BT has publicly rejected an $11.4 billion offer for its local telephone infrastructure.
UK telco BT has publicly rejected an $11.4 billion offer for its local telephone infrastructure – the copper wires connecting customers’ houses with local exchanges. A consortium called Earth Lease, led by US investment banks Babcock & Brown and Chancery Lane Capital, offered to buy the infrastructure from BT and then lease capacity to BT and to rival telecoms operators.
For UK consumers and businesses alike, a deal could have been excellent news. The UK has fallen far behind the US and Germany in the provision of ADSL high-speed Internet lines; a major cause for the delay has been BT’s reluctance to allow rival operators access to its local infrastructure. Despite telecoms regulator OFTEL’s efforts to force the company to carry out local loop unbundling (LLU), progress has been slow; many potential operators have pulled out claiming BT’s charges are unfairly high.
At present, BT has an incentive to minimize rival operators’ access to its local network, since they could take customers from its retail operations. Earth Lease would have a much stronger incentive to sell capacity to rivals such as AOL and Freeserve. BT has also been slow at rolling out its own DSL services – fueling claims that it is trying to minimize the cannibalization of its important leased line revenues.
However, would BT benefit from selling the operations? Despite its protests, the answer could well be yes. It has $25 billion in debt, and the fixed network operation has little in common with high-growth areas such as wireless and Internet services. Earth Lease’s statement on Monday that it is still talking to BT may mean the telco is currently holding out for a higher price.
But it’s also arguable that whether or not BT would benefit, the infrastructure should still be sold. Other UK utilities have seen the natural monopoly ‘last-mile’ infrastructure separated from service provision, at the instigation of competition authorities. In electricity and gas supply, this has driven down prices and improved the quality of service. Given BT’s lack of progress towards opening its network up to competition, perhaps OFTEL should consider imposing a similar situation if the market does not.
