UPDATE 2-BT shares rise after TalkTalk complaint rejected

Thu Jun 19, 2014 3:52am EDT

(Adds share price, details)

By Kate Holton

LONDON, June 19 (Reuters) - Britain's BT Group Plc received a double boost on Thursday, as the telecoms regulator rejected one complaint over how it priced its flagship superfast broadband product and suggested manageable remedies to avoid disputes in future.

Shares in BT were up 2.3 percent.

BT has turned around its business in recent years by building a fibre network that has driven the uptake of broadband services, both by consumers and by rivals who take the lines on a wholesale basis to offer them to customers.

Smaller broadband provider TalkTalk had complained however that BT, the country's biggest fixed-line provider, was abusing its dominant position in the way it priced the wholesale offering.

It complained there was not enough of a gap between wholesale price and the rate at which BT sold the product to retail customers, squeezing margins for competitors.

Regulator Ofcom rejected the complaint on Thursday. Having already ruled it would not impose price caps on BT, it proposed instead requiring the company to maintain a sufficient margin that would allow others to profitably match its prices.

BT said the proposal also suggested that, if it failed to maintain the correct margin, it could decide how to remedy the situation, giving it increased flexibility.

"Given that Ofcom has just ruled that there is no margin squeeze, we would be surprised if there were any material near-term impact on BT as a result of these proposals," analysts at Espirito Santo said.

BT, which had argued it needed to set prices to offset the investment it made in the new network, welcomed the proposals on margins and said it hoped they would prevent further complaints.

"There is strong competition in the UK broadband market and we are confident our pricing will pass any regulatory test that may be put in place," a spokesman said.

"It is important that Ofcom encourages investment as well as competition and recognises the full costs involved in deploying fibre."

TalkTalk also welcomed the proposal and said it expected the margin test to ultimately result in full price regulation. Its shares were flat in early trading. (Editing by Sarah Young and David Holmes)

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