UK telecoms regulator moves to block BT Openreach discount scheme

By Paul Sandle and Yamini Kalia

LONDON, July 28 (Reuters) - Britain's Ofcom proposed blocking a new BT Openreach discount scheme on Tuesday, marking the regulator's first intervention over a pricing offer it said threatened competition.

Ofcom said discounts of up to £9.50 over 30 months in the emerging fibre broadband market targeted customers that providers such as CityFibre and Hyperoptic rely on to grow.

Openreach's offer was not "fair and reasonable and could harm the development of network competition", said Ofcom, adding that Britain's dominant network could undermine its rivals through "aggressively discounted pricing". 

Openreach, which provides wholesale broadband services to ISPs, including Sky, Vodafone and BT's own retail business, responded by saying its offer had been "put forward in good faith at a time when many households are watching every bill".

"In such a competitive market, we don't believe that regulation should protect poor business models and we disagree with Ofcom's analysis," said Openreach's managing director for commercial James Lowther.

'AGGRESSIVE PRICING'

"Openreach must be able to compete, but they cannot use their significant market power to drive other networks out of the market," said Natalie Black, Ofcom's Group Director for Infrastructure and Connectivity.

As the dominant provider, Openreach needs to offer prices which enable it to make a return on its investment while encouraging take-up across the country. 

BT and dozens of so-called altnets have invested billions of pounds in fibre networks over the past decade.

But many smaller providers are struggling to earn a return, with around half of premises passed by full fibre yet to subscribe to it.

Ofcom said the offer encouraged ISPs to add Openreach fibre customers by applying discounts only to sign-ups above their normal run rate.

CityFibre said it was "good to see Ofcom's continued focus on firmly establishing sustainable competition and all the benefits it will bring to consumers, with lower prices, better services and ongoing innovation".

Ofcom said it was not minded to block two other Openreach deals, one offering a one-off £50 discount for new fibre customers above the usual number of sign-ups in areas where Virgin Media O2 operates and a second capping charges for new high-speed connections.

Virgin Media O2 welcomed Ofcom's proposal but called for tougher action, saying Openreach was looking "to entrench its dominant position and squeeze competition against the direction set by the regulator in its recent market review".

Ofcom is consulting until August 27 before making a final decision.   

(Reporting by Yamini Kalia in Bengaluru and Paul Sandle in London; Editing by Nivedita Bhattacharjee, Kate Holton and Alexander Smith)