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U.K. telco watchdog says BT’s networks business should have confidential discussions with rival telcos.
Ofcom on Tuesday fleshed out its plan to make its infrastructure arm Openreach more independent from BT, proposing that it become a legally separate company within BT Group, but stopping short of pushing for a full structural split.
The proposals build on the preliminary conclusions of the U.K. telco watchdog’s strategic review, published in February.
In line with becoming a distinct company within BT, Ofcom also called for Openreach to have its own articles of association and its own board with the majority of non-executive directors – including the chair – having zero ties to BT. However, said board would be appointed by BT, in consultation with Ofcom.
Openreach’s board would then be responsible for selecting its own chief executive, who would choose a senior management team. Openreach’s leadership would have no direct lines of reporting to BT.
If this particular proposal is enacted, it might spell the end for Openreach CEO Clive Selley, who has only been in the job since January. BT declined to comment on this specific issue when contacted by Total Telecom.
As well as its own board and management, Ofcom suggested that Openreach staff should be appointed by, and work for, Openreach, not BT, in order to protect against potential conflicts of interest.
Openreach would also be obliged to consult with wholesale customers like Sky and TalkTalk about large-scale investments. The process would include a confidential phase where discussions would take place without information being passed to BT.
Openreach’s budget would still be set by BT, but Openreach would develop its own strategy and operating plan, Ofcom said. Openreach should own its physical network, Ofcom said, which would see certain assets and staff transferred from BT to Openreach.
Furthermore, Openreach would have a separate and distinct brand.
Ofcom also reiterated the need for Openreach to make it easier for other telcos to make use of its ducts and poles. Measures designed to ensure this happens will be presented during the autumn. The regulator is drawing up stricter minimum service requirements in a bid to improve Openreach’s performance.
"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 U.K.," said Ofcom CEO Sharon White.
Despite all these proposed degrees of separation between Openreach and its parent, the company would still structurally be a part of BT; although Ofcom has reserved the right to enforce a full split at a later date, should it be deemed necessary.
Ofcom is seeking feedback on its plan; interested parties have until 4 October to submit a response.
In a statement, BT said it welcomed Ofcom’s recognition that a full split would be "a disproportionate move."
Counter proposals
The U.K. incumbent made some proposals of its own though, which, understandably, are not quite as far-reaching as Ofcom’s.
Similarly to Ofcom, under BT’s plan, Openreach would have its own board, with a majority of independent directors, appointed in consultation with Ofcom. However, the CEO would report to BT’s CEO as well as Openreach’s board.
BT and Openreach would also agree Openreach’s budget, and the latter would control how that budget is spent.
BT also suggested that Openreach establish a three-stage consultation process that would see Openreach engage with other telcos in advance of substantial investment decisions and the development of new products. The process would allow for a confidential element similar to the one put forward by Ofcom.
"We have listened to Ofcom and industry and are introducing significant changes to meet their concerns. These changes will make Openreach more independent and transparent than it is today, something both Ofcom and industry have requested," said BT CEO Gavin Patterson.
BT pledged to implement the structural changes within six months.
Ofcom said it welcomed BT’s acknowledgement of the need to reform Openreach, and elements of the incumbent’s proposals.
"However, there remain important areas where it does not fully address our concerns. For example, the need for Openreach to be a legally separate company," Ofcom said.
Rivals rankled
Meanwhile, some of BT’s competitors said Ofcom’s proposals don’t go far enough to address their concerns.
"We are disappointed that Ofcom has fallen short of structurally separating BT, the only measure that would have delivered genuine competition and prevented BT from favouring itself," said 3UK, in a statement.
The mobile operator called it the latest example of regulators failing to stand up to BT, following the Competition and Markets Authority’s (CMA’s) decision to approve BT’s acquisition of EE without any remedies.
Fibre-to-the-premises (FTTP) provider CityFibre also gave Ofcom’s plan short shrift.
"Today’s proposals do not address Ofcom’s key objectives of reducing the country’s dependence on Openreach and encouraging essential investment in fibre," said Mark Collins, CityFibre’s director of strategy and policy.
"Further debate and navel-gazing as to the appropriate structure of BT will continue to create a period of uncertainty at a time when the industry needs clarity, direction and competitive investment," he continued.
However, some commentators believe that Ofcom is right not to enforce a full separation of BT and Openreach.
"It would have been the most controversial action the regulator could have taken and would still not have offered guaranteed improvements for customers," said Kester Mann, principal analyst, operators, at CCS Insight.
"The time to implement, associated costs and market disruption – potentially leading to years of legal battles – would have threatened short-term infrastructure investment," he said.
Indeed, Matthew Howett, practice leader, regulation, at Ovum said a compromise deal between BT and Ofcom might be the best path forward.
"A voluntary agreement between Ofcom and Openreach, which is backed by the rest of the industry, would achieve more than years in court and a forced enhanced model of separation could," Howett said.
"Many of the things proposed by Ofcom, and that are being offered by BT, could be enacted within months. Attention and money could then turn to getting on with delivering what this review is ultimately all about – making sure Britain has the broadband infrastructure fit for the next decade," he said.
