Openreach escapes sell-off
July 26, 2016
By Colin Mann
Openreach, BT’s infrastructure business, has escaped being split from the telco under detailed plans proposed by regulator Ofcom to make digital communications work for everyone, but faces major reform, with the recommendation that it become a distinct company, with its own Board.
Plans announced earlier in 2016 to deliver a step-change in telecoms services for everyone focused on a more independent Openreach; greater choice of broadband networks, including fibre connections to homes and offices; better quality of service across the whole industry; and better broadband and mobile coverage for people and businesses.
Ofcom has announced progress in these areas.
An Openreach that works for everyone
Openreach is the part of BT Group that develops and maintains the UK’s main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer. Openreach has obligations to offer the same products to all customers on the same terms.
Ofcom introduced this structure in 2005, and it has delivered benefits such as stronger competition. However, BT retains influence over significant Openreach decisions. BT has an incentive to make these decisions in the interests of its own retail businesses, rather than BT’s competitors, which can lead to competition problems, says the regulator.
In February, Ofcom said that Openreach must become more independent from BT, and is now proposed how this should work:
- Openreach to become a distinct company. Openreach should be a legally separate company within BT Group, with its own ‘Articles of Association’. Openreach – and its directors – would be required to make decisions in the interests of all Openreach’s customers, and to promote the success of the company.
- Openreach to have its own Board. The new Board should have a majority of non-executive directors, including the Chair. These non-executives should not be affiliated to BT Group in any way, but would be both appointed and removed by BT in consultation with Ofcom.
- Executives accountable to the new Board. Openreach’s Chief Executive should be appointed by, and accountable to, the Openreach Board – not BT Group. The Chief Executive would then be responsible for other executive appointments. There should be no direct lines of reporting from Openreach executives to BT Group, unless agreed by exception with Ofcom.
- Greater consultation with customers. Openreach would be obliged to consult formally with customers such as Sky and TalkTalk on large-scale investments. There should be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group.
- Staff to work for Openreach. Ofcom’s principle for the new model is that people who work for Openreach should be employees of the new company, rather than BT Group. This would prevent any real or perceived conflict of interest, and allow Openreach to develop its own distinct organisational culture.
- Openreach to own assets that it already controls. Openreach should own its physical network. This would allow the Openreach Board to make decisions that depend on investing in, and looking after, Openreach’s assets. There may be costs in transferring assets or people to Openreach, which would need to be mitigated.
- A separate strategy and control over budget allocation. Openreach should develop its own strategy and annual operating plans, within an overall budget set by BT Group.
- Independent branding. Openreach should have its own brand, not affiliated with BT Group, to help embed the organisational culture of a distinct company.
According to Ofcom, 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 consumers – associated with separating the companies entirely.
It is designed to ensure that Openreach acts more independently from BT Group, and takes decisions for the good of the wider telecoms industry and its customers. If it cannot achieve this, Ofcom will reconsider whether BT and Openreach should be split into two entirely separate companies, under different ownership.
Ofcom is seeking views on the plans outlined by 4 October.
BT has notified plans to Ofcom to deliver changes to Openreach’s governance, to make it more independent and accountable to its customers. Ofcom welcomes BT’s acknowledgement of the need to reform Openreach, and elements of BT’s proposal. However, it suggests that important areas remain where it does not fully address its concerns. For example, the need for Openreach to be a legally separate company, and for Openreach to have confidential discussions with its customers without oversight by BT.
Boosting investment in fibre networks
In February, Ofcom committed to make it easier for telecoms providers to invest in advanced, competing infrastructure by improving access to Openreach’s network of telegraph poles and its ‘ducts’ – the underground tunnels that carry telecoms cables.
This would make it possible for competitors to connect their own fibre optic cables directly to homes and businesses, delivering more choice for people and businesses over the next decade, while reducing the UK’s reliance on the Openreach network.
The plans include making Openreach provide an online database showing the physical location and characteristics of its ducts and poles – a ‘digital map’ of the UK. Last week, the company demonstrated how this will work.
BT has already started trials of new, simpler processes for sharing its network, working with five other telecoms companies. Ofcom welcomes this progress, and will set out further detail on improved duct and pole access in the autumn.
On Sunday (31 July), new rules come into force that will give telecoms providers further rights to access physical infrastructure. These measures are designed to reduce the cost of deploying broadband networks, by sharing access to infrastructure across different sectors.
A number of companies are continuing to roll out ultrafast fibre networks. Virgin Media is investing £3 billion to extend its network across the UK. CityFibre, Sky and TalkTalk are connecting fibre to premises in York, and KCom is doing so in the Hull area. Other providers, such as Hyperoptic and Gigaclear, are bringing ultrafast broadband to local areas.
Sharon White, Ofcom Chief Executive, said: “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.”