New Price Controls Restrain BT’s Ambition

BT may be forced by regulators to either charge higher prices for its broadband to customers or lower the charge for rivals to use its network. This is due to new regulations introduced by Ofcom in order to prevent BT from dominating the superfast broadband market. This comes in the wake of BT’s proposed £12.5bn takeover of EE.

This news has been lauded by companies such as Sky, TalkTalk and Virgin Media that use BT’s superfast fibre in their own broadband deals. Regulations will be put in place to ensure that competitors can make sufficient profit and not be priced out of the market by significantly cheaper retail prices offered by BT.

TalkTalk released a statement which supported this announcement, arguing that “They [Ofcom] are right to be concerned that BT could abuse its position to undermine competition in superfast broadband. Robust regulation creates a more competitive market that better serves consumers and small businesses.”

The regulators are keenly aware of BT’s ownership of the national telecoms infrastructure and are working hard to prevent a monopolization of the market. At present, nearly 75% of the superfast broadband connections on BT’s network are retailed by the company itself.

However, this news is not likely to have an immediate impact on market prices as Ofcom has decided that BT is complying with current draft rules. Despite this fact, this news is seen by many experts as the beginning of a process that will even up the market place.

Much of the analysis has focused on BT’s burgeoning presence in the televised sports market. Ofcom has demanded BT include the acquisition of its broadcasting rights into its pricing structures. It has spent around £2bn so far in annexing exclusive rights to broadcast football games from both the Champions League and the Premier League, at the expense of Sky Sports.

Further to this, Ofcom require that televisual sports costs be considered according to those customers who are using their television service instead of spreading the cost across all of BT’s retail customers who potentially could use it.

Experts at Citi stated: ìThis will increase the weight of TV sport in the cost side of the calculations and mean that its contribution will rise proportionally more with any heavier spend on rights by the incumbent.î

BT have responded to the news, describing Ofcomsí proposals as ìmisconceived but not unexpected.î They go on to state: ìWe’re not opposed to the principle of a test…Ofcom has said our current prices will also pass this new test when it comes into force…However, we do not think our sports cost should be part of any assessment and we reject the notion that Sky and TalkTalk require further regulatory assistance. They have more than 40% of the broadband market between them compared to BT’s 31%.î

Matthew Howett, from the research organization Ovum, explains the outrage expressed by BT as a signal that they now have to be more prudent when bidding for televised sports coverage. He states: ìThe more BT has to pay for the rights, the more of a cost it is to them, which has the effect of reducing the margin they make.î

He argues: ìIf BT loses out on sports rights, then the argument goes that there is less competition in the provision of pay TV.”

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