BT Group plc’s (LON:BT.A) Openreach subsidiary has apologised after its parent company was hit with the biggest fine in UK telecoms history for failing to pay compensation to competitors for broadband installation delays.
Ofcom has fined BT £42mln and ordered it to pay out £300mln to its rivals following an investigation into Openreach, which builds and maintains the UK's main telecoms infrastructure used by telephone and broadband providers.
The probe found that between January 2013 and December 2014 BT had “misused” the terms of its contracts to reduce compensation payments to other telecoms providers for not delivering Ethernet services on time.
Ethernet services, the most common type of leased lines, are high-speed cables used by businesses, and mobile and broadband providers, to transmit data.
Ofcom said BT breached rules that address the company’s significant market power as the owner of Openreach. The regulator's fine marks the highest since making Vodafone Group plc (LON:VOD) pay £3.7mln for failing to credit customers' pay-as-you-go accounts after they topped up their mobiles.
“These high-speed lines are a vital part of this country’s digital backbone. Millions of people rely on BT’s network for the phone and broadband services they use every day,” said Ofcom investigations director Gaucho Rasmussen.
“The size of our fine reflects how important these rules are to protect competition and, ultimately, consumers and businesses. Our message is clear – we will not tolerate this sort of behaviour.”
Ofcom's investigation kicked off in 2015 after receiving a complaint by Vodafone, which relies on BT ethernet services to connect its mobile masts.
BT said it did not agree with “all elements” of Ofcom’s decision but would accept it in the interests of reaching a "swift and final resolution".
The company’s chief executive, Gavin Patterson, said: "We take this issue very seriously and we have put in place measures, controls and people to prevent it happening again.”
Openreach chief executive, Clive Selley, said: "We apologise wholeheartedly for the mistakes Openreach made in the past when processing orders for a number of high-speed business connections.
"This shouldn't have happened and we fully accept Ofcom's findings."
Shares in BT fell 1.46% to 320.91p in morning trading.
Ofcom has promised to crack down on the sector. On Friday it announced new proposals that would force broadband providers to pay-out to unsatisfied customers for such issues as slow repairs, missed deadlines and engineers who don't show up as promised.
Earlier this month BT said it has agreed with Ofcom to legally separate from Openreach following two years of talks. Ofcom said the move would help improve competition and boost the roll-out of superfast broadband.
BT's rivals, including Sky plc (LON:SKY), Talktalk Telecom Group plc (LON:TALK) and Vodafone, had complained that it had an unfair advantage as the owner of Ofcom. They accused BT of making decisions to benefit its own retail business and for being too slow in opening up Openreach's network to other operators.
BT's scandals...
BT's issues don't end with Openreach. The company issued a profit warning in January after it was forced to write down the value of its Italian unit by £530mln following improper accounting practices. The scandal in Italy, where BT has operated since the 1990s, wiped £8bn off the group's market value.
BT said underlying earnings (EBITDA) would be £175mln lower for this year and next. Revenue for this financial year would be £200mln lower with a similar decline expected next year.
The group is also facing at least two shareholder lawsuits in the US, accusing BT and three executives of securities fraud.
In an effort to boost the business, the company has thrown money at its BT Sports arm to draw in more subscribers to the television network. In early March it bought exclusive rights to the Champions League coverage until 2021 for a record payment of £1.2bn.
BT also bought EE from Deutsche Telekom and Orange for £12.5bn following approval from the Competition and Markets Authority in January 2016. Competitors had raised objections over the takeover and BT's dominance over the UK telecoms sector. Its acquisition of EE’s 27 million customers have made BT the largest mobile phone company in the UK.
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