BT vs. Ofcom – The Battle Continues

Posted by Karen on Jan 29, 2015 12:00:00 AM
In our first blog of 2015 Fluidata predicted that the telecommunications regulator Ofcom would become even stricter with Internet Service Providers (ISPs) and over the past couple of weeks we have been proved right. During the first month of this year Ofcom has announced that they are investigating a number of issues with the broadband and phone provider BT, including the services they provide their customers, their pay TV offerings, and their bid to take over the mobile network operator EE.

Now, Ofcom has announced that they will be undertaking new tests on BT in order to ensure that they are complying with competition laws. There have been numerous complaints over the past few years from BT’s competitors including TalkTalk and Sky who claim that the company has been squeezing them out of the market. However, a previous investigation by Ofcom decided that BT was not breaking any competition laws and that their retail and wholesale prices were fair.

Naturally, BT’s competitors were not happy with this decision, with many claiming that the test itself was flawed. This is why Ofcom has recently announced that the way they test BT and the tests themselves will both change in the future in order to ensure complete certainty. In a statement the regulatory body said that their tests are required “to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers".

BT’s competitors have reacted positively to Ofcom’s announcement, including TalkTalk who in a statement said: "They [Ofcom] are right to be concerned that BT could abuse its position to undermine competition in superfast broadband. Robust regulation creates a more competitive market that better serves consumers and small businesses." Unsurprisingly, BT has not reacted so positively to the news, and described the plan as "misconceived but not unexpected".

In a statement the firm went on to say: “We're not opposed to the principle of a test... Ofcom has said our current prices will also pass this new test when it comes into force. However, we do not think our sports costs should be part of any assessment and we reject the notion that Sky and TalkTalk require further regulatory assistance. They have more than 40% of the broadband market between them compared to BT's 31%."

Industry experts and those that work in the telecommunications sector are keeping a close eye on the continuing battle between Ofcom and BT, especially as it could affect their move into the mobile and pay TV markets. Matthew Howett, an analyst with research firm Ovum, said that stricter regulations may prevent BT from bidding for sports coverage in the future, and added: "The more BT has to pay for the rights, the more of a cost it is to them, which has the effect of reducing the margin they make.

“If BT loses out on sports rights, then the argument goes that there is less competition in the provision of pay TV. It will be more interesting to see what happens in a couple of months' time when Ofcom performs the test again using more recent data.”

BT’s acquisition of the mobile network operator EE may also face issues in the near future as earlier this week Hong Kong based conglomerate Hutchison Whampoa announced that they want to buy out and merge the Three and O2 mobile networks. This would reduce the amount of competition in the UK mobile market considerably, which is why Ofcom is already getting involved. Chris Cowan of the telecoms consultants Coleago said: “Without the consolidation of Three and O2, BT’s acquisition of EE is unlikely to be met with objections from Ofcom. However, if Three and O2 do consolidate, Ofcom would be forced to make a more vigorous analysis of the market, which would suck the BT bid into an overall market review.

“Whilst this would slow down or possibly stop the BT move, given recent European regulator decisions in Germany and Ireland to reduce the number of operators from four to three, it is more likely to slow it down rather than halt it altogether.”
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