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End Of BT’s Powerplay?

finimize_news_image_2016_btopenreach

Image source: Martin Hoscik / Shutterstock.com

What's going on?

The British government, via one of its regulatory divisions called Ofcom, has taken initial steps to force BT and Openreach to become legally separate companies. It’s a good example of antitrust laws in action (a.k.a. “competition laws”).

What does this mean?

Brits can get their internet from providers like BT, Sky, TalkTalk and others – but most of the broadband service providers use the infrastructure that is owned and operated by Openreach, which is a subsidiary of BT. Internet providers have been pushing the government to force BT into turning Openreach into a separate company. They argue that Openreach isn’t independent enough from BT, and that gives BT an advantage over the other providers (for example, when someone’s internet breaks down due to a fault with Openreach’s infrastructure, BT customers might be prioritized over customers that use other providers).

Why should I care?

For markets: BT shares were actually up on the news.
Ofcom isn’t actually pushing for a full and total separation, but it does want the two to be legally separated (i.e. the companies would be operationally independent but profits would still flow to BT shareholders). BT’s investors appeared to be relieved that the breakup wouldn’t be larger – and sent the stock up marginally (about 1%) on Tuesday.


The bigger picture: Too little competition can be bad for customers.
If companies can unfairly influence a marketplace (like the provision of broadband internet services), then a government regulator tends to step in to change the situation. Government regulators often take action to limit or reject proposed mergers or acquisitions for the same reason: the reduction of competition could be too harmful for consumers’ interests, e.g. lead to higher prices. This is the “antitrust risk” that we often refer to when writing about mergers and acquisitions.

Originally posted as part of the Finimize daily email.

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