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Ofcom splits Openreach into separate company Ofcom stops short of full break up – Reactions

How the industry reacted to the latest Ofcom move on the fate of the BT owned UK broadband infrastructure supplier

By Alexander Sword

Ofcom has laid out plans for Openreach to become a separate company within BT in a move aimed to assuage concerns about its performance without incurring the full costs of a sell-off. – see below for full news article

Reactions:

ITSPA, the voice of the next generation communications industry in the UK, today welcomed Ofcom’s proposals for an increasingly independent Openreach, but called for further focus on measures to ensure Openreach’s performance improves to a level that the communications industry and the UK needs.

Reacting to the news, Eli Katz, Chair of ITSPA stated “Members of ITSPA are pleased that Ofcom has proposed an increasingly independent Openreach, but has avoided full structural separation of Openreach from BT. In ITSPA’s opinion, full separation would have been unlikely to address our key concerns around performance and could have created more difficulties than it would have solved. “

 Continuing, Katz said “It is now essential that Ofcom continues to work on tough performance rules for Openreach, setting out minimum requirements on fault repairs and line installation. We look forward to further details on performance requirements being published later this year and to improved measures for closely monitoring Openreach’s performance”.

Richard Neudegg, Head of Regulation at uSwitch.com, says:

"A complete separation of Openreach and BT has been put on the back-burner – for now at least. The regulator has given it the chance to make improvements to avoid potentially losing Openreach forever.

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"Quite frankly, consumers – too many of whom are familiar with delays incurred by Openreach even when BT isn’t their retail provider – don’t care how it’s done. They just want and deserve a better service.

“Too many of us don’t currently have the speeds necessary for a decent online experience. Despite the wide availability of fibre, we aren’t yet seeing widespread take-up – 30% of broadband users still register actual speeds of less than 5Mbps while just 10% are logging speeds above 50Mbps.

"The broadband market is at a crossroads. The big question is how we achieve the right kind of competition and investment in the UK's broadband infrastructure – and a proposed re-structuring of BT Group doesn't answer that question by itself.

“With today’s proposals on more independence for Openreach within BT Group, Ofcom is trying to give the network-arm more incentive to invest its money in the right places and boost other providers’ ability to compete on more aspects of broadband service. BT Group needs to get on with delivering some progress, and fast. We’ve seen Ofcom and Government state clearly if we don’t see significant improvements, other options need to be considered."

Broadbank comparison site cable.co.uk said “This move is clearly the first in a multi-stage process toward severing Openreach from the BT Group completely. If permanent separation were to happen, existing staff would need to be reassigned, a new board appointed, budgets allotted, and it would need to become discreet owner of its existing infrastructural assets – all of which is exactly what is happening today. Full separation is now inevitable."

The News:

The move will see Openreach becoming a legally separate company within the BT Group. It will have its own Board of Directors established and be required to make decisions “in the interests of all Openreach's customers, and to promote the success of the company.

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.

“This model would provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption – to industry and customers – associated with separating the customers entirely,” said a statement from Ofcom.

The announcement follows accusations earlier in July from the Culture, Media and Sport Committee that BT had under-invested in the infrastructure subsidiary.

A 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.

The Committee said 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.

The Committee had 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.

In February, Ofcom announced findings from its Digital Communications Review. These had included plans to overhaul the governance structure of Openreach and plans to force BT to open its ducts to competitors.

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