BT making a return on investment in fibre

Posted by George Coburn in Personal Finance on 3 November 2016 - George is a Credit Analyst at checkmyfile

The way people use the internet is changing, with households wanting to be able to stream from multiple devices and download large files quickly.

With this need for speed, there has been massive investment in the UK’s largest fibre-optic broadband network run by BT’s Openreach. Since BT is such a massive firm, Ofcom applies strict requirements on the company, to help ensure competition in the industry is fierce and consumers can access the best deals available.

One of these requirements is publishing its Regulatory Financial Statement this year 6 months before it was due. Within this report, BT has confirmed that despite its investment in the Openreach network, it saw a return of approximately 8% from the investment, so BT is no longer losing money on it.

As part of its agreement with Ofcom, BT will provide access to the Openreach network to competitors such as TalkTalk and Sky and the wholesale price has historically been decided by BT. It is through this revenue that BT has been able to mitigate the cost of increasing the fibre-optic network it controls.

With investment comes risk and Ofcom recognises this applies to BT’s investment in the Opennreach network. On the one hand, Ofcom states BT should be entitled to receive reward for taking the risk, but on the other it is pushing BT towards reducing its wholesale prices on business lines. Following rules issued earlier in the year, BT will need to also cover the cost of installation and maintenance of lines within its decreased wholesale prices and this is expected to cost the firm £800m in reduced revenue over the next three years.

Ofcom has also announced it wants to see BT investing more in its fibre-optic network in order to match the demand for fast internet. Currently, Openreach operates under BT’s wing but Ofcom is looking for it to become more independent of BT with the firms focus being more on benefiting consumers.

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