BT faces tougher oversight on pricing

Ofcom, the UK's telecommunications regulator, proposed a tougher oversight regime for BT by saying the price of its flagship wholesale products should rise by less than the rate of inflation over the next three years.

Ofcom said its proposals should result in consumers securing real term reductions in the price of their phone and broadband services. This is because Ofcom expects TalkTalk and British Sky Broadcasting to pass on savings, that they secure on BT’s wholesale products, to their retail customers. Ofcom imposes price controls on the products provided by BT Openreach, the telecoms group’s subsidiary that provides rivals with access to its infrastructure. TalkTalk and BSkyB are among BT’s most important wholesale customers. They rent parts of BT’s network infrastructure, in a process known as local loop unbundling, so as to provide phone and broadband services to their retail customers. BT’s wholesale customers pay £89.10 per year for each landline that they rent from Openreach under the local loop unbundling process. Ofcom’s approach to the new price controls for Openreach’s products is tougher compared with the watchdog’s existing oversight regime. In 2009, Ofcom said the price of Openreach’s flagship products could rise above the rate of inflation. Ofcom’s new approach partly reflects its view that Openreach’s weighted average cost of capital has fallen from 10.1 per cent to 8.6 per cent. BT said it was crucial that it was able to secure a “fair rate of return” on its investments in telecoms networks.