UK Regulator Rules on BT's Superfast Broadband Charges--Update

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By Ian Walker and Simon Zekaria

LONDON--The U.K. Office of Communications said Thursday BT Group PLC (BT.A.LN) must maintain a sufficient margin between its wholesale and retail superfast broadband charges to allow other providers to profitably match its prices.

The communications regulator made the rule as it set out new measures to promote competition and investment in the growing market for superfast broadband. However, the measures are subject to review by the European Commission, upon which the regulator expects to publish a final statement in February, it said.

The new regulatory condition would start from March and remain in place until March 2017, when the current regulatory review period ends, Ofcom added.

"The new pricing rule would preserve BT's current flexibility to set its wholesale fiber prices, which in turn provides an incentive for future investment by the company in its fiber network," the regulator said.

At the same time, it will mean BT can't set prices in such a way that might prevent other operators from competing profitably for superfast broadband customers.

BT is currently the largest retail provider of fiber broadband services over its network, but is required to allow other operators to use its network to sell superfast broadband to consumers under a process known as "virtual unbundled local access".

A spokesperson for rival operator TalkTalk Telecom Group PLC (TALK.LN) said it welcomes the move. "Broadband is critical to our future. This must be the beginning of the journey to bring down superfast broadband pricing and make consumers and Britain better off."

A spokesman for pay-TV giant Sky PLC (SKY.LN), which also provides broadband services, said: "Ofcom's action is welcome recognition of the competition problems that can prevent customers from getting the best choice and value in superfast broadband."

A BT spokesman said Ofcom's statement is "misconceived" and said it may appeal.

Ofcom said the new rules take into account the costs and revenue of BT's sport channels, which the telecoms incumbent is using to win broadband customers. BT has spent billions of dollars over the past year and a half buying premium sports rights for the channels, including English Premier League soccer.

The changes "increase the weight of TV sport in the cost side of the calculation," based on the numbers of subscribers taking up the product, rather than the whole to which it is available, Citi analyst Simon Weeden said.

The BT spokesman said: "We do not think our sports costs should be part of any assessment."

At 1225 GMT, shares in TalkTalk fell 1% to 310.8 pence. BT shares fell 1.1% to 396.9 pence and Sky shares were up 1.3% at 910 pence.

Write to Ian Walker at [e-mail]; @IanWalk40289749 and Simon Zekaria at [e-mail]