BT strikes deal with Ofcom over future of Openreach
10 March 2017 | James Pearce
BT has struck an agreement with UK regulator Ofcom that will see infrastructure arm Openreach become a legally separate wholesale company.
Ofcom had threatened to enforce a split after lobbying from BT’s rivals, many of whom rely on Openreach’s UK network of copper and fibre lines.
Rivals had claimed a BT-ran Openreach favoured the incumbent by deploying new infrastructure in areas that would benefit BT most, challenging Ofcom to completely split Openreach from the BT group.
Although the regulator stopped short of this, it has now reached a settlement with BT that will see Openreach become a legally separate company within the BT group. This means it will have its own board of directors, its own branding and employees will be transferred to Openreach Limited.
Sharon White, Ofcom chief executive, said: “This is a significant day for phone and broadband users. The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT.
“We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”
An Openreach CEO, currently Clive Selley, will report into an Openreach chairman, currently Mike McTighe, who in turn will report to the BT board.
BT agreed to all of the changes outlined by the regulator to address competition concerns, meaning Ofcom will not have to impose the changes through regulation. In November, Ofcom threatened to go to the European Commission over its plans to split Openreach. BT followed this up by announcing the appointment of a new Openreach board of directors, including former Ofcom board member McTighe as chairman.
Gavin Patterson, BT chief executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure. It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.
“This has been a long and challenging review where we have been balancing a number of competing interests. We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”
Though the agreement falls short of what BT’s rivals were looking for, it should bring an end to the long-running dispute over the future of Openreach.
That’s the view of uSwitch head of regulation Richard Neudegg, said the focus now eeds to be on improving the UK’s digital infrastructure.
"This is not the full structural separation many of BT's retail rivals – including providers served by Openreach's network – have campaigned hard for,” Neudegg explained.
"What it does is offer a middle ground that gives Openreach independence, while still being owned by BT. It is a step further than the functional separation that led to the creation of Openreach in the first place.
"The industry should now draw a line under the debate on the structure of Openreach, and focus on actually delivering the better service everyone wants to see. Most consumers won't be bothered whether or not 'a BT Group business' is written on the side of Openreach vans, what matters is the UK's digital infrastructure actually getting better in practice.”
It has been a long and bitter dispute, that has ran since before Openreach was founded in 2006. At that time, Ofcom was looking at how to provide equal access to BT’s infrastructure to allow its rivals to compete fairly following its Telecommunications Strategic Review.
CCS Insight principle analyst, operators, Kester Mann, claimed the regulator arguably went as far as it can go with this legal separation.
“Today’s news provides welcome certainty after a long-running and bitter dispute over the future of the UK broadband network. Resolving it now, without having to go to Brussels to enforce a new structure, will bring much-needed stability to a UK market still reeling from the Brexit referendum.
“The agreement reflects Ofcom’s determination to improve BT’s performance and clear concern that the UK broadband market has not been as competitive or operated as effectively as it would have liked. Its determination in negotiations with BT under the increasingly impressive stewardship of Sharon White, should be applauded.
“BT’s rivals, notably Sky and TalkTalk, will publically claim that the regulator should have gone further by enforcing a full structural separation. However, this option was always the most radical and controversial the regulator could have taken. In private they should be more than satisfied with the changes Ofcom has pushed through.”
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