BT may lift UK network charges
LONDON, May 30 (Reuters) – British telecoms group BT may be allowed to increase the charges it levies on rivals for using its network, according to the preliminary conclusions of a review by the country’s communications regulator.
Ofcom said on Friday that a significant increase in competition in telephone and broadband services meant there was a case for allowing BT to lift its charges, though probably not by as much as the company would like.
Raising the charges would be a boost for BT, and a blow to its rivals such as Carphone Warehouse and Cable and Wireless.
At 0820 GMT, BT shares were up 2.4 percent at 225.5 pence, outperforming rises of 0.9 percent and 1.3 percent for Carphone and Cable & Wireless, respectively.
A former state-owned monopoly, BT has come under close scrutiny from regulators seeking to promote competition since its privatisation in 1984, when it was one of the first state firms to be floated by Margaret Thatcher’s Conservative government.
In order to avoid a full competition probe, BT agreed in 2006 to create an operationally separate business unit called Openreach to provide wholesale access to its telecoms network to rivals on an equivalent basis.
At that time Ofcom agreed the maximum prices that Openreach could charge for its main services, but these charges did not include an annual adjustment for inflation or other cost movements, and Ofcom said it would review the prices in future.
“Since the charges were first set and Openreach was established, there has been a transformation in the telecoms market, with a significant increase in direct competition in the provision of both telephone lines and broadband services,” Ofcom said in a statement.
“The evidence we have reviewed to date suggests that there is likely to be a case for some increases in the charges for the regulated access services,” it added.
“However, we do not currently believe that the increases need to be as significant as is implied by the projections provided by BT.”
Ofcom said it would conduct a two-part consultation and aimed to publish a final statement before the end of this year.
Openreach’s main services are wholesale line rental, which allows rivals to offer telephone services to consumers over the BT network, and local loop unbundling (LLU), which allows them to install equipment in BT’s telephone exchanges to offer their own retail services, including broadband.
There are currently more than 4 million unbundled telephone lines in the UK.
Cazenove analysts estimate that, for Carphone Warehouse, each unbundled broadband customer generates about 5 pounds a month of earnings before interest and tax (EBIT).
“Any increase in the LLU rate (currently 6.7 pounds) would come straight off this profitability and might go some way to reducing profitability forecasts. A 1 pound increase could reduce profitability forecasts by 20 percent, for example,” they wrote in a research note.
Nomura analysts said cable group Virgin Media could benefit from any increased charges, as it does not rely on BT.