Today’s FT has the following analysis of the BT settlement:

Ofcom’s strategic review is an intellectual landmark. BT will ring-fence its local loop into a new access services division. All service providers (including BT’s) will buy access on equal terms, at prices which permit AS only a fair return. Yet, in practice, it looks like BT has once again got the better of its regulator.

For one, Ofcom, bizarrely, says it will not regulate the overall ROCE made by the AS unit. Worse still, the broadband wholesale access products used by 5m Britons have been excluded from it. The roughlyPounds 650m of gross profit BT makes from them will not be subject to any ROCE analysis. Ofcom hopes these 5m users will migrate to LLU, a cheaper product whose profits are included in the AS division. But until then, BT’s excess returns look safe.

Why are Europe’s regulators so soft? Many are protective of national champions. Countries with struggling cable competitors are also nervous about encouraging “too much” sector price deflation. But the main explanation for European regulators’ tolerance is their emphasis on encouraging investment. In fact, low consumer prices might be preferable to unproductive capital expenditure.