Break-up is never easy but it’s the way to go
BT may be celebrating robust growth numbers, propelling the shares temporarily through the £5 barrier, but there is no escaping the fact that it is the beneficiary of a regulatory cock-up.
It has been allowed by the toothless UK Competition & Markets Authority (CMA) to spend £12.5bn on buying mobile operator EE, gifting it 25m mobile subscribers on top of its permanent annuity in fixed lines.
Meanwhile Ofcom, which polices UK communications, makes it clear that it has real concerns about mobile firm Three acquiring BT’s once abandoned network O2. Because this is viewed as a cross border transaction (even though it creates a new oligopoly in the UK) it is being looked at in Brussels.
It is enough to make customers sign up to the Brexit campaign straight away so that critical decisions can be reached on a joined up basis. We are, one supposes, meant to celebrate new grown up BT with its muscle power to take on Sky in television, dominate broadband and offer bundled services as a triumph for free markets.
But is that really the case? As far as TV is concerned all BT has done is drive up the cost of buying Premiership football rights enriching clubs and players. The cost is passed back to consumers through higher subscriptions at Sky and broadband tariffs at BT which uses Premiership, Champions League and Europa as a marketing tool.
Chief executive Gavin Patterson is using the acquisition of EE to rejig by strengthening the f ocus on domestic business and public sector customers. BT will then have two consumer divisions, one focused on fixed line, TV, mobile and bundled services and the other on Openreach, the gateway to broadband.
BT coughs up endless statistics to challenge the notion that Openreach is a monopoly stifling competition and service.
It will, in the end, be up to Ofcom, and possibly the CMA, to decide whether it is anti-competitive and should be hived-off.
But we should treat some of the arguments against, such as impact on the pensions of 32,000 employees in Openreach, as tendentious.
Also fascinating to note is that following the EE deal Deutsche Telecom has a 12pc stake in BT which could lift to 16pc as Deutsche has first dibs on an Orange stake of 4pc. If Openreach were still part of BT an eventual German takeover or merger might be a step too far. If hived off then, it could all be very different.
Cleaning up
THE mood music is changing at Barclays. When it was first accused of cheating clients by allowing supersophisticated ‘flash traders’ into its dark pool share trading system in New York, it was outraged. I can still remember my phone fizzing with invective as the bank’s senior executives claimed that what happened in the dark pools was no business of the New York attorney general.
Indeed, this time last year Barclays was in court outlining the deficiencies amid charges from the attorney general Eric Schneiderman that 6pc to 9pc trades in dark pools were aggressive and accused Barclays of non-cooperation. A year on Barclays has retreated, admitting to the attorney general and the Securities & Exchange Commission that it broke State securities law, paying a $70m fine and promising to appoint an independent monitor to make sure that the dark pools are protected from flash traders.
All of this begs the question of why the authorities on both sides of the Atlantic allow dark pool trading at all. It seems grossly unfair that big battalion trades can be matched between hedge funds and others in the dark pools, without prices being recorded on a recognised exchange, whereas ordinary citizens adhere to normal rules governing price transparency.
Barclays’s initial forceful defence against the dark pool charges contrasted with its attitude towards Libor fixing where it was the first i nvestment banks to own up, escaped with a more modest fine than its competitors but attracted unprecedented political opprobrium. It was the event which saw Bob Diamond dismissed as chief executive and triggered the resignation of chairman Marcus Agius.
The bank is also regarded as having been obstructive in co- operating with the Serious Fraud Office’s probe of alleged commission payments to Qatari officials at the time of 2008 fund raisings. Maybe the bank’s lawyers figure that the SFO’s difficulty in winning high profile cases makes a disputative approach worthwhile.
If it is the aim of new chief executive Jes Staley to clear the decks it might be the moment to start cooperating and reach a ‘deferred prosecution agreement’ on Qatar effectively owning up to wrong doing under the supervision of a judge.
That could be a big step towards restoring the bank’s reputation and the confidence of the authorities.
Young at heart
AT 85, the Sage of Omaha, Warren Buffett, still embraces change. The Q&A at Berkshire Hathaway’s April 30 agm, a fixture in the US investment diary, is to be webcast for the first time giving the global faithful live insight into his thinking. As if this wasn’t enough Buffett has also signed up as an adviser to Celebrity Apprentice, hosted by Arnold Schwarzenegger in the absence of Donald Trump, on other business.
Life begins…