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

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Ofcom has decided to allow BT to impose price cuts on its Openreach network division despite fierce opposition from rivals who argued it would give the former monopoly an unfair competitive advantage.

Openreach announced last year it was looking to roll out a new pricing model called “Equinox 2” that would offer lower prices to retail providers using its network – customers such as BT, Sky, TalkTalk and Vodafone – if they agreed to use its full-fiber products for new orders instead of its traditional 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 do not consider Openreach’s new price discounts to be anti-competitive,” Ofcom said Wednesday.

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

It will, however, be a serious boost for BT after an eventful week for the company. The share price of the FTSE 100 group fell after presenting a mixed set of full-year results, with free cash flow – a metric closely monitored by the City – proving to be lighter than expected and as it announced that would it lost up to 42% 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-fiber proposition, pitched in on the low price for purchase approximately $960 million in stocktaking its investment vehicle’s stake in BT from 18 to 24.5%.

Openreach is competing with Virgin Media O2 and more than 100 smaller alternative networks – or ‘altnets’ – backed by billions of pounds of private capital. They’re racing to lay the fiber and attract customers in stretches of the country the incumbent hasn’t reached.

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

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

This month, Openreach chief executive Clive Selley wrote to the regulator to say Openreach had no 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 a move to faster and more reliable broadband connections. . . . We take our legal and regulatory obligations very seriously and will continue to compete fairly, offering customers service and choice unrivaled nationwide.”

Ofcom’s decision on Equinox 2 is likely to be a major blow to rivals who have loudly argued to the regulator that the move would damage their business case and put billions of pounds of capital at risk.

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

The regulator was due to approve Equinox 2 in March but asked for a two-month delay to look into potential impacts on competition after receiving a slew of complaints from altnet and Virgin Media O2.

Shares of BT are up around 1% in morning trading following Ofcom’s decision.