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June 15, 2018updated 16 Jun 2022 7:20am

Ofcom Warns BT over Openreach Involvement

BT still too close to newly independent Openreach, warns regulator

By Umar Hassan

BT did not let go of its broadband infrastructure arm Openreach willingly.

Separation was forced by communications regulator Ofcom in 2017 amid competition concerns – but ultimately resulted in Openreach being set up as an independent and legally separate company, albeit one wholly owned by BT.

BT owns the infrastructure that connects a sweeping majority of UK homes and businesses to national broadband networks. Regulators had warned as a result it can make strategic decisions that directly favour its own retail business.

(BT currently serves some 600 different communications providers.)

Yet over a year after agreeing to all the terms of the separation, a review by Ofcom warns that despite “positive progress”, BT – which generated revenues of £23.7 billion in the 2017-2018 financial year – is keeping a large finger in the Openreach pie.

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BT Still Involved in Openreach Strategic Planning?

Ofcom said: “We are concerned that BT and Openreach have not yet struck the appropriate balance between BT’s interests as parent company, and the separate, more independent Openreach that exists as part of the wider group.”

The regulator added: “We have concerns about BT’s involvement in the development of Openreach’s strategic plans. During interviews, several individuals suggested that BT was significantly involved in this year’s planning process.”

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“We are also concerned that BT’s newly established Investment Board reviewed Openreach’s investment proposals to be included in its strategic plans before the final draft plans were presented to the Openreach Board for approval.”

BT told Computer Business Review: “BT welcomes Ofcom’s confirmation that we have made good progress towards implementing the status of Openreach determined by the Digital Communications Review.  We are absolutely committed to the strategic independence of Openreach, enabling it to continue delivering the connectivity and service that homes and businesses across Britain require.

A company spokesman, referring to the specific concerns, added: “We have discussed this with Ofcom and been fully transparent about the role of BT’s Investment Board and its terms of reference. We will continue to work with Ofcom to ensure that our financial planning processes strike the right balance, giving Openreach the greater strategic independence to which we have committed, and ensuring Ofcom has appropriate oversight of the way that the financial planning processes work.”

Broadband Fine

Last year the telecoms giant was fined a massive £42 million by Ofcom for breaching contracts that require it to pay other telecoms providers compensation if it failed to deliver “Ethernet” services on time.

Ofcom said it “has taken enforcement action because BT breached rules that address the company’s ‘significant market power’.”

The company faces regulatory pressure to lay more fibre, faster, yet in the face of less than stellar financial performance has frozen dividends and moved to slash £180 million in outgoings last year. The company says it is creating a “more lean, agile and flexible organisation”.

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