Ofcom allows BT’s Openreach to lower prices despite fierce pushback

Ofcom has decided to allow BT to push through price reductions at its networking division Openreach despite fierce opposition from rivals who argued it would give the former monopoly an unfair competitive edge.

Openreach announced last year that it was seeking to implement a new pricing model called “Equinox 2” that would offer lower prices to retail providers who use its network — clients such as BT, Sky, TalkTalk and Vodafone — if they agreed to use its full-fibre products for new orders instead of its legacy copper products.

Openreach makes money by wholesaling its broadband to internet service providers, including its parent group BT.

“Based on the evidence available to us, we don’t consider Openreach’s new pricing discounts to be anti-competitive,” Ofcom said on Wednesday.

The regulator concluded that the new pricing model did “not create a potential barrier” to using alternative networks and was “consistent with network-based competition”.

It will, however, be a serious boost to BT after an eventful week for the company. The FTSE 100 group’s share price dropped after it presented a mixed set of full-year results, with free cash flow — a metric closely watched by the City — coming in lighter than expected and as it announced it would shed up to 42 per cent of its workforce by the end of the decade.

Billionaire Patrick Drahi, who is believed to be a strong believer in the value of Openreach’s full-fibre proposition, swooped in at the depressed price to buy about $960mn in shares, taking his investment vehicle’s holding in BT from 18 to 24.5 per cent.

Openreach is competing against Virgin Media O2 and more than 100 smaller alternative networks — or “altnets” — backed by billions of pounds in private capital. They are racing to lay fibre and attract customers in stretches of the country the incumbent has not reached.

Openreach has responded to the threat by building faster than most of its competitors anticipated. The move has already posed a challenge to the rivals, with analysts and industry insiders arguing that network operators need to attract about 40 per cent of customers in any given geography to be viable.

Equinox 2 is the second time Openreach has moved to decrease its wholesale pricing structure in the space of two years. The first, announced in July 2021, was challenged by the largest altnet, CityFibre, which unsuccessfully tried to block it at the Competition Appeal Tribunal.

This month, Openreach chief executive Clive Selley wrote to the regulator to say that Openreach did not have any current plans to change its rental prices until March 2026, Ofcom said on Wednesday.

Katie Milligan, chief commercial officer at Openreach, said following the announcement: “This is good news for customers as it means lower prices and long-term certainty — encouraging the switch to faster, more reliable broadband connections . . . We take our legal and regulatory obligations extremely seriously and we’ll continue to compete fairly whilst delivering an unrivalled, nationwide service and choice for customers.”

Ofcom’s decision on Equinox 2 is likely to come as a blow to rivals who argued vociferously to the regulator that the move would harm their business case and put billions of pounds in capital at risk.

However, the commitment to not lower prices further for three years will soften the blow given widespread concerns that Openreach will push through similar cuts every one or two years.

The regulator was due to approve Equinox 2 in March but sought a two-month delay to examine the potential impacts on competition after receiving a large number of complaints from altnets and Virgin Media O2.

Shares in BT were up around 1 per cent in morning trading following Ofcom’s decision.