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July 19, 2016

MPs slam Openreach’s poor service as BT urged to ‘put house in order’

News: Report from Culture, Media and Sport Committee suggests there has been an investment shortfall of hundreds of millions of pounds.

By Alexander Sword

The dormant debate over BT’s ownership of Openreach has flared up again as the Culture, Media and Sport Committee accused BT of under-investing in the infrastructure subsidiary.

The Committee’s report, entitled ‘Establishing world-class connectivity throughout the UK’, says that under BT’s ownership, Openreach had made strategic decisions that favoured the BT Group’s overall “priorities and interests” rather than emphasising shareholder value and customer benefit.

“Capital investment in Openreach has been broadly flat since 2009 until this year, and quality of service remains poor,” said the release titled ‘BT must put house in order or face split, saying that there had been a potential shortfall in investment of hundreds of millions of pounds a year.

Specifically, the criticisms focused on a lack of transparency in Openreach’s cost and deployment plans in relation to the Broadband Delivery UK programme.

It also lambasted low service quality levels alongside flat investment, which the report suggested was because BT was deliberately using profits from Openreach to subsidise higher-risk, higher-return projects such as media assets. An example of this might be BT’s winning of the rights to the Champions League.

The Committee suggested that if BT fails to satisfy its concerns, Ofcom should fully separate Openreach. The MPs suggested that Ofcom had not been vigilant enough in holding Openreach to account.

The recommendations and criticisms of the Committee are roughly in line with Ofcom’s findings in its Digital Communications Review, announced in February.

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Most media attention on the review had focused on whether Ofcom would force Openreach, the only truly national fixed infrastructure provider, to be split off from the BT Group.

In Ofcom's previous review in 2006, it chose to split Openreach into a separate division within BT.

The review concluded that Openreach did have a conflict of interest and was not necessarily acting in the best interests of customers.

However, Ofcom announced plans to deal with this through regulatory changes. Openreach will be compelled to open its ducts to allow competitors to install fibre. It will also have its governance structure overhauled to increase its independence from BT, along with new minimum requirements for its services being imposed.

A BT spokesperson responded to the findings, saying the company is investing, service is improving and that splitting BT would lead to disruption and less investment.

“We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little. As the report acknowledges BT’s investment has made the UK a broadband leader among the major economies in Europe. Openreach investment is 30 percent higher than it was two years ago and it will grow again this year. We are already pumping in hundreds of millions of pounds of extra money and we have also committed to invest a further six billion pounds over the next three years.

“We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area. We are hitting all of Ofcom’s service targets and are determined to exceed them given customer expectations are rising all the time. Thousands of engineers have been recruited and we are fixing repairs and installing new lines quicker than before.

“We are in discussions with Ofcom about increasing the autonomy of Openreach and are hopeful that a settlement is possible that will meet the concerns of the committee. Separating Openreach from BT would lead to less investment, not more, and would fatally undermine the aims of the committee. “

The accusations of the Culture, Media and Sport Committee came as Hyperoptic, a high-speed broadband provider, received £21 million of investment from the European Investment Bank (EIB) to expand Hyperoptic’s fibre broadband to an additional 500,000 homes.

Hyperoptic and other fibre providers such as CityFibre will have a key role to play if UK broadband customers are to have alternatives to Openreach.

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