BT deals with Ofcom to avoid break-up

BT Group, the UK incumbent telecoms operator, has struck a deal that will force it to further open its network to competitors in exchange for lighter controls in some areas.

Ofcom, the combined telecoms and media regulator, said on Thursday that it had accepted binding commitments from the former monopoly supplier which was privatised about 20 years ago in exchange for lifting the threat of a referral to the competition watchdog, which could have led to an enforced break-up of BT.

“These proposals are substantially different to traditional telecommunications regulation. They demand significant changes in key areas and recognise that in other areas regulation can be rolled back,” said Stephen Carter, Ofcom chief executive.

Ben Verwaayen, BT chief executive, said the deal would remove uncertainty for investors about the company's future. They responded positively to the news, helping to lift shares 4.1 per cent higher to 226.5p on Thursday.

Christian Maher, analyst at Investec, welcomed the news. “There is no threat of a split of BT and no referral to the Competition Commission. This alone should ease the regulatory cloud that has hung over BT,” he said. The deal is based on proposals from BT, made in February, to create a ring-fenced business unit that would take control of the local loop the part of the network between the local exchange and the customers' premises to ensure so-called “equality of access” for its competitors.

The UK has one of the most competitive telecoms sectors in Europe but rivals argue that BT retains a stranglehold on the market because of its control of the local loop, also known as the “last mile”, the key part of the network that dictates pricing and the ability of service providers to differentiate products, such as broadband access speeds.

BT will set up a separate business unit, provisionally known as Access Services, which will have its own management team and more than 30,000 employees, just less than a third of the company's total workforce. It has also given commitments on delivering products to rivals on an equal footing with BT's retail business.

The performance of BT and the new business unit will be monitored by a supervisory board, dubbed the Equality of Access Board, chaired by Carl Symon, a BT non-executive director, with four other members, three of whom will be independent.

All the undertakings are legally enforceable, allowing Ofcom and competitors to take BT to court.

“The Ofcom Board proposes to accept BT Group plc's proposed undertakings on the critical assumption that BT Group plc does not merely deliver the letter of the undertakings but also the spirit,” said Mr Carter.