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BT Openreach break-up “a last resort”

Commenting on Ofcom’s publication of its initial digital communications review findings investment bank Jefferies, and its telecoms analyst Jerry Dellis, warn investors that BT is now under scrutiny – along with the UK’s other media players. However, Ofcom is known to want to strengthen, not weaken, competition.

Dellis points out one important element: “On page 130 (section 11.72) we find a statement which suggests that Ofcom considers structural separation a last resort: “As a public body, we have to be able to show that our decisions are objectively justifiable on the facts and proportionate to the aims that we are seeking to achieve. In particular, the proportionality requirement means that options less intrusive than structural separation would need to be shown to be insufficient at remedying the harm identified. This would involve demonstrating that both existing remedies have failed to resolve these concerns in recent years and that the other potential remedies available would be similarly insufficient.”

Ofcom states it will be examining how media content is bundled into telecom packages “on the basis that this may be a risk to competition”. This, suggests Jefferies, seems to represent a widening of Ofcom’s remit.

“[It] may bring into sharp focus contrast between the tight regulation on BT (with significant market power in broadband) vs. much less regulated Sky (despite its practical dominance in pay TV). Given how restricting Ofcom’s historic margin squeeze formula has been on BT (although this is currently suspended for 5 months pending a review), it seems to us that there is potential upside risk for BT from a more considered review of telecom-content bundling,” says the bank.

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