BT Openreach To Become Separate Company With Independent CEO

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Ofcom orders Openreach to be a legally separate company with its own board, CEO and budgets but won’t separate it from BT just yet

Ofcom has declared Openreach should be a separate company from BT with its own board and CEO, appointed independently of its parent, capable of making investment decisions for the benefit of the 500 hundred communication providers (CPs) that use the network – not just BT’s retail unit.

The regulator stopped short of recommending BT sell off Openreach, to the disappointment of rivals and the government, but has made it clear that this represents a final chance for the company to retain ownership of its open access network division amid concerns it has a dominant position and is underinvesting.

The new Openreach

BT TowerThe new Openreach will have its own branding, company culture, ownership of assets such as the physical network and will employ its own staff. All investment decisions will be made in consultation with partners such as TalkTalk and Sky and there will be no direct line of reporting to BT except with Ofcom’s permission.

Ofcom said the measures will ensure greater investment and competition in the UK communications sector without the disruption that a full separation would cause, particularly with regards to the rollout of ‘ultrafast’ broadband technologies like G.Fast and fibre to the premise (FTTP).

“We’re pressing ahead with the biggest shake-up of telecoms in a decade, to make sure the market is delivering the best possible services for people and business across the UK,” said Ofcom CEO Sharon White.

BT’s view

BT said it has volunteered some of the changes and welcomed the proposals, arguing they paved the way for a “fair, proportionate and sustainable” regulatory settlement that won’t cause hinder investment and should alleviate some of the concerns outlined by a parliamentary select committee last week.

“We have listened to Ofcom and industry and are introducing significant changes to meet their concerns,” said BT CEO Gavin Patterson. “These changes will make Openreach more independent and transparent than it is today, something both Ofcom and industry have requested.

“Our proposals can form the basis for a fair and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Review to a speedier conclusion.

“Proportionality has to underpin any regulatory solution and we believe our proposals are a bold and appropriate response to the concerns outlined by Ofcom and others. We have considered the more extreme solutions proposed by others but they would be overly complex, disproportionately costly and time consuming to implement. They would also undermine Openreach’s ability to invest and create years of uncertainty.”

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‘Inevitable’ split

But others have concerns the measures don’t go far enough. Sky, one of the signatories of an open letter calling for a fully independent Openreach, is one of them.

BT Event“Today’s proposal to create a legally separate Openreach is a step in the right direction, although falls short of the full change that would have guaranteed the world-class broadband network customers expect and the UK will need,” lamented Sky CEO Jeremy Darroch.

“In particular, leaving Openreach’s budget in the hands of BT Group raises significant questions as to whether this will really lead to the fibre investment Britain requires.”

The government also has doubts about the effectiveness of the measures, but in any case has called for market certainty.

“We are concerned that BT’s proposals do not go far enough and think it is right that full structural separation remains an option,” added a spokesperson for the Department for Culture, Media and Sport (DCMS). “Swift and clear action is needed to give certainty to consumers, industry and investors in the UK’s broadband infrastructure, and which delivers rapid improvements in the level of investment and service.”

But analysts think the proposals mean a formal separation of BT and Openreach is now a matter of ‘when’, not ‘if’

“This move is clearly the first in a multi-stage process toward severing Openreach from the BT Group completely,” argued Dan Howdle, telecoms expert at Cable.co.uk “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.”

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