BT shares plunge after Ofcom rules out price caps on fibre broadband

Watchdog’s new rules allow telecoms firm to charge higher prices for full-fibre connectivity for next 10 years

BT's headquarters in central London. The company plans to deliver fibre broadband to 20 million homes and businesses in Britain over the next decade. Reuters

Shares in BT plunged almost 4 per cent on Thursday morning after Britain’s communications regulator said the telecoms company could charge higher prices for full-fibre connectivity over the next 10 years as it upgrades the broadband network.

Under Ofcom’s new rules, wholesale prices on full fibre would not be capped until 2031 at the earliest, allowing BT’s Openreach subsidiary to charge what it likes to broadband builders.

The move caused the BT’s share price to fall by almost 4 per cent in early trading before paring back some of its losses. It remained 2.49 per cent down at 11.27 GMT, after investors reacted to news of the flexible pricing as the UK upgrades from its older and more unreliable copper broadband network.

BT chief executive Philip Jansen said the Ofcom move was "the green light we've been waiting for to get on and build like fury" as it looks deliver fibre broadband to 20 million homes and businesses over the next decade.

"Full-fibre broadband will be the foundation of a strong BT for decades to come and a shot in the arm for the UK as we build back better from this pandemic," Mr Jansen said on Thursday.

BT said Ofcom’s announcement would allow it to earn a fair return on the £12 billion ($16.67bn) investment needed to implement the plan that will see 85 per cent of the nation receiving gigabit speeds by 2025.

However, critics could accuse Ofcom of giving a near-monopoly a generous deal, which might lead to more expensive internet packages for the public.

Ofcom said the decision would give companies flexibility on the pricing of their fastest services for the long term.

"We aim to allow all companies the opportunity to achieve a fair return over their whole investment period, and do not expect to introduce cost-based prices for fibre services for at least ten years," it said.

Ofcom’s chief executive Melanie Dawes denied the measure would harm consumers, as it was intended to boost competition in “the wholesale network layer of broadband for the future”.

Other players in the market include Virgin Media and CityFibrez, which are building competing networks.

Ms Dawes said companies could now "step up and invest in the country's full-fibre future", which would help reduce the reliance by millions of homes on copper lines that were laid a century ago.

"This is a once-in-a-century chance to help make the UK a world-leading digital economy," she said.

Britain has fallen behind European rivals in building gold-standard fibre networks, leaving millions of customers dependent on a mix of fibre and old copper connections that struggle to meet rising demand.

The Openreach full-fibre network is set to reach 4.5 million premises this month.

The new regulations, which come into force next month and apply until 2026, allow Openreach to keep the price it charges operators for entry-level 40 Mbit/s broadband and slower copper packages flat and charge more for regulated products delivered over full fibre instead of copper.