.

There's a decent piece on BT in the Financial Times (might need a login):

Strategy in action: the reinvention of BT


5/18/2015 | 12:17:50 PM
Too radical
I suspect structural separation will be too radical a step for Ofcom but it's still a surprise to see the regulatory authority is even considering it as an option. These strategic reviews don't happen very often and so the regulatory authority clearly believes there is a possible need for a major shake-up given some of the moves that are afoot.   
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