BT share price: Ofcom seeks views on structural separation of telco

on Jul 16, 2015
Updated: Oct 21, 2019

The UK communications regulator Ofcom is considering a break-up of BT Group Plc (LON:BT.A)as a possible option to improve phone and broadband services in the country. Today the watchdog published a discussion document on its once-in-a-decade strategic review of the digital communications sector. The document marks the completion of the first phase of the review, which was launched in March. Ofcom said that it would seek views on possible regulatory approaches ranging from maintaining the existing model to separating BT’s Openreach infrastructure unit from its parent company.

Under the current model, which was established as a result of Ofcom’s last strategic review, Openreach operates as “functionally separate” from BT and is required to give competitors the same access to its network as its parent company. Ofcom noted that while this model had delivered many benefits to for phone and broadband customers, it also meant that “the incentive for BT to discriminate against competing providers can be limited by regulation, but not removed entirely”. The regulator added that it had been concerned that “Openreach’s performance on behalf of providers has too often been poor, requiring the introduction of rules for faster line installations and fault repairs”.
BT rivals such as Sky Plc (LON:SKY) and TalkTalk have complained that Openreach does not fix faults or install new lines fast enough, blaming this on the unit’s links with the former state monopoly. These companies have repeatedly called for a structural separation of Openreach from BT.
Ofcom said that separating the infrastructure unit from BT would “remove BT’s underlying incentive to discriminate against competitors” and could also offer ways to simplify regulations. However, the watchdog also pointed out that the process would be challenging and might not address some concerns related to Openreach, such as service quality, or the timing and level of investment decisions.
Other approaches under consideration by the regulator include maintaining the current status quo or bolstering the present model by imposing tighter regulations on BT. Ofcom is also considering deregulating the market in a way that would allow smaller operations to run its own networks and provide phone and broadband services without having to rely on BT infrastructure. The regulator said that it would be accepting industry responses to the discussion document by 8 October 2015.
In today’s trading, BT shares were down 0.4 percent at 467.45p, as of 09:23 BTS. The stock has risen 16.5 percent since the start of the year, boosting the company’s market valuation to £38.6 billion.
As of 12:31 BST, Thursday, 16 July, BT Group plc share price is 468.63p.

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