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UPDATE 2-UK regulator proposes BT wholesale price rises

(Adds reaction, shares)

LONDON, Dec 5 (Reuters) - Ofcom, Britain's communications regulator, has proposed increasing the wholesale prices that BT Group BT.L charges other telecoms providers to cover the impact of inflation and rising costs over the last three years.

Ofcom said the new prices were designed to maintain fair competition in the voice and broadband market, but BT said it did not think the price rises for its Openreach unit went far enough. Shares in the group were still up 3 percent in an otherwise lower market.

For the year 2009/10, Ofcom said it would propose annual rental charges for a fully unbundled line of between 85 and 91 pounds, up from 81.69 pounds.

A BT spokesman said the increase would not cover the rise in inflation since the 2006 set-up of Openreach, which operates as a separate business providing wholesale access telecoms services to communications providers such as Carphone Warehouse CPW.L.

At the time, Ofcom set the maximum prices that Openreach could charge for its wholesale services, but did not include an annual adjustment for inflation or changes to other costs.

Dresdner analyst Lawrence Sugarman said he thought BT would have hoped for a greater increase but said if Ofcom opted for the top of the range rise it would result in an increase of 15 to 20 million pounds in revenues that should flow straight through to the bottom line.

Morgan Stanley said it saw the announcement as a small positive for cash flow.

“From a quick read, we are encouraged by the direction of this paper, but we have issues with some of the underlying assumptions being used,” said Openreach Chief Executive Steve Robertson.

“We are sure that Ofcom wants to play its part in encouraging vital investment, and so we are confident that a fair and just settlement can be reached.

“BT invests more than anyone in the UK’s communications infrastructure, and so it is critical that it is able to achieve a fair rate of return on its investment.”

BT has announced plans to invest 1.5 billion pounds in rolling out super-fast broadband to 10 million homes by 2012 and the ruling by Ofcom on the copper network could influence its thinking for the new network.

BT said in July it would only push ahead with the super-fast roll-out if Ofcom set the terms so it could get a decent return.

An Ofcom spokeswoman said prices would be in place in April next year. “The new wholesale levels in prices will not necessarily have an impact on the retail level,” she said.

Teathers analyst Dan Gardiner said the rise was in line with his forecasts and he thought the news was neutral for Carphone Warehouse. (Reporting by Martina Fuchs and Kate Holton; Editing by Erica Billingham/Will Waterman)

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