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UPDATE2 BT Battle Over UK Fibre Broadband Costs Could Result in GBP2 Cut

Wednesday, April 9th, 2014 (7:57 am) - Score 1,338

BT’s stock market price has been sent tumbling (falling from 381 on Monday to 360 on Tuesday) after industry rumors began to spread that the telecoms giant might soon be forced to cut the wholesale cost of its superfast “fibre broadband” (FTTC) lines by £2 per month, with Ofcom expected to launch a consultation on the subject in May 2014.

The situation peaked last year after TalkTalk lodged a formal competition complaint against BT with the communications regulator. The complaint to Ofcom alleged that BT was “abusing a dominant position” by conducting an “alleged margin squeeze in superfast broadband pricing” (here).

At the time BT responded by saying that that there was a “lack of any evidence” to support TalkTalk’s case and that they “completely refute the basis” of the ISPs complaint (here). Never the less Ofcom, upon launching its initial probe, said there were “reasonable grounds” for examining whether BT had failed to maintain a sufficient margin between its upstream costs and downstream prices.

The regulator is now due to report back and an article in today’s FT (paywall) suggests that Ofcom will separately launch a formal consultation into BT’s wholesale fibre pricing during May 2014, which appears to have been enough to give BT’s stock market price a kicking.

bt_group_stock_price_april_8_2014

The FT piece includes a brief quote from Redburn Partners, which claims to be Europe’s largest independent equities broker and provides institutional investors with conflict-free research.

A Redburn Partners Spokesperson said:

We think Ofcom’s margin squeeze test could reduce BT wholesale fibre prices by at least £2 per month initially, with on-going monitoring potentially leading to further cuts.”

Since last year’s probe began, BT and TalkTalk have at times almost appeared to be involved in a ‘War of the Roses’, with each side taking snipes at the others claims in various different ways. For example, in October the CEO of TalkTalk, Dido Harding, said that she wanted BT to cut the related wholesale price that it charges ISPs to around £4 +vat a month (here).

Meanwhile BT earlier this year published a report that called on Ofcom to “level the playing field” by ending its “pricing distortion” policy, which they claim allows rival ISPs to offer cheaper services (here). By contrast Vodafone has separately accused BT of being in breach of its regulatory commitments by allegedly making profits of nearly £5bn more than the level that Ofcom is claimed to deem acceptable (here)

Suffice to say that the tit for tat battle has shown no sign of abating and now the big decision rests with Ofcom, which will be keen to balance the outcome alongside their on-going Fixed Access Market Review(s). We have requested a comment from Ofcom and are awaiting their response, although it’s likely that they won’t be able to say much until the conclusion is published.

UPDATE 10:52am

Ofcom has confirmed to ISPreview.co.uk that they “expect to issue a consultation in the spring relating to our approach to future fibre pricing“, although the regulator stressed that this would be “quite separate from TalkTalk’s complaint, which relates to BT’s current wholesale fibre prices“. Separate but still related.

UPDATE 1:44pm

A spokesperson for BT told ISPreview.co.uk: “The analysis in this broker’s note is flawed as it understates the revenues and overstates the costs that would be taken into account in any margin squeeze assessment. Any suggestion that BT is margin squeezing in the provision of fibre is nonsense. BT Consumer makes a profit from selling fibre based on Openreach’s wholesale prices and Sky and Talk Talk have publicly stated that they do too. This clearly undermines the basis of the original complaint. We remain confident that Ofcom will find there is no case to answer and are pressing them to come to a swift conclusion.”

BT also indicated to us that they believed the share price movement might have also been hit by some other factors as well as the Redburn report, although they don’t indicate what those might have been.

Leave a Comment
35 Responses
  1. Avatar BT Investor

    All Ofcom is doing is deterring BT from making future big investments by interfering with a very competitive and healthy marketplace. If you’re still waiting for Fibre broadband to be enabled at your local exchange, you can thank Ofcom from helping to prevent this work from happening in your community. Regulation like this is seriously bad news for consumers, and it’s high time Ofcom was stripped of its remit to interfere on pricing decisions. I’m outraged this morning.

    • Avatar DTMark

      Just to clarify, then – you’re not in favour or taxpayer’s money being given to private companies like BT to buy assets, and that there should be no Crown guarantee on BT’s pensions – so it should operate as a private company and not as a hybrid public-private regulated utility?

    • Avatar BT Investor

      DTMark – I have no opinion on that. I’m interested only in getting Ofcom out of the way so the necessary investments can take place to continue growing our digital economy. The prime minister wants us to be a world leader in this space, and yet he allows a tired old regulator to prevent BT from investing and innovating in areas that are necessary for us to achieve the goals he’s set out. It’s insane.

    • Avatar DTMark

      I see. So, if the government had elected to give a billion pounds to Virgin Media instead of BT, you wouldn’t have had a problem with that?

    • Avatar No clue

      Would of made more sense to give it to Virgin, instead now we are stuck funding schemes like RCBF which only guarantees 2Mb.

    • Avatar on this planet

      so BTInvestor you are saying that in return for making a £2bn or so investment in FTTC BT should be allowed to re-monopolise the UK telecoms market and turn the clock back 20 years. I agree that investment in FTTC is a good thing but it can’t come (and it needn’t come) at such a high price

  2. Avatar DTMark

    There can be no true competition in a vertically integrated monopoly where the company at the top of that monopoly is also one of the players at a retail level.

  3. Avatar No clue

    Has to be the most beautiful line chart ever seen.

  4. Avatar dragoneast

    The Regulator is doing its job. Unless all of us on here it acts on evidence rather than prejudice. But that never pleased anyone.

  5. Avatar No Rest

    Once again BT Investor is in favour of BT becoming a monopoly answerable to no one. Great move if your an Investor and bad news if your a consumer.

    Troll should have his or her posts removed as they are consistently barking mad!

  6. I assume in reaching this conclusion the economic modellers will have concluded the commercial rollout was no more than BT communicated to its analysts, £1.3bn (50% cash, 50% capitalised labour) of the £2.5bn to reach 66%-70%, 19m customers served by 55k cabinets and c900 handover points.

    It will be interesting to how this evidence translates to reducing the rural subsidies per path so the public money can be stretched further. At present the indicative plan reads 5.3m customers served by c 25000 cabs +450 handover points for £1.2bn Gov cash.

  7. Avatar fastman2

    DT

    viring network is not open you can only by a virgin service (so that is a true monopoly) openreach offer services to CP;s at same prices / terms (thats not a monopoly)

    • Avatar No clue

      Oh really….. I thought Openreach sold to BT wholesale who then flogged it to the others. Kinda like any dodgy business that registers more than one name then diddles the invoicing on one side of the business.

    • Avatar TheFacts

      http://www.openreach.co.uk/orpg/home/aboutus/aboutus.do

      We were created to give communications providers equal access to the wires and fibres that connect us all, and to maintain and improve this infrastructure, which underpins the entire UK communication industry.
      We supply Communications Providers with products and services that are linked to the network. We also work on their behalf to ensure that the tens of millions of people across the UK have reliable local access. This makes untold millions of calls, online use and sharing of information possible.

    • Avatar No clue

      Or in other words they supply the infrastructure not the products to other ISPs.

      Unlike…
      https://www.btwholesale.com/pages/static/About_Us/index.htm
      About BT Wholesale
      At BT Wholesale we’re here to provide the UK’s Communication Providers, ISPs and Service Providers with a single expert Wholesale source for all the services, innovations, and solutions they need to operate, grow and succeed.

      Unless you are saying im right they have 2 companies set up to do the same thing LMAO

    • Avatar MikeW

      Multiple layers.

      But then, to figure that out, you need to count beyond 1. A tricky prospect for some….

    • Avatar Raindrops

      “viring network is not open you can only by a virgin service (so that is a true monopoly) openreach offer services to CP;s at same prices / terms (thats not a monopoly)”

      Opps…
      http://www.ispreview.co.uk/index.php/2014/04/virgin-media-sign-ln-comms-deal-boost-superfast-broadband-yorkshire.html

      @Mike…
      Not sure what you mean by that, BTs sites clearly indicate who sell to ISPs.
      Or by multiple layers do you mean what No Clue already explained…. “like any dodgy business that registers more than one name then diddles the invoicing on one side of the business.”

  8. Avatar bt

    Ofcom talk out there ass they do feck all when you put a complain in its threw them you have to pay friggin line rental even if you just want broadband . tossers

  9. Avatar zemadeiran

    I have always believed that Openreach should be split from BT completely.

    Reduce the line rental to cover current and development costs with any profits piled into all forms of communications research along with a healthy cut going to Cancer/medical Research etc.

    I am sure that no one in the country would begrudge £5 – £10 line rental going into improving our society. Too many people prefer to live their short lives chasing money which in the end does not bring any happiness and does nothing to further our advancement.

    We definitely need to regulate companies heavily and force them to improve and move forward. We should also heavily regulate the supermarkets for example who take the piss with farming families etc.

    Just MHO…

  10. Avatar HOWDY

    exactly zemadeiran but the companies are just getting greedy twats for bloody line rental just like another bill for something you dont use just for the sake of bloody broadband and why pay line rental when openreach asswipes dont do the work and when they do somethings its a cowboy job

    • Avatar FibreFred

      If your broadband is delivered over a “line” then surely you must expect to pay “line rental” ?

    • Avatar Raindrops

      You do not have to with Virgin or other smaller firms like gigler.

    • Avatar TheFacts

      VM broadband – £25/month

      VM broadband + phone – broadband £15.50/month + phone line £15.99/month

      No line rental???

    • Avatar Raindrops

      Infinity 1 UNLIMITED 38Mb = £23
      Infinity 2 UNLIMITED 76Mb = £26
      LINE RENTAL = £15.99 a month

      NEITHER can you just have broadband you have to have a phone service.

      LINE RENTAL = £15.99 a month

      TOTAL PER MONTH if you just wanted superfast broadband but no phone from BT is therefore…

      INFINITY 1 UNLIMITED = £38.99
      INFINITY 2 UNLIMITED = £41.99

      From Virgin you can have broadband only

      50Mb = £25 NO PHONE OR LINE RENTAL REQUIRED FOR THAT PRODUCT
      100Mb= £30 NO PHONE OR LINE RENTAL REQUIRED FOR THAT PRODUCT
      152Mb= £37.50 NO PHONE OR LINE RENTAL REQUIRED FOR THAT PRODUCT

      ALL ARE CHEAPER THAN ANY INFINITY YOU CAN BUY FROM BT.

    • Avatar Raindrops

      Opps one minor correction…

      ALL ARE CHEAPER THAN ANY …UNLIMITED… INFINITY YOU CAN BUY FROM BT. FAIR COMPARE THOUGH SEEING AS VIRGIN IS NOW UNLIMITED.

  11. Avatar hmmm

    ofcom need a kick up the ass to because them tossers are fecking useless bastards also its a pile of wank BT OPENREACH and bt anyway

  12. Avatar wow

    wow ofcom they may have to reduce the fibre by £2 WOW but what ever you save on your broadband they put it on the line rental so thats a waste of time

    • Avatar BT Investor

      Line rental charges will probably have to double in the next five years if the government wants BT to continue driving its investment program forward, and continue connecting the rest of the country to superfast infinity broadband.

    • Avatar Raindrops

      Why would that be the case are people not signing up to infinity? And why five years, and what do you mean by “connecting the rest of the country to superfast infinity broadband.” The rollout is supposed to be done by 2017 what “rest of the country” will they be connecting after?

  13. Avatar bt ripoff

    well if they think in five years that the line rental will be double they will see the decline in phone and broadband because its a total rip off now never mind five years and for superfast broadband well ive yet to see it as its pathetic 20mb on fibre more like adsl but with fibre price plan which is ridiculous government can kiss my jacksy them pricks

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