Calls by industry competitors for BT’s network subsidiary Openreach to be spun off have been resisted, but UK comms regulator Ofcom has decided it is necessary to overhaul Openreach’s governance and strengthen its independence from BT. Ofcom has set out how it plans to improve telecoms quality and coverage, so that UK consumers and businesses receive the best possible phone and broadband services following its Strategic Review of Digital Communications, which is designed to make the UK a world-leading digital economy over the next decade and beyond.
Its key recommendations are:
Many of these measures affect all major phone and broadband providers. Others relate specifically to Openreach, the division of BT that maintains the UK’s largest phone and broadband network on behalf of competing providers.
Ofcom’s decisions are designed to achieve:
Supporting investment to provide a choice of networks
Ofcom has unveiled a new strategy to promote large-scale roll-out of new ultrafast broadband networks, based on cable and fibre lines, as an alternative to the partly copper-based technologies currently being planned by BT.
Supporting investment by rival providers will reduce the country’s reliance on Openreach, and increase competitive pressure on its network.
To help bring this about, Openreach will be required to open up its telegraph poles and ‘ducts’ – the small, underground tunnels that carry telecoms lines. Using these, rival providers will be able to build their own fibre networks, connected directly to homes and offices.
Openreach must make it much easier for competitors to access this network, and provide comprehensive data on the nature and location of its ducts and poles. This new ‘digital map’ of the UK will allow competing operators to invest, plan and lay advanced networks, giving people more choice over how they receive their phone and broadband services.
A new model for Openreach
Openreach is part of BT Group, but has obligations to treat all its customers equally. Ofcom introduced this structure in 2005, and it has delivered benefits such as stronger competition.
However, the evidence from Ofcom’s review shows Openreach still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems.
For example, Openreach’s governance lacks independence from BT Group. The wider company has retained control over Openreach’s decision-making and the budget that is spent on the network, and other telecoms companies have not been consulted sufficiently on investment plans that affect them.
For these reasons, Ofcom has decided it is necessary to overhaul Openreach’s governance and strengthen its independence from BT. In future, Openreach needs to take its own decisions on budget, investment and strategy – such as the deployment of new networks.
Openreach management should be required to serve all wholesale customers equally, and consult them on its investment plans. There will also be greater transparency over how costs and assets are allocated between Openreach and the rest of BT.
Ofcom will prepare detailed proposals later this year to implement these changes. The new model might require Openreach to become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members. If necessary, Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders.
A step-change in quality of service
Ofcom intends to introduce a range of measures designed to ensure that all phone and broadband companies provide the quality of service that customers expect.
First, Openreach will be subject to tougher, minimum requirements to repair faults and install new lines more quickly. These will build on measures introduced by Ofcom in 2014, but will set higher minimum standards and extend to other aspects of performance, such as how often faults occur.
Second, Ofcom will introduce performance tables on quality of service, identifying the best and worst operators on a range of performance measures so that customers can shop around with confidence.
Third, Ofcom intends to introduce automatic compensation for consumers and businesses when things go wrong. Broadband, landline and mobile customers will no longer have to seek redress themselves, but will instead receive refunds automatically for any loss or reduction of service.
Better broadband and mobile coverage
Coverage of broadband and mobile services is increasing fast. More than eight in ten UK premises can now receive superfast broadband, and this is expected to reach 95 per cent next year. Under Ofcom rules, 98 per cent of homes and offices must receive an indoor 4G mobile signal by next year.
However, Ofcom remains concerned about those who cannot receive an acceptable service. It will work with the Government to deliver the new universal right to fast, affordable broadband for every household and business in the UK. It also intends to place new obligations in future spectrum licences to improve rural mobile coverage.
Ofcom will also ensure that consumers have accurate and easy-to-use coverage information, to help them choose the best provider. This will place further pressure on mobile network operators to improve coverage.
Last year, Ofcom launched a comprehensive map of mobile coverage by postcode for the whole UK. This will soon be updated to include broadband coverage, and we intend later to offer data for individual addresses.
Ofcom will soon consult on plans to make it easier for mobile customers to switch provider, to help increase competition in the market.
A better deal for telecoms users
Sharon White, Ofcom Chief Executive, said: “People across the UK today need affordable, reliable phone and broadband services. Coverage and quality are improving, but not fast enough to meet the growing expectations of consumers and businesses.
“So today we’ve announced fundamental reform of the telecoms market – more competition, a new structure for Openreach, tougher performance targets, and a range of measures to boost service quality.
“Together, this means a better deal for telecoms users, which will improve the services and networks that underpin how we live and work.”
The Review’s initial conclusions explain next steps on all the policies arising from Ofcom’s review. For example, over the next year, Ofcom will:
According to Paolo Pescatore, Director, Multiplay and Media at CCS Insight, the outcome comes as no surprise. “There were really only two viable options available and Ofcom, under the new leadership of Sharon White, has chosen to take a firm position by strengthening the current model,” he suggested.
“With this in mind, all providers will now be claiming victory. BT’s rivals have mounted enough pressure to raise concerns about how competing companies gain access to a shared infrastructure, and BT has acknowledged some of its shortcomings and has pledged to address them. Overall, Ofcom has called for reform but no separation for Openreach. Rivals will be delighted that Ofcom is calling for more independence of Openreach from BT with on overhaul of its governance, but will require EU approval which is no easy feat.
Inevitably BT will breathe sigh of relief. Openreach contributes significant profits to the company and being forced to open up its network will spur rivals and could drive greater competition. Going forward we believe there will be a clear focus on fibre for the UK’s broadband future driving competition in this area. As expected, Ofcom has also clamped down hard on Openreach customer service, which is clearly a major concern with the current model.
However, this is really only a start of the next phase and there is still a long road ahead before a formal conclusion will be reached. It has already taken more than a year to get this point so all parties now need to work collectively to ensure an efficient and speedy outcome in the interests of consumers.
Moving forward Ofcom needs to bring forward a strategic review of the telecoms market to ensure the UK stays at the forefront. With this in mind, it is paramount to also consider other segments like pay-TV, OTT and 5G,” he declared.
“An Ofcom review into Openreach’s future is much needed,” commented Richard Neudegg, Head of Regulation at price comparison service uSwitch.com. Under scrutiny is its quality of service, incentive to invest in the UK’s broadband network and how to open up more of its infrastructure to other providers – all questions that require a thoughtful resolution.
“By attempting a repeat of the tactics used in its decade-old Strategic Review and leaving open referring BT to a competition authority – which could separate out what is now Openreach from the rest of BT – Ofcom is clearly hoping to force significant change on how Openreach operates within BT Group. But this will not happen overnight.
“While important, it could create a convenient distraction for the industry, and we urge Ofcom not to lose sight of the other issues considered in its review – especially when there are genuine threats to consumer engagement and competition which must be tackled.
“For consumers, the communications market is becoming harder to navigate. A shift towards multi-play deals that bundle together broadband, fixed line, mobile and television could become more common following the recent merger of giants EE and BT. But bundle prices are trickier to compare, and can also make things harder for unhappy customers to leave.
“Many people can save up to £157 a year just by switching their broadband and home phone provider, so we don’t want a situation where customers feel afraid to switch because it’s just too complicated or time consuming.
“Ofcom has rightly acknowledged some of these consumer issues in its review – but the task now is to get on with implementing some remedies.”