The proposed changes include several cuts in wholesale prices for its rivals, as part of a number of proposals to ensure competitive fairness in the British telecommunications landscape.
It was back in April 2004 when Ofcom launched a wide-ranging review of the UK telecoms sector, amid widespread concern that BT’s dominant fixed-line position was stifling competition.
BT’s ownership of the last mile of copper wires into homes and business (the so-called local loop) gave BT Retail (BT’s customer-facing arm) an inherent advantage in the provision of voice calls and Internet access services to businesses and households.
The regulator had looked at whether BT should be broken up into separate retail and wholesale operations. However this threat has now been lifted after Ofcom accepted BT’s latest proposal to ensure competitive fairness, and the tentative agreement will be published more fully on June 30.
BT has agreed in principle to offer legal undertakings to Ofcom, which will then publish a consultative document asking for industry feedback. On September 8, Ofcom will publish its final statement and BT will have to implement these recommendations by January 2006.
BT’s most ambitious commitment is its plan to set up an Access Services business unit, tasked with ensuring that competitors receive access to its network on the same terms as BT Retail. The new entity will have its own headquarters, distinct brand and around 30,000 staff (mostly engineers) with separate bonus schemes and long-term incentive plans.
BT said the unit will contain nearly all its access infrastructure and facilities, including the copper local loop, local exchanges, and associated ducts and other civil infrastructure.
It envisaged that this Access Services unit will be highly regulated, and its performance monitored and reported on by an equality-of-access board comprising largely independent members and headed by Carl Symon, one of BT’s independent non-executive directors.
BT has also announced that it cut the rental price for its fully unbundled local-loop product to GBP 80 ($145.56) a year from GBP 105 ($191.01) with effect from August 1. The carrier said it would also cut the monthly price that rivals pay for wholesale line rental by 50 pence ($0.90) a line from August 1, before raising the amount its own retail arm charges by 50 pence later in the financial year.
In return for the changes BT expects regulation to be rolled back in other areas.
Ben Verwaayen, BT chief executive, hailed the Ofcom agreement as very good news for the industry, as all telecoms groups would now know exactly where they stood with the operator.
We needed to get rid of the overhang and uncertainty of regulation. My feeling is that we have achieved that today, he said in a statement.
Ofcom said the deal would help drive down the price of calls, connections and services for consumers and businesses. Its chief executive, Stephen Carter, welcomed BT’s proposal on the critical assumption that BT does not merely deliver the letter of the undertakings, but also the spirit.
The proposed changes also received a guarded welcome from most of BT’s rivals. Cable & Wireless Plc, the UK’s second-largest corporate telecoms provider, described BT’s deal with Ofcom as encouraging.
What is now vital is that Ofcom maintains the pressure over the next year to ensure that equivalence is delivered in full so that consumers can share the benefits of full and open competition, C&W chief executive Francesco Caio said in a statement.
The personal legal accountability of each and every BT board member is both welcome and highly significant, he said.
Business carrier Thus Group Plc also gave a guarded welcome to the news. Thus welcomes Ofcom’s announcement that it has reached a settlement with BT. Ofcom has correctly identified equality of access at a key principle underpinning future regulation, and we hope it will drive substantial improvements in the way that BT treats us as customers, said Richard Sweet, Head of Regulation and Interconnect at Thus. However, he cautioned that Ofcom must be prepared to take firm and swift action if BT fails to deliver on its undertakings.
Others were less positive of the news, especially regarding BT’s announcement about reduced wholesale broadband prices. Broadband telephony provider Vonage Holdings Corp believes that this just a small step towards a truly open broadband market for consumers.
Today’s announcement from BT saying that it is cutting wholesale broadband prices to open its network to rivals is welcome news to the industry, but presents clear caveats. We believe that this is only a first step in offering customers an increasing amount of choice, said Vonage’s UK MD, Kerry Ritz.
Consumers should have the choice of being able to buy their broadband services independently of their telephone service no matter where they live in the UK and this announcement doesn’t change this. At present many of them still find themselves paying for a redundant telephone line. Until consumers can buy broadband without the need for a telephone subscription, as is the case in many other countries, true customer choice will not exist.
The market however responded positively to the news and in afternoon trading on the London Stock Exchange, shares in BT Group were up more than 3.9% at 226.00 pence ($4.10).
The agreement also means that many of the world’s major telecom equipment suppliers are assured that BT will press ahead with its state-of-the-art $19bn 21st Century Network (21CN), as a BT breakup almost certainly would have killed its deployment.
