The U.K. communications regulator Ofcom levied the fine for a “serious breach” of rules, according to a statement late Sunday. The fine dwarfed any previous Ofcom penalty and puts another black mark on the record of Chief Executive Officer Gavin Patterson, reports Bloomberg.
The rebuke is a further blow to BT over its network division Openreach, which the company agreed to legally separate this month after months of difficult negotiations with the regulator that’s seeking greater independence for the unit and more spending on full-fiber broadband. The penalty tops a 3.7-million pound fine for Vodafone Group Plc last year for poor customer service arising from an overhaul of its billing system.
CEO Patterson and Clive Selley, the head of Openreach, apologized for the issue in a statement and said the company has improved the process to deliver high-speed connections to ensure the same mistakes aren’t repeated. The company is treating the fine and compensation payments as a specific-item charge and said its business outlook for the next two years won’t be affected.
The fine may raise questions about BT’s dividend and affect the rules for how Openreach will provide service to BT’s rivals going forward, Dhananjay Mirchandani, an analyst at Bernstein, said in a note to clients.
“We expect investors to react with disbelief and dismay at this arguably avoidable controversy at BT,” Mirchandani said. “Although the company has reiterated its dividend guidance, we struggle to see how it will be able to do so without dipping into capital.”
Shares of BT fell as much as 2.1 per cent and were down 1.4 percent at 321 pence as of 8:45 a.m. in London. The stock has lost 26 per cent in the past 12 months.
BT received the fine for reducing compensation to other companies that rely on its network when it didn’t deliver business ethernet services on time. Ofcom opened a probe into the issue in November 2015 after complaints from Vodafone, and found that BT had misused the terms of its contracts from January 2013 to December 2014.
BT estimated the compensation it will have to pay at 300 million pounds, though the amount may still change. The carrier will also pay a 300,000-pound penalty for failing to provide information to Ofcom.
The debate over Openreach, BT’s biggest income generating unit, has weighed on the company’s stock since Ofcom started consulting the future of the network in February 2016. The separation of Openreach has been seen by the regulator and U.K. government as a way to spur investment in fiber lines to boost internet speeds, rather than the mix of fiber and copper BT has largely focused on.
The company has also been in the dog house with shareholders over an accounting scandal in its Italian business and for a slowdown in its U.K. and international outsourcing businesses, which all contributed to a reduction in its earnings forecast in January.