The chances of BTspending £1.5bn on a superfast broadband network have increased substantially after the telecoms regulator said its rules would not prevent the telecoms operator from securing an adequate return on its investment.
Ed Richards, chief executive of Ofcom, told the Financial Times the planned regulatory regime for BT's network would not be an "obstacle".
Since unveiling plans for its superfast fixed-line broadband network in July, BT has insisted they are conditional on its ability to make a sufficient return.
"Regulation will not be a barrier to this kind of investment," said Mr Richards, adding that Ofcom would publish its planned rules next month. "I am confident we will lay out a regulatory framework which will clearly enable companies to be free to make a return which justifies the investment they are making."
His statement came as BT reported a 74 per cent fall in pre-tax profit for the third quarter because of severe problems at its unit serving the telecoms needs of multinationals.
BT took a £336m charge against its earnings because of the problems, and its shares closed down almost 8 per cent at 97p, a level not seen since privatisation in 1984.
Ofcom's statement is a much- needed boost for BT and its investors, some of whom are sceptical about spending £1.5bn on a superfast broadband network in the economic downturn.
BT's investment case rests on the premise that it can charge rival telecoms groups for using its superfast network.
Mr Richards indicated that the planned regulatory framework could give BT considerable "pricing freedom" with its wholesale charges. He also said the framework would show there was scope to "to earn risk-adjusted rates of return".
Some analysts see the investment case for a superfast broadband network as high risk and question whether consumers will be willing to pay a premium.
Ian Livingston, chief executive since June, said BT was making a lot of progress with Ofcom on the principles of its planned regulatory regime.
Meanwhile, Britain's mobile phone operators yesterday met Stephen Carter, communications minister, in an effort to resolve a dispute over radio spectrum. The row threatens to derail the government's plans to supply all homes with broadband by 2012.
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