Rivals increase calls for BT break-up after Ofcom report

Broadcaster Sky (LON:SKY) has called for a full-scale competition inquiry into the UK’s broadband networks after the telecoms regulator said BT’s (LON;BT.A) service to its rivals was poor. In a review of the country’s digital communications market, Ofcom said that it was concerned about the service BT’s network arm Openreach provided to rival users. Ofcom said the next phase of the review would look at whether Openreach should remain a part of BT. Other possible options are Openreach continues as an arms-length subsidiary of BT (as currently) with tighter controls or there are bigger incentives for other network operators, such as Virgin, to expand. People need a broadband speed of 10Mbit/s to benefit from online services such as video-on-demand video, said Ofcom, but 15% of UK households cannot currently access those speeds with availability a more acute issue in rural areas. “Ofcom believes UK consumers are likely to get better services at lower prices if there is a sufficient number of effective competitors," said Ofcom. Sky, which is locked in fierce battle with BT for broadband subscribers, hailed the review, saying: “Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry.” Dido Harding, chief executive of TalkTalk (LON:TALK), another BT rival, echoed Sky’s comments adding it was a once in a decade opportunity "to make bold, radical decisions, such as the separation of Openreach". Shares in BT rose 1.1p to 470.6p, while Sky rose 8p to 1,133p. Broker Killik & Co said separating Openreach from BT could damage the BT investment case, depending on the terms and manner of the separation. "We would consider the probability of this as being fairly low, as Ofcom even admits the process would be challenging and it may not address some concerns relating to Openreach – such as service quality, or the timing and level of investment decisions," the broker said. "We remain positive on BT as a strong play on the shift of data traffic to fixed-line networks, while its recent purchase of EE will allow it to offer better bundled services, especially to corporates."