View from City Road: BT is not off the regulation hook yet

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The Independent Online
Potential investors in the forthcoming pounds 5bn sale of BT shares should not breathe too great a sigh of relief. Don Cruickshank, the new director- general of BT's regulator Oftel, yesterday ruled out a break-up of the telecoms monolith, but he also thinks that BT has had it too easy.

Only two months into the job, the new regulator is pushing for accounting separation of BT - with full allocation of the costs to different parts of the business. In so doing, he is giving BT's rivals the opportunity to accelerate their attack on the marketplace. Each service will have to show that it is being run commercially, without the sort of cross-subsidies that can scare off a financially less well-placed competitor.

The notion of accounting separation has been strongly resisted by BT as there has always been the thought that it could be a precursor to structural break-up of the company. Now Oftel, while rejecting break-up, wants accounting separation in the current financial year. The company, after all these years, is finally to be laid bare.

BT is also understood to be worried that Mr Cruickshank wants to deepen his powers - in particular taking the right to decide how BT should allocate its costs. The idea that the tentacles of regulation should go ever deeper into the company's affairs, even while competition increases, is something that Iain Vallance and his colleagues find hard to stomach.

For someone new to the industry, Mr Cruickshank has made a splash. True, he will not interfere with the new price control regime which takes effect in August and runs for four years. But regulators in Britain are still capable of making a lot of trouble for the regulated companies.

Mr Cruickshank believes BT will accept the changes rather than risk the alternative - a reference to the Monopolies and Mergers Commission. BT, on the other hand, is battle- hardened and has looked down that route many times before. Either way, life looks far from comfortable for BT. Light- handed regulation seems to be a while away.