Ofcom Could Allow Bt to Increase Openreach Charges

by : Maria Literral

According to an Ofcom review, BT may soon be allowed to increase the amount it charges rivals to use its network. In the review, Ofcom said that an increase in competition from telephone and broadband companies gave BT a case to lift its charges, although they would probably not be able to so by as much as the company would like.

BT will be pleased that they can raise their charges, although Carphone Warehouse and the company’s other rivals won’t be quite as happy about the news.

BT has been criticised by regulators wanting to promote competition ever since it was privatised in 1984. The telecoms company was once a state-owned monopoly, but was privatised by Margaret Thatcher's Conservative government. In 2006, BT agreed to create a separate business unit called Openreach in order to stave off a competition probe. Openreach would provide rival telecoms service providers with wholesale access to BT’s telecoms network.

When establishing Openreach, Ofcom set the maximum prices that BT could charge for its main services. However, these charges didn’t leave room for inflation or other cost movements and Ofcom agree that these factors should now be taken into consideration. As the Ofcom report explains, "Since the charges were first set and Openreach was established, there has been a transformation in the telecoms market, with a significant increase in direct competition in the provision of both telephone lines and broadband services. The evidence we have reviewed to date suggests that there is likely to be a case for some increases in the charges for the regulated access services."
In order to set a new charge for the Openreach service, Ofcom said that it would be conducting a two-part consultation. It is thought that they will be publishing a final statement on the matter before the end of this year.

The main services available via Openreach are wholesale line rental, allowing rival telecoms companies to offer their own telephone services over the BT network, as well as local loop unbundling (LLU), which allow companies to install equipment in BT telephone exchanges, so they can offer their own retail services such as broadband.

Analysts from Cazenove estimate that each unbundled broadband customer generates around 5 pounds a month before interest and tax for Carphone Warehouse. In a research note, they state that a change in this rate will directly affect this profitability. It read: "Any increase in the LLU rate (currently 6.7 pounds) would come straight off this profitability and might go some way to reducing profitability forecasts. A 1 pound increase could reduce profitability forecasts by 20 percent, for example."

It is thought that cable group Virgin Media will not be affected by any increased charges, as its phone lines do not rely on the BT network.