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Last Updated: Thursday, 18 November, 2004, 16:43 GMT
Ofcom demands BT mindset change
BT office
BT will have to change, Ofcom says
Plans by Ofcom to force BT to give rival firms equal access to its phone lines have received a mixed reaction from industry analysts.

The UK telecoms regulator is proposing that BT's network arm, BT Wholesale, should offer the same services at the same prices to rivals as it does to BT Retail. It is calling this "Real Equality of Access".

However, Ofcom stepped back from proposing that BT be split into two separate firms.

Analysts welcomed the news that BT would stay as one firm, but raised questions about other aspects of the plans.

'Moving in the right direction'

"The real disappointment is that these proposals are very low on specifics," said Julian Hewett of consultants Ovum.

"They are also rather backward looking, and say little about how the industry is to be regulated following imminent changes in telecoms technology, but Ofcom is moving in the right direction."

It's a clear message that BT will have to change its mindset. But it won't be an easy shift for BT
Martin Heath, KPMG

He added that the split which many in the industry have called for would have been a "disaster".

"If BT's network were split off in the wrong place for the way technology is evolving, it could be bad for BT, and bad for the competitors connecting to its network," he said

Martin Heath, head of telecoms and media at KPMG's consulting business, was also concerned about the impact of new technology.

"Ofcom says little about regulation once BT introduces its so-called 21st Century Network, which will give it a network that is significantly cheaper to run than those of alternative network operators," he said.

Three alternatives

BT said it was pleased with the direction outlined in the report.

"We welcome Ofcom's call for a new settlement, where regulation is tightly focused on the parts of the market that need it, with deregulation elsewhere," said chief executive Ben Verwaayen.

In its Phase 2 proposals published on Thursday, Ofcom presented three alternative ways for making the telecoms market more competitive:

  • Market forces. Letting competitive forces decide prices and access to services

  • Investigation of BT. BT could be reviewed under the Enterprise Act 2002, and, potentially, be referred to the Competition Commission

  • Real Equality of Access. Ofcom could require BT to allow its competitors to gain genuinely equal access to its networks

BT is simply too big and too dominant to leave it all to the market, Ofcom believes, meaning option one is a non-starter.

And the regulator said the majority of respondents to its Phase 1 proposals believed the second option would be too disruptive and expensive - favouring the faster option of equality of access.

Investors decide

KPMG's Martin Heath thinks the changes will lead to a better choice of products and lower prices for consumers.

"If BT acts as Ofcom wants BT to act, then Ofcom's proposals go far enough," he said.

Experts say consumers could see lower bills

"It's a clear message that BT will have to change its mindset. But it won't be an easy shift for BT."

Ultimately Mr Heath thinks investors will decide whether BT needs to be broken up.

"BT could end up with all the costs of being an integrated telecoms business and none of the benefits of its dominance in network provision, " he said.

"In the end the stockmarket will decide whether BT's break-up value is higher than its value as a single business which has to act as two separate entities."

Single billing

Ovum's Julian Hewett said the Ofcom proposals should lead to more transparency over telecoms charges.

Rival telecoms companies want the ability to get a wholesale price for line rental from BT, so that they can give domestic customers a single bill for everything.

At present customers of rival voice services like TalkTalk from Carphone Warehouse, have to pay Carphone for calls and then get another bill from BT for line rental.

By contrast, BT Retail can offer a single bill because of its close relationship with BT Wholesale.

Ofcom says that at present it is hard for customers to switch suppliers because it is difficult to compare like with like.

The Telecommunications Users' Association (TUA) agrees, saying some telecoms suppliers deliberately make their prices hard to compare with their competitors.

"Ofcom will probably introduce some kind of price benchmarking, which will make it easier for users to make comparisons," said Bill Moran, chairman of the Telecommunications Users' Association.

"It is also looking at taking some of the shackles off BT in the corporate market, which could benefit big companies."

He welcomed the proposals, some of which the TUA has been calling for for years.

"Clearly Ofcom recognised that after 20 years we don't have full competition in the UK telecoms market," he said.

A consultation process on the proposals ends on 3 February and Ofcom is expected to report back on it a month or two later.

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