BT offers landmark changes to avoid break-up

The threat of possible break-up has prompted BT into proposing some sweeping changes. But rivals are not celebrating yet

BT has offered to make widespread changes to the way it operates its network and sells broadband services in the UK in return for changes in the way it is regulated.

The proposals, published on Thursday morning, form BT's response to Ofcom's strategic review of the telecommunications market. They have received a cautious welcome from experts and rival operators.

BT has offered to fence off part of its business into an "access services" division, which would be responsible for giving BT's rivals fair access to its network.

BT is also proposing to offer faster broadband services and cut the cost of both its wholesale broadband and local-loop unbundling products. It will also guarantee "fair access" to its forthcoming IP-based 21st Century Network (21CN).

"The United Kingdom has the opportunity to create the most exciting and innovative telecoms market in the world. Ofcom has recognised this and has initiated a review with the aim of creating a new regulatory framework to make this happen. BT has a critical part to play, and today we are making a set of far-reaching proposals towards that framework." said Ben Verwaayen, chief executive of BT.

In return, BT wants Ofcom to relax some of its other existing regulation, and guarantee that BT will get a fair chance to recover its investment in 21CN.

BT's competitors have long complained that BT unfairly favours its own retail operations at their expense. In November, Ofcom ruled that BT had to give its rivals fair and equal access to its telecommunications network, or risk being broken up.

"Twenty years after liberalisation, the market has made good progress. However, its foundations are unstable in parts, overly dependent on intrusive regulation and with limited sustainable competition," said Ofcom chief executive Stephen Carter back in November.

Ofcom was not willing to comment in too much detail on BT's proposals on Thursday, ahead of a thorough study, but it did make positive noises. "We welcome BT's structural and governmental proposals, and its commitment to wholesale line rental and local-loop unbundling," said Carter. "However, as ever, real delivery will require real detail."

If Ofcom is not satisfied with BT's proposals then it can order a regulatory review that could see the telco broken up.

Competing telecoms companies were taking a wary view of BT's plans. "BT's submission seems to demonstrate a willingness to engage with Ofcom and the industry on the need for change. It is far too early to celebrate, however. Words are one thing and action quite another matter," said David McConnell, chairman of the UK Competitive Telecommunications Association.

"The focus now moves to implementation, where BT's rhetoric will be put to the test. We will need to see detailed milestones put in place and successful delivery against agreed target".

Analysts gave BT a slightly warmer welcome.

"All in all the overriding impression of the package is that BT has given a lot of ground at this stage of the review process. In fact we cannot recall another instance where BT has gone so far pre-intervention," said Ovum's Tony Lavendar and Stefano Nicoletti. "The big question now is whether the industry and particularly Ofcom feel BT's proposals go far enough. Or that they can be implemented in a way that reassures other players. This debate will run until the middle of this year when Ofcom makes its final proposals. Now the real negotiation begins."

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