BT’s share price: Telco accused of making ₤5 billion too much

Ofcom, the independent regulator and competition authority for the UK communications industries, has been accused by Vodafone and TalkTalk of allowing BT Group (LON:BT.A) to book ₤5 billion in “excess” returns over the past eight years.

The claims stem from a report by Frontier Economics, which was commissioned by Vodafone to assess the costs of BT’s “stranglehold” on the UK’s digital infrastructure. “BT is holding the UK’s digital future to ransom.

It’s time Ofcom prised open their stranglehold. We asked Frontier to objectively assess whether we were right to think that BT’s regulated prices have been inflated and their analysis reveals the full extent of those excess profits,” Vodafone said as quoted by The Times.

The report by Frontier Economics concludes that BT’s wholesale prices would have been on average 10 percent lower if its returns had been at the benchmark level. Instead, the company’s revenue exceeded the benchmark by ₤4.9 billion over eight years.

A TalkTalk spokesperson said,

“We have long maintained that without robust monopoly regulation consumers and businesses end up paying over the odds. This is exactly what this report shows and UK companies will have suffered as a result. We must have strong regulation of copper and fibre pricing going forward if we are to have a world-leading broadband market.”

For its part, BT called the report “ludicrous” and said that it was “allowed to make a return above the cost of capital.” The company added that it had met all its obligations to Ofcom and that the calculations and figures presented in the report were “wildly inaccurate”.

MPs to criticise BT over privacy fee

An All-Party Parliamentary Group is this week expected to criticise BT over a ₤1.75 a month, ₤21 a year charge for BT Privacy and Caller Display. Some MPs claim that the telco is abusing its dominant position in the industry and that its latest fee hike will put millions of homes at risk of even more spam marketing messages.

The Telegraph quoted an unnamed source as saying,

“Ofcom for one are understood to be furious about this, and something needs to happen. Caller ID should be free, companies should not be charging for providing something like this. Not when they’re a company as big and profitable as BT.”

BT responded to the accusations by saying that it took the issue of nuisance calls “very seriously” and that it had recently launched the BT 6500 nuisance call phone to help customers block unwanted calls.

Analysts on BT

In a research report sent to investors last Friday, Nomura reaffirmed its ‘buy’ rating on BT and raised its price target on BT shares to 420.00p from 390.00p.

Two equities analysts rate BT’s stock as a ‘sell’, nine give it a ‘hold’ rating, 14 are calling it a ‘buy’ and one makes it a ‘strong buy’. The stock currently has a consensus rating of ‘buy’ and an average price target of 345.55p.

BT posted its second-quarter results last week, reporting a two percent year-on-year increase in adjusted profit to ₤609 million. Adjusted earnings per share also edged up by two percent to 6p, beating the 5.5p consensus from a Bloomberg survey of analysts. The company also lifted its interim dividend by 13 percent to 3.4p a share (Robust Q2 earnings boost BT’s share price).

As of Friday, November 1, buy BT shares at 390.00p.
As of Friday, November 1, sell BT shares at 370.00p.