Regulator considers tighter controls over wholesale prices BT charges competitors for piggy-backing broadband network
BT's ability to spend heavily at the forthcoming Premier League auction is under threat after Ofcom proposed restrictions on its wholesale broadband profits.
Sports rights have become key in BT's drive to win broadband customers against competition from TalkTalk and BSkyB, with the company offering free subscriptions to sports channels when selling superfast internet connections.
But the watchdog has raised the prospect of tighter controls over the wholesale prices BT charges competitors for piggy-backing on its broadband network.
"This is a watershed," said telecoms expert James Barford at Enders Analysis. "It discourages BT from spending a lot more money in any future auction, including the Premier League. From Sky's perspective this is excellent news. Talktalk is very pleased because it gives some comfort that BT will stay honest."
The watchdog says that from next year it will police the margin between the wholesale price of BT fibre optic lines and the retail prices it charges customers.
The so-called margin control mechanism is designed to stop BT undercutting rivals.
TalkTalk and BSkyB have not built their own copper and fibre lines and rely on BT's network to sell a broadband service.
TalkTalk currently plays £8 a month for a BT fibre to the street cabinet service, but thinks the price should be closer to £5. TalkTalk's cheapest fibre package is £13.50 a month, while BT's is £16.
To calculate the margin charged by BT, Ofcom will take into account what the company has spent on rights, broadcasting and production for its BT Sport channels, such as the £900m deal to snatch Champions League rights from ITV and BSkyB.
This means the cost of the sports rights cannot be hidden within the margin between wholesale and retail prices.
TalkTalk and BSkyB argued the offer of free Premier League football and other contests should be taken into account because they make BT's broadband offering more appealing.
The move is likely to dampen BT's appetite to use sport as a loss leader and may force the acceleration of any decision to start charging for the sports channels.
The next Premier League auction will cover the rights to matches from the 2016/2017 season and analysts predict that competition between BT and BSkyB could drive up the price of a three-year deal from the combined £3bn that both companies paid out for the current deal.
The price of BT's copper broadband is already regulated, but Ofcom has so far resisted controlling fibre pricing to encourage BT to build out its superfast network. The first stage, covering cities and larger towns, is now complete.