Estimation of BT's Equity and Asset beta

Tue May 19 16:46:00 EDT 2015
by Dr Richard Hern and Dominik Hübler

The Office of Communications (Ofcom), the UK Telecommunications Regulator, commissioned NERA Economic Consulting to review the approach to calculating equity and asset betas for BT and comparator companies undertaken by its previous consultants, the Brattle Group1 and to update the equity and asset beta calculations for recent data.

This work is undertaken in the context of Ofcom’s most recent Business Connectivity Market Review for the period 2016-19 (2016 BCMR) which covers the retail and wholesale markets for leased lines in the UK. Ofcom is required to undertake market reviews every three years, under the Communications Act 2003, implementing the EU regulatory framework for electronic communications. The process is designed to assess whether competitive pressures exist in the various segments of the market. If Ofcom does not find evidence of sufficient competitive constraints, it has the power to impose remedies such as ex ante regulation in the form of price controls.

We understand the equity and asset beta update set out in this report will be used as an input into Ofcom’s broader assessment of BT’s Weighted Average Cost of Capital (WACC), and more specifically as part of the 2016 BCMR.