BT’s regulatory financial statements, published earlier this week, indicate that in the last financial year the company made returns around 7% (the same as in 2016/17) above its ‘cost of capital’ – the cost of financing a business or investment.
Much of this was made by its Openreach infrastructure arm. In recent years, BT has invested in connecting street cabinets to fibre-optic broadband. Ofcom requires BT to provide access to its network for competitors, such as Sky and TalkTalk, to offer their own broadband services.
As take-up of superfast broadband has increased, returns in this market continue to rise above the cost of capital.
In March, as part of our Wholesale Local Access (WLA) market review, we introduced regulation on the wholesale price that Openreach can charge telecoms companies for its entry-level superfast broadband service. This reflected our finding that BT has had a fair opportunity to make a return on its original superfast broadband investment.
As part of the review, we also decided to maintain our policy of pricing flexibility for Openreach’s other wholesale superfast broadband products, including those based on BT’s own investments in full-fibre networks, and its new G.Fast technology.
These measures are designed to provide incentives to BT and its competitors to invest in ultrafast networks, while promoting competition and protecting consumers from high prices.
Where Ofcom regulates companies – and sets limits on the prices they can charge – we recognise the riskiness of new investments, which should be adequately rewarded for investment to take place.
However, we also continue to scrutinise BT’s costs and maintain a balance between incentivising BT to become more efficient, and ensuring fair prices for its competitors and their customers.
Over time, this should lead to lower prices and a lowering of BT’s returns on its regulated products. For example, the recent WLA review will serve to lower BT’s returns in the residential broadband market over the next three years.
We believe regulation of BT’s prices will continue to deliver significant benefits to consumers through innovation, lower prices and encouraging new competition in the market.