Ofcom confirmed on Thursday that it will impose new pricing regulations on BT, a decision the incumbent claims puts it at a disadvantage in the pay TV market.
From 1 April the incumbent will be required to maintain a sufficient margin between its wholesale and retail superfast broadband charges so that alternative operators can profitably match its prices. BT will still have the flexibility to set wholesale fibre prices, but it will be prevented from doing so in such a way that it squeezes its rivals’ margins. To ensure BT plays by the rules, Ofcom will carry out a margin squeeze test every six months.
Ofcom said in a statement that it considers BT already complies with its new regulation.
"The rule is therefore a safeguard which limits BT’s ability to reduce retail margins in future, and ensures that any increases in BT’s costs must be reflected in its prices," Ofcom said.
However, in calculating the cost to BT of providing superfast broadband services to consumers, Ofcom opted to include the costs BT incurs from bundling free BT Sport content. A higher cost base means a tighter profit margin, thus the telco will find it more difficult to pass the margin squeeze test.
BT claimed the test is flawed because Ofcom fails to take into account that it is a new entrant in the pay TV market, and instead provides unwarranted protection to the likes of TalkTalk and Sky.
"U.K. regulation remains worryingly lopsided," the telco said in an email to Total Telecom. "The U.K. telecoms market is the most heavily regulated in the world, yet there has been little action to address Sky’s continuing dominance of the pay TV market."
Indeed, the European Commission, which reviewed Ofcom’s rules after they were drafted in January, said BT has made a long-term investment in a sector where it lacks significant market power. It said the new rule "unduly limits" BT’s flexibility to recover costs related to BT Sport over a longer period of time.
In its response, Ofcom argued that even though BT is relatively small in the pay TV market, its broadband customer base is large and well-established enough for it to spread the cost of BT Sport from day one.
"The amendments announced today d o not adequately address our concerns nor those raised by the Commission," said BT. "We will now consider our options."
