Ofcom confirmed on Thursday it is considering a full separation of Openreach from BT as part of its Strategic Review of Digital Communications.
However, BT warned that breaking up the U.K. incumbent would lead to years of uncertainty and could delay its G.fast deployment.
Ofcom marked the conclusion of stage one of its in-depth investigation – launched in March – with the publication of a discussion document seeking input on four areas of focus: investment and innovation; targeted deregulation; giving consumers and businesses the information and means to switch service provider; and competition.
Separating Openreach from BT falls under that last topic, and is one of the options on the agenda a s Ofcom assesses the state of competition and identifies potential areas requiring improvement.
"Our priorities are clear. We want to promote competition, investment and innovation, so that everyone benefits from even better coverage, choice, price and quality of service in years to come," said Ofcom CEO Sharon White, in a statement.
As well as a full separation, Ofcom will also consider applying new rules to BT, such as wholesale price caps, incentives to improve service, or tougher penalties should BT fall short. Promoting competition from alternative network providers and cablecos like Virgin Media is also up for discussion, as is maintaining the status quo, where Openreach is functionally separate from BT.
The news was welcomed by BT rivals Sky and TalkTalk, which have complained that the service offered by Openreach is not up to scratch.
"For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need," said Mai Fyfield, chief strategy officer at Sky, who claims that Openreach misses more than 500 appointments per month to install new lines for Sky customers.
Fyfield reiterated Sky’s call for Ofcom to ask the Competition and Markets Authority (CMA) to launch a full inquiry.
"In a rapidly changing sector, it is vital for the U.K. that the national telecoms network delivers a service fit for the 21st century," she said.
"This is a once in a decade opportunity to make bold, radical decisions, such as the separation of Openreach," said TalkTalk, in an emailed statement. "It is vital that Ofcom places customers at the heart of their decision-making process so that we end up with a competitive market that delivers the modern digital services and infrastructure Britain desperately needs."
BT insisted that "huge progress" has been made since Ofcom’s last strategic review 1 0 years ago, which led to the creation of Openreach.
"Consumers are getting more for less and the U.K. has outpaced its European peers in terms of superfast broadband," the telco said, in a statement.
"Much of that progress is down to BT investing billions of pounds in fibre at the height of the recession. That investment wouldn’t have occurred had BT been split in two a decade ago and our ambitious plans for ultrafast broadband also depend on BT remaining intact."
At the end of January, BT revealed plans to use G.fast to upgrade the peak speed of its fibre-to-the-cabinet (FTTC) network to 500 Mbps. It pledged to roll out the technology to most of the U.K. within a decade.
However, a spokesman for BT told Total Telecom on Thursday that breaking up the company would lead to "three, four, five years of uncertainty," and that BT’s decision to deploy G.fast "could be put on hold."
A break-up of the incumbent is far from certain though.
"This review is unlikely to result in a further separation of the incumbent," said Matthew Howett, practice leader, regulation, at Ovum.
Indeed, Ofcom’s discussion document says that while a breakup would remove the incentive for Openreach to discriminate against competitors, it would not fully resolve issues stemming from the lack of a major competitor to Openreach.
In addition, "it would be an intrusive and complex intervention both for BT and the rest of the industry, with substantial implementation challenges," Ofcom said.
Howett said it is more likely that Ofcom’s review will lead to tweaks to the Openreach model, which sees Openreach treat BT and rival telcos equally.
Meanwhile, one section of Ofcom’s discussion document represents a minor victory for BT because it covers competition in the content space, an area that BT has been lobbying the watchdog to address in light of Sky’s strong position in the pay TV market.
"There is evidence that, for many consumers, TV content is the most important part of their bundle. So if a retail provider cannot offer attractive content, this is likely to reduce competition across all services in the bundle," said Ofcom, adding that it needs to consider whether it has the requisite tools to address competition concerns across all the services that constitute a retail bundle.
"The one area where consumers are getting a raw deal is pay TV," said BT, which claims that relative to EU averages, Sky customers pay £500 million more per year for a basic TV package. "Much tougher action is needed to address the fundamental flaws in this market."
