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November 18, 2015

BT apologises over EE acquisition costs hitting Openreach

News: Ofcom highlighted the "inappropriate" charges in a recent consultation document.

By Alexander Sword

BT has been criticised by Ofcom over charging part of the cost of the EE acquisition to its "functionally separate" subsidiary Openreach.

In a consultation document, the telecoms regulator revealed that the costs of the EE acquisition were attributed across all BT’s UK lines of business, including Openreach and BT Wholesale.

"We do not consider that this is consistent with the Regulatory Accounting Principle of causality and therefore we consider this attribution inappropriate.

"We consider it would be appropriate to attribute these costs to residual markets and as a result we propose to exclude EE Acquisition costs from the 2014/15 base year costs."

This move will renew concerns among BT’s rivals such as Sky, TalkTalk and Vodafone that revenues from the Openreach network, of which they are all customers, are being used to pay for activities that will profit the BT Group as a whole rather than investments in Openreach.

There are already measures in place to prevent this; Ofcom requires BT to separate the costs of Openreach from other divisions. However, BT’s rivals have long been urging Ofcom to intervene to formally separate Openreach from BT as a separate company.

In a statement, BT said: "An error was made in relation to the allocation of £1.7m in a cost stack of several hundred million pounds and we apologise for this. Ofcom are expected to exclude this sum from their calculations and we will obviously not object.

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"None of the purchase price of EE (£12.5bn) or the related transaction costs will be allocated to our regulated products in 2015-16 or future years."


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