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BT challenges Ofcom ‘margin squeeze’ test

May 20, 2015

BT says it will take Ofcom to a court over the watchdog’s decision to introduce restrictions on the wholesale price of superfast broadband.

The telco has lodged an appeal with the Competition Appeals Tribunal against Ofcom’s new ‘margin squeeze’ test, which is designed to ensure that rivals Sky and TalkTalk, who rely on the BT network to serve their customers, are able to make reasonable profits on superfast broadband. The appeal marks BT’s first direct challenge to Sharon White, the new Ofcom chief executive, who took the helm in March.

BT claims that the margin squeeze test would restrict its ability to challenge Sky in the pay-TV market.

Ofcom designed the test, which measure the difference between wholesale and retail prices for superfast broadband, to take account of BT’s multibillion-pound spending on sports rights – most notably Premier League football matches. It argued that because BT broadband subscribers get free access to the BT Sport channels, the costs should be included.

It meant that any extra spending on sports rights could force BT to lower its wholesale prices for superfast broadband to ensure it passed the margin squeeze test.

A BT spokesman commented: “As we said in March, we are not opposed to the principle of a margin squeeze test – and in fact Ofcom has confirmed that we currently pass the test – but the proposed test is flawed. Ofcom has not adequately addressed the concerns of the European Commission, who said BT should be allowed more flexibility to recover its sports costs over a longer period. The effect is to provide unwarranted regulatory protection to the likes of TalkTalk and Sky in supplying their superfast broadband services, while at the same time making BT’s entry into sports broadcasting even more challenging.”

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