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Telecoms giant 'fails to meet concerns'

Ofcom to demand BT separates Openreach business

OpenreachBT is being ordered to separate its telecoms network business Openreach after failing to satisfy the watchdog’s competition concerns.

Ofcom is now proceeding with a formal notification to require the legal separation of Openreach from BT.

It says BT failed to offer voluntary proposals that addressed issues over competition.

Openreach is the division of BT Group that develops and maintains the UK’s main telecoms network used by providers such as Sky, TalkTalk, Vodafone and BT’s retail business.

Ofcom said it is pressing ahead with its plans to improve broadband and telephone services for people across the country, “pursuing better service quality and encouraging greater investment in networks”.

It said in a statement this morning: “Creating a more independent Openreach – which works in the interest of all providers, not just BT – is an important part of achieving this.

“We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

Plans to reform Openreach

In July, Ofcom set out its concerns that BT has the incentive and ability to favour its own retail business when making strategic decisions about new network investments by Openreach. This concern had arisen because BT runs the national network, Openreach, as well as its own retail business.

“We proposed reforms to address this structural issue, to provide regulatory clarity and confidence to the industry, and ultimately better outcomes for people and businesses. A more independent Openreach would be well placed to invest in ‘full fibre’ broadband for everyone.”

Its proposal requires Openreach to become a distinct company with its own board. This would comprise a majority of non-executive directors, including the chairman, who are not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.

Ofcom will notify the European Commission of its intention to implement these plans, requiring the legal separation of Openreach to make it more independent.

“Throughout this process, we remain open to BT bridging the gap between its proposal and what is required to address our strong competition concerns.”

Reaction

Mark Skilton, a Professor of Practice at Warwick Business School, said: “The BT Group argues it is investing in this critical national infrastructure powering the digital economy for all industries, yet questions over how to build this faster and with more coverage across the nation have been part of a constant battle. 

“The Internet of Things, super fast broadband, 5G and other types of networks may be better delivered and served with having multiple large scale companies in a more devolved network.  

“This requires a huge investment to build fibre networks, but also a willingness to experiment and develop a full range of services that digitise and enable multiple networks and providers to give not just access but also high performing data and network speeds.  

“Separating the BT and Openreach monopoly will in my view help this move towards a faster network of providers and hence one that is not driven at the speed of one large operator’s priorities.

“This has counter arguments of reliability and avoiding vested interests in zoning in on specific cities and regions for preferential treatment. But with Ofcom and government leadership now so critical in the Brexit era we now find ourselves in, we need to think faster and more nationally and internationally in how we connect to the wider world.  

“The telecoms network has to be the network of the future and this needs big investment from many parties not just the preserve of one.”

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