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Press Release | 14 Oct 2015

FRONTIER ECONOMICS HIGHLIGHT MORE BT OVERCHARGING

FRONTIER ECONOMICS HIGHLIGHT MORE BT OVERCHARGING

Vodafone UK commissioned Frontier Economics to update its analysis of  BT’s overcharging.

As part of its submission to Ofcom’s Digital Communications Review, Vodafone UK recently commissioned Frontier Economics to update its analysis of data from BT’s regulatory financial statements (RFS) since the implementation of the 2005 Ofcom strategic review (of telecommunications) to assess the effectiveness of the regulatory framework in balancing the consumer benefits of lower prices with the need to provide incentives to invest in networks and operate these networks efficiently.

This analysis is based on comparing the level of profitability for BT’s regulated services, expressed as a return on capital, against Ofcom’s estimate of BT’s cost of capital. The Frontier analysis shows that over the period April 2006 to 31 March 2015:

  • reported returns on BT’s regulated services overall were consistently above the rate required to compensate investors, as determined by Ofcom. More specifically, in the past 10 years BT made around £18.9 billion profit from regulated services, of this £6.5 billion was over and above the determined cost of capital, of which £770 million was for the financial year to 31 March 2015;
  • there is no clear trend of a reduction in overall returns, despite a number of actions by Ofcom to constrain prices over the period; and
  • there have been some changes over time in the composition of the excess returns, with the excess returns concentrated on those services used by competitors to BT.

The conclusion to the report is that BT’s returns for regulated services overall have been consistently above a benchmark rate based on Ofcom’s determinations of the return required by investors. This implies that prices overall have been set at a higher level than that required to provide investors in BT with an appropriate rate of return: in other words, prices could have been lower and BT’s investors would have still been adequately compensated. We estimate that BT’s regulated prices would have been 11% lower on average, had BT’s regulated returns been in line it the cost of capital.

About Vodafone UK

Vodafone UK connects people, businesses and devices to help our customers benefit from digital innovation. Our services span mobile, fixed line connections, home and office broadband and the Internet of Things (IoT).

Having made the UK’s first mobile phone call and sent the first text message, Vodafone has a history as a tech pioneer. In 2018 we made the UK’s first live holographic call using 5G, and were first to start carrying live 5G traffic from a site in Salford, Greater Manchester. We now have 5G in more places than anyone else, with multiple locations now live across the UK and the rest of Europe.

Today we serve more than 18 million mobile and fixed line customers in the UK, with 4G network coverage at 99%.  Our customers voted us the UK’s Best Mobile Network at the 2018 Trusted Reviews Awards – for the second year in a row. To help deliver Gigabit UK, our full-fibre broadband roll-out programme now covers 15 UK towns and cities through partnerships with CityFibre and Openreach.

Connectivity is at the heart of what we do as it gives us a huge opportunity for good. We are using our network, products, talents and technology to help society prosper and respond to significant social and environmental issues.  Our free Digital Parenting magazine is helping families and schools across the UK to navigate the online world safely. Meanwhile, the Vodafone Foundation’s work with researchers at Imperial College is developing personalised cancer treatment using the processing power of smartphones.

We are part of Vodafone Group, one of the world’s largest technology communications companies, with mobile operations in 26 countries, partnerships with mobile networks in 55 more, and fixed broadband operations in 19 markets.  As of 30 September 2019, Vodafone Group had approximately 625 million mobile customers, 27 million fixed broadband customers, and 22 million TV customers – including all of the customers in Vodafone’s joint ventures and associates.

For more information about Vodafone UK, please visit: www.vodafone.co.uk

 

Vodafone UK Media Relations

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