BT Is Safe From Breakup, For Now

February 25, 2016, 9:57 AM UTC
BT Sevenoaks workstyle building
The BT workstyle building in Sevenoaks, Kent.
BT/Adam Liversage

The British telecoms regulator Ofcom has published its long-awaited review of BT’s structure and, while it will require the former state monopoly to further reform its ways in order to boost the nation’s fiber deployments, it’s not calling for a full-scale breakup.

For a while there, it looked like there was a good chance of Ofcom demanding that BT officially split off Openreach, the BT subsidiary that manages its national broadband and phone networks. Ofcom forced BT to create Openreach a decade ago, in order to give smaller telcos equal access to the giant’s network.

The idea is that Openreach should treat BT’s retail division as just another telco. However, BT’s rivals — notably Sky, TalkTalk and Vodafone — have long been complaining that Openreach takes too long to hook up their customers. They’ve been calling for Openreach to be fully split off into a separate company with its own shareholders.

In its preliminary recommendations on Thursday, Ofcom went part of the way, declaring that Openreach should have to open up its physical broadband infrastructure (underground ducts and telegraph poles) to other companies that want to roll out their own fiber networks. In effect, the regulator is trying to reduce the industry’s dependence on BT’s infrastructure arm.

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It will also make Openreach change its governance structure to make it more independent from the BT mothership — it will have to make its own calls on things like budget and investment.

“The evidence from Ofcom’s review shows Openreach still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems,” the regulator said. “Openreach management should be required to serve all wholesale customers equally, and consult them on its investment plans.”

To an extent, the devil will be in the details. Ofcom has not yet decided whether it will be necessary to make Openreach a ring-fenced subsidiary of BT Group — and it might still force that formal separation. For now, it has not.

BT CEO Gavin Patterson said the company “welcomed” Ofcom’s decision to make structural separation a last resort. He said the firm has come up with proposals for a new Openreach governance structure.

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“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,” Patterson said. “Our ducts and poles have been open to competitors since 2009 but there has been very little interest to date. We will see if that now changes.”

BT’s rivals have a different spin on why they haven’t taken up the firm’s hey-come-share offer before. For one thing, they say BT has been charging way too much for access — after all, the whole point of letting everyone use the same ducts and poles is to save money, removing the need for anyone rolling out a fiber network to have to dig its way around the U.K. However, Ofcom seems happy with BT’s pricing.

“We welcome Ofcom’s move to tighten its regulation and governance of BT Openreach and leave structural separation on the table,” Vodafone said. TalkTalk chief Dido Harding warned that it’s one thing for Ofcom to identify the conflict of interest in the BT-Openreach relationship, but there was “little concrete action” in the regulator’s preliminary proposals.

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