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Ofcom splits Openreach from BT – competitor reactions

Ofcom presses on with Openreach split as BT fails to address broadband competition concerns.

By Alexander Sword

Ofcom is pressing on with plans to legally separate Openreach, claiming that BT has not done enough to address its competition concerns.

The regulator will implement plans proposed in July to establish Openreach as a legally separate company with its own board of directors without fully separating the company from the BT Group.

Dido Harding, CEO of  one of BT’s main competitors TalkTalk, which amongst other telcos has lobbied hard for a split and complained bitterly about BT’s stewardship of Openreach, said that the move was “at least a step in the right direction” while claiming that it did not go “far enough.”

“Consumers will be keen to understand how these changes will improve their service and by when,” she said. “We will continue to push Ofcom to ensure the plans deliver real, meaningful improvements quickly, and if major changes cannot be delivered, then they should move to structurally separate Openreach once and for all.”

Sky declined to express any positivity about the deal, simply saying it would “watch closely as to how Ofcom executes its proposals”.

“Let’s not forget why we are here – BT Openreach has continued to fail consumers,” a Sky spokesperson said. “This is why we have always said that we want a solution that is clear and executable and in the best interests of consumers and industry.”

Talk Talk and Sky have to provide their consumer broadband services over the Openreach network.

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However, Kester Mann, Principal Analyst at CCS Insight, said that while this fell short of a structural separation, “after many months of campaigning, [competitors] should see the regulator’s efforts to engage with Brussels as a partial victory.

“The move toward legal separation and greater independence will bring important benefits to companies like Sky and TalkTalk in the long-term.”

Ofcom is now preparing to notify the European Commission, and says that it will consult publicly on a submission to the Commission in the early part of 2017.

However, the regulator said that it remained open to BT “bridg[ing] the gap between its proposal and what is required to address [its] strong competition concerns.”

If the legal separation does not deliver Ofcom’s desired results it may once again consider fully structurally separating Openreach from BT.

Under the current proposals, the board will have a majority of non-executive directors including the Chair. The non-executives would be appointed and removed by BT in consultation with Ofcom.

In addition, Ofcom wants a CEO that is accountable to the new Openreach board, not to the BT Group. This CEO would be responsible for other executive appointments. Openreach would not directly report to BT Group unless Ofcom agreed to this.

Openreach would also be made to consult with customers formally, such as Sky and TalkTalk, on large-scale investments. These could initially be discussed without it being disclosed to BT Group.

Openreach employees would also be employed by this new company, rather than BT Group. Openreach would retain assets it already controls.

Finally, Openreach would have to develop its own strategy and be branded independently.

Showing the new direction of Openreach’s governance, the Openreach board will be headed up by Chairman Mike McTighe, who begins in January. McTighe previously spent eight years on the Board of Ofcom.

The news comes as alternative network provider CityFibre, which intends in the long term to become a national competitor to Openreach, begins a roll out of fibre networks in 500 business parks. This is expected to bring high-speed broadband to 22,000 SMEs.

The connectivity will be offered on a wholesale basis to other broadband providers. The first parks that will be upgraded are in Coventry, Bristol and Peterborough.

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