BT cuts deal to avoid split

BT Group, Britain's largest phone company, has agreed with the industry regulator to provide competitors with cheaper access to its lines into homes and offices, avoiding a threatened breakup of the former monopoly.

The company will create a unit to ensure rivals such as Cable & Wireless have access to the network on the same terms as BT's own retail business, BT and regulator Ofcom said this week.

BT will funnel 30,000 staff, about a third of its workforce, into the new division.

The agreement, which sent BT stock up as much as 4.8 per cent, follows a warning from Ofcom last November that BT risked an antitrust inquiry and being broken in two unless rivals were given a fairer deal.

London-based BT, which controls 62 per cent of the UK market, in February offered to open its network to competitors in a bid to stave off the split.

"This removes a degree of uncertainty associated with a structural breakup," said Morten Singleton, an analyst at WestLB in London.

"It gives BT the possibility of controlling whether it gets referred to the competition commission."

Shares in BT gained as much as 10.5p to 228p on relief the firm had escaped a possible break-up.

Ofcom and other telephone companies can take BT to court should the company break the agreement, the regulator said.

The BT chief executive, Ben Verwaayen, said the "overhang" of "uncertainty" for investors had gone.

BT's retail business will have to buy from the new unit - provisionally called Access Services - the same wholesale products, at the same price, as the dozens of smaller phone companies that feed off BT's nationwide network.

The division will have annual sales of between 3 billion ($7.66 billion) and 4 billon, or a fifth of BT's revenue.

Still, WestLB's Singleton said there appeared to be little difference between the agreement and a structural separation; the new unit's employees will work in different offices, wear different uniforms and drive a different fleet of vehicles.

Details of BT's pledges to Ofcom will be published next Thursday.

The agreement forms part of the regulator's first review of the phone industry in 13 years.

BT said it agreed to reduce the cost of wholesale high-speed internet capacity and the cost of leasing a traditional telephone line, and it cut the price of accessing copper wires that run into British homes.

Ofcom said in November that BT must treat companies that buy network capacity from BT in the same way as it sells to its own retail unit.

Ofcom wants to create what the regulator calls equivalence in the market.

BT Retail is BT Wholesale's largest customer.

The regulator had favoured forcing BT to offer equal access to its network, rather than opting to refer BT to the competition commission with a recommendation that the company be broken up.

A third choice involved stopping all regulation.

Ofcom assessed 100 responses from the industry, including comments from mobile-phone operator Vodafone Group and Energis.

Most respondents backed the regulator's preferred option.

- BLOOMBERG