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BT set to keep Openreach in Ofcom ruling - analysts

Telecoms regulator Ofcom set to decide whether BT can keep Openreach or must hive it off

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BT says splitting up Openreach could reduce investment, but rivals say the opposite

BT (LON:BT.A) is set to keep its hands on its network business Openreach but may have to offer sweeteners in return, the telecoms watchdog is tipped to announce on Thursday.

Telecoms regulator Ofcom is set to rule on whether the former state-owned phone and broadband giant can keep Openreach as part of its business, or whether it should be hived off.

It is thought Ofcom will hold off from recommending a wholesale break-up of BT, but will keep the option open.

It is expected instead to demand concessions from the company to improve Openreach’s performance and make it more competitive.

BT has already offered to spend more than the £1bn it originally vowed to invest in faster broadband speeds and other upgrades.

Analysts said the concessions were unlikely to be enough to achieve radical improvements.

Dave Millett of independent telecoms brokerage Equinox said: “It looks likely that Ofcom will bottle on the decision to split BT and Openreach.”

A verdict on Openreach’s future is due as part of the publication of the findings of Ofcom’s once-in-a-decade review of the UK’s digital communications industry on Thursday.

The study, announced last March, will examine competition, investment, innovation and the availability of products in the broadband, mobile and landline markets.

It may recommend ways to improve broadband speeds and market choice – and whether Openreach needs to be split up to achieve that.

Rivals such as Vodafone (LON:VOD), Sky (LON:SKY) and TalkTalk (LON:TALK) have claimed that the infrastructure business should be separated from BT.

They say it would improve competition, investment and third party access to BT’s national telecoms infrastructure.

But BT has hit back, claiming that separation could result in less spending on the national network.

BT said in a statement last October: “It is vital for the digital health of the UK that Openreach remains part of the wider BT Group.

“This will enable it to continue to benefit from BT’s capital as well as the circa £500mln a year BT spends on its world class research and development.”

BT sought to head off a decision to split it up last year by offering to invest £1bn in increasing broadband speeds, although it has now vowed to spend more.

Chief executive Gavin Patterson said at this week’s Mobile World  Congress in Barcelona: “There is a significant investment that we are ready to make now.”

Equinox’s Millett claimed Openreach was not currently accountable to anyone apart from BT.

He said: Ofcom should ‘man up’ and demand a split, or at the very least ensure there is a compensation mechanism to the end customer and suppliers for missed or cancelled appointments or failing to achieve their targets.  Only in that way will things improve.”

An Ofcom spokesman said last March: “We have seen huge changes in the phone and broadband markets since our last major review a decade ago. Only five years ago, hardly any of us had used a tablet computer, high-definition streaming or 4G mobile broadband.

“The boundaries between landline, mobile and broadband services continue to blur, and people are enjoying faster services on a growing range of devices.

“Our new review will mean Ofcom’s rules continue to meet the needs of consumers and businesses by supporting competition and investment for years to come.”

Other company news due on Thursday:

Finals: Bodycote (LON:BOY), British American Tobacco (LON:BATS), Capita Group (The) (LON:CPI), Coats Group (LON:COA), COLT Telecom Group SA (LON:COLT), Compagnie De St-Gobain (LON:COD ), Countrywide (LON:CWD), Derwent London (LON:DLN), Howden Joinery (LON:HWDN), Kaz Minerals (LON:KAZ), Lavendon Group (LON:LVD), Lloyds Banking Group (LON:LLOY), Macfarlane Group (LON:MACF), Merlin Entertainments (LON:MERL), Mondi (LON:MNDI), National Express Group (LON:NEX), N Gold (LON:N), Playtech (LON:PTEC), Premier Oil (LON:PMO), RELX (LON:REL), Rentokil Initial (LON:RTO), RSA Insurance Group (LON:RSA), Serco Group (LON:SRP), Sphere Medical Holding (LON:SPHR), Spirent Communications (LON:SPT), St James's Place (LON:STJ), UBM (LON:UBM)

Interims: Ceres Power Holdings (LON:CWR), Gallif Try (LON:GFRD), Pan African Resources (LON:PAF), South32 (LON:S32)

Trading statement: Safestore Holdings (LON:SAFE)

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