The past year has been unkind to BT Group plc (LON:BT.A) as the regulator tightened its noose on the telecoms giant, Deutsche Bank said.
BT announced in March that it would legally separate from its network division Openreach after two years of fraught negotiations with Ofcom over concerns about its monopoly over the UK’s broadband and telephone infrastructure.
READ: BT to spend more than planned in improving broadband speeds, says Deutsche Bank
Ofcom has proposed cutting the wholesale prices that BT’s network subsidiary Openreach charges telecoms operators after the network unit already voluntarily lowered charges in May.
Adding to BT’s woes in 2017, Ofcom fined the company £42mln in March after finding Openreach had cut compensation payments to telecoms providers for delays in installing high-speed lines between 2013 and 2014. The fine was the largest Ofcom had ever handed down.
In October, the company said it would slash bills for customers after Ofcom pressured the group to cut the price of its landline-only package.
The costs resulting from the regulatory clampdown come as Openreach prepares to upgrade the UK’s broadbroad ageing infrastructure.
Ofcom has estimated that it would cost £1bn to upgrade speeds to 10Mbps for 1.1mln rural homes and £1.7bn to deliver 30Mbps to 1.9mln homes.
BT's past catching up with it, says Deutche Bank
In a Christmas-themed noted on BT, Deutsche Bank referred to the company as Ebenezer Scrooge, a fictional character of Charles Dickens's novel ‘A Christmas Carol’.
“The ghosts of networks past and present reminded Scrooge how his once vast empire had retreated to its lucrative core, though one besieged with customer complaints,” the bank said.
“The future vision of alternative full-fibre operators whilst ScroogeCo sweated its copper, horrified Ebenezer and he regretted not having invested more and sooner, but he remained mesmerised by the mantra that he must be afforded a fair return.”
Deutsche Bank said 10 years since BT’s wiles allowed its businesses to make unlimited returns on modest fibre investment, the regulator has decided that rates must be cut.
“Will Ebenezer awaken on Christmas morning with a new willingness to invest in the distant rather than near-term future? 2018 will tell all.”
Openreach network upgrade
The bank also noted that the government has rejected BT’s voluntary offer to deliver improved broadband speeds to rural homes and will instead enforce the legal right to an upgrade of the network.
Deutsche Bank said this means BT may have to spend more than it had planned to improve speeds to at least 10Mbps for 1.1mln rural homes.
“Scrooge ‘volunteered’ a near-term fix at a cost of up to £600mln,” it said.
“Hardly a trifle but unrequited and now surpassed by a more hostile USO (Universal Service Obligation) regime.”