Ofcom lets BT keep Openreach but attaches more strings

UK regulator Ofcom has ruled that BT can hold onto its access network Openreach – as long as it accepts governance changes and agrees to be more open to giving competitors access.


February 25, 2016

5 Min Read
Ofcom lets BT keep Openreach but attaches more strings

UK regulator Ofcom has ruled that BT can hold onto its access network Openreach – as long as it accepts governance changes and agrees to be more open to giving competitors access.

The ruling comes in spite of mounting pressure to separate the two. In January Telecoms.com reported how 121 UK MPs had called for a forced sell off of Openreach.

Ofcom says it could still effect a separation in future if circumstances dictate. In response, however, BT’s chief executive warned that any changes to its relationship with Openreach could adversely affect investment and jeopardise Britain’s position in the broadband market.

In a statement Ofcom said that a review had led it to conclude that Openreach’s current governance lacks independence from BT and that it seems influenced to prioritise the interests of its parent company over market competition. The parent company BT retains control of Openreach and makes decisions and investment plans that don’t take any other users of the access network into consideration, which means BT can dictate conditions that affect its rival players, according to Ofcom.

The regulator ruled that this imbalance of power could be alleviated without forcing BT and Openreach to be split. Instead, Ofcom decided Openreach’s independence from BT must be strengthened through governance. “Openreach needs to take its own decisions on the deployment of new networks,” said Ofcom in a statement.

Openreach must open its ducts and poles so rival operators can build their own fibre-to-the-premises (FTTP) networks and make it much easier for competitors to access its network. The governance changes mean it must provide full data on the nature and location of the ducts and poles. Rival operators will now sit in on investment planning and Ofcom promised to legislate for  ‘greater transparency’ over the demarcation of assets between Openreach and BT.

Details of how Openreach will become what Ofcom described as a ‘ring-fenced, wholly-owned subsidiary of BT Group’ were promised by the regulator for later this year. Ofcom said it reserves the right to make BT spin off Openreach as an entirely separate legal entity.

However, in a statement released by BT, chief executive Gavin Patterson suggested a change to the governance to BT and Openreach could damage Britain’s economy.

Openreach is already one of the most heavily regulated businesses in the world, said Patterson.

“The UK is ahead of its European peers when it comes to superfast broadband and we want it to maintain that position. That is why BT is keen to make significant additional investments over the next five years and beyond,” said Patterson. “That requires a high degree of regulatory clarity and certainty, something that is missing at present.

“Our proposal includes a new governance structure for Openreach as well a clear commitment on investment. Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation to bring matters to a clear and speedy conclusion.

“We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done. Our ducts and poles have been open to competitors since 2009 but there has been little very interest to date. We will see if that now changes.

“We are keen to understand and address Ofcom’s concerns so we will review their paper in detail. A great deal of what they are proposing is already in place and we are open to discussions about how the current rules can be amended and updated. A voluntary, binding settlement is in everyone’s interests and we will work hard to ensure one is reached”

Plenty of other people had an opinion on the news too. “We welcome Ofcom’s recognition that the current Openreach model is not working and that fundamental change is required,” said Sky. “BT must now be held to account for improving service and enabling delivery of fibre to Britain’s homes and businesses. Ofcom’s actions today are not the end of the debate but a staging post towards delivering the network and service that Britain needs.”

“The best way to provide competition against BT and its inherited advantages is to support infrastructure investors like Virgin Media,” said Virgin Media CEO, Tom Mockridge. “We are challenging the incumbent with £3bn of investment in new network and providing choice. Ofcom has done the right thing by resisting separating Openreach, which would have sent a negative signal to infrastructure investors.”

“What is not yet clear, is how Ofcom will ensure that Openreach operates more independently from BT,” said Matthew Kendall, Chief Telecoms Editor, Economist Intelligence Unit. “Comments from Ofcom’s chief executive, Sharon White, seem to be suggest that the onus is on BT to take steps to ensure this independence. Ms White said that if Ofcom did not receive the “responsiveness” it was seeking on this issue, then a formal separation of BT and Openreach could be on the cards. For the time being, therefore, the ball appears to be in BT’s court, and it seems Ofcom will not be afraid to turn up the heat on BT if it does not run Openreach in accordance with the wider interests of the industry.”

“Inevitably BT will breathe sigh of relief,” said Paolo Pescatore, analyst at CCS Insight. “Openreach contributes significant profits to the company and being forced to open up its network will spur rivals and could drive greater competition. Going forward we believe there will be a clear focus on fibre for the UK’s broadband future driving competition in this area. As expected, Ofcom has also clamped down hard on Openreach customer service, which is clearly a major concern with the current model.

“However, this is really only a start of the next phase and there is still a long road ahead before a formal conclusion will be reached. It has already taken more than a year to get this point so all parties now need to work collectively to ensure an efficient and speedy outcome in the interests of consumers.”

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