Networks arm to become legally distinct entity owned by BT; 32,000 staff to be transferred.

BT on Friday bowed to Ofcom’s demand for it to implement a legal separation of Openreach, a move designed to strengthen its independence.

BT’s CEO said the restructuring will serve the best interests of U.K. consumers and businesses.

Under the agreement, 32,000 staff will transfer to the newly-distinct company, which shall have its own branding. BT will still own Openreach and allocate its budget, but Openreach will decide how to spend its money, and will have sole control over its strategy and assets.

Openreach will also get its own board, and that board will have the authority to appoint Openreach’s CEO. BT has the option to veto that appointment, but it must justify itself to Ofcom. The CEO will report first and foremost to the Openreach board, and will have secondary accountability to the BT CEO.

"The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT," said Ofcom CEO Sharon White.

Indeed, as per Ofcom proposals made in July, the new Openreach will be obliged to consult with wholesale customers like Sky and TalkTalk about large-scale infrastructure investments. The process will include a confidential phase where discussions will take place without information being passed to BT.

Friday’s announcement comes after months of negotiation between Ofcom and the U.K. incumbent.

On the same day that Ofcom made its proposals, BT offered up some counter proposals. The telco agreed to establish a separate Openreach board with a majority of independent directors, including an independent chairman. That process has already largely been completed, and the newly-formed board held its first meeting last month.

BT also agreed to implement a confidential element when consulting with Openreach customers, and agreed to let Openreach have control over its own budget.

However, Ofcom said in November that BT’s voluntary proposals did not address its fundamental concerns about Openreach’s independence, and the watchdog threatened to enforce a legal separation of the two.

Ofcom’s "determination in negotiations with BT under the increasingly impressive stewardship of Sharon White, should be applauded," said Kester Mann, principle analyst, operators, at CCS Insight.

BT’s rivals were lobbying Ofcom to enforce a full structural separation of BT and Openreach, and they will likely express disappointment that the regulator did not go ahead with it.

However, Mann said that in private, the likes of Sky and TalkTalk "should be more than satisfied with the changes that Ofcom has pushed through."

Ofcom said that a structural separation or a sale of Openreach would have caused delays and disruption to industry, consumers and investment plans.

BT CEO Gavin Patterson said Friday’s agreement serves the long-terms interests of the U.K.

"This has been a long and challenging review where we have been balancing a number of competing interests," he said. "We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future."

Clive Selley, CEO of Openreach, is one of many senior industry figures presenting at Total Telecom’s third-annual Connected Britain, which takes place in London on 14-15 June. To find out more, click here.