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UK Telecoms: OFCOM goes to Brussels

Shares in TalkTalk are near the top of the this morning on news that UK Telecom regulator OFCOM is formally requiring incumbent BT to separate its Openreach network infrastructure division into a legally separate entity. It’s long-standing aim has been to give the division more autonomy in terms of strategy, operations and budget, but with an overarching goal of fostering more sector competition to encourage much needed investment and network improvement/expansion.

UK telecoms

This morning’s news comes after BT failed, since a generous August reprieve, to voluntarily offer satisfactory reforms to address competition concerns. It is especially significant for smaller peers and competitors like TalkTalk (hence its share price outperformance vs Sky) in that it would likely result in significantly more transparency about Openreach, especially how profitable the infrastructure division that they piggy-back actually is. This would in turn allow them to see whether they have been paying over the odds for access to the UK’s copper and fibre optic network and surely shake things up with the new entity having a duty to treat all customers equally.

Ironically, so soon after Brexit, Ofcom is having to alert Brussels of its intention to launch legal plans to require Openreach to become more independent. Given that the ultimate goal is lower costs and more competition, something that could benefit all UK households and businesses (even if it doesn’t help BT shareholders), I wonder how Brexiteers will feel about having to get the OK from Europe? Perhaps BT shares have bounced back to positive territory on hopes that Europe, for all its red tape, will actually complicate the matter and delay the process. Every cloud, eh?

Mike van Dulken, Head of Research, 29 Nov

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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