Sky calls for BT Openreach separation
October 3, 2016
By Colin Mann
Andrew Griffith, chief operating officer and CFO of Sky, has called for Openreach, BT’s broadband infrastructure arm, to be separated from the telco to fix what he calls “Britain’s lagging Internet”.
Writing an opinion piece in the Daily Telegraph, Griffith argues that there is a fundamental conflict of interest while Openreach remains vertically integrated within BT Group, suggesting that as Britain prepares for a post-Brexit world, it needs to be even more productive to prosper. “To be competitive, we must ensure that we have the right core infrastructure in place – including our broadband, which underpins our digital economy and plays an ever-increasing role in our everyday lives,” he says, warning that as things stand, Britain is at serious risk of falling behind, slipping down the league table of average broadband speeds while others are extending their lead.
He notes that major EU countries that the UK may compare favourably with today have plans to out-perform it tomorrow. “Analysts predict that France will become the second-largest European market for fibre to the home by 2019. Italy plans to roll out pure fibre to 250 Italian cities in the next three years, while Spain and Portugal already have more than 50 per cent fibre to the home coverage. It’s easy to see how Britain could be left in the slow lane,” he observes.
According to Griffith, BT’s response as the monopoly owner of Britain’s national broadband infrastructure is to underinvest in fibre and continue to sweat its existing copper network. “As a result, a mere 2 per cent of UK households had access to fibre to the home last year, and plans to increase coverage are lacking in ambition,” he contends.
“There is a fundamental conflict of interest while Openreach – the BT division that owns and operates the national network – remains vertically integrated within BT Group,” he reiterates.
“Far from investing in the network, BT is actually a net recipient of cash from Openreach. It therefore has no incentive to invest more. Customers suffer and there is no motivation to improve its notoriously poor service. This is simply not good enough. But there is a clear and simple answer to resolve what has become a long-standing regulatory deadlock,” he suggests.
“We believe that the industry regulator Ofcom should create a truly independent Openreach, separating it out of BT Group and giving existing shareholders a share in both BT and Openreach – just like when BT spun off its mobile arm O2 many years ago. A fully independent Openreach would be a sizeable new UK FTSE 100 company able to attract capital from investors looking for stable, utility-like infrastructure returns. And it would have a clear and single-minded purpose – to treat all of its customers equally and to raise its quality of service,” he advises.
“It would be able to reinvest its significant profits into improving the network rather than funding other projects, and it would open up opportunities for its wholesale customers to become long term partners, collaborating in a way that is simply not possible now,” he says.
According to Griffith, there are excellent reasons to be optimistic about the prospects of an independent Openreach for both BT shareholders and Openreach’s customers. “As so often is the case when dissimilar businesses demerge, analysts believe that separation would create value for BT shareholders, with each business able to focus more and attract shareholders aligned to its particular blend of investment and returns. In response to this logical conclusion reached by so many, BT has made a number of desperate claims as it attempts to retain Openreach and its profits within BT Group – from the cost of separation to its pension scheme,” he maintains.
“While Ofcom can be forgiven for wishing they could duck the migraine-inducing topic of BT’s pension deficit, the reality is there are a multitude of City advisers experienced in providing tried and tested solutions to just such challenges. And perhaps shares in Openreach as a pure play fibre provider might be the long-term investment asset that the BT pension trustees are looking for to plug their liabilities,” he speculates.
“We need to see BT’s tired arguments for the stalling tactics that they are, and call time on this debate. The truth is that a motivated company finds solutions. A company that is not finds roadblocks. The Government is supportive of Ofcom taking bolder steps, ‘however radical a change that might be’. It understands all too well that the need for action is acute,” he notes.
“A survey published by ComRes last week revealed that half of British adults think upgrading Britain’s national broadband network should be the Government’s single highest infrastructure priority, well ahead of a new runway for an airport in the South East of England, HS2 or Hinkley Point. Meanwhile 100,000 consumers have already contacted Ofcom to demand it takes whatever steps are necessary to fix Britain’s Internet,” he advises.
“The reality Ofcom must now confront is that for Britain it is a matter of when, and not if, Openreach becomes a truly independent business. If Ofcom won’t take action, the Government itself must consider what needs to be done so that we can move forward with the crucial task of building the digital infrastructure that our nation needs,” he concludes.