Ofcom pours scorn on Openreach, but stops short of separation

Initial conclusions of Ofcom’s Strategic Review of Digital Communications insist on major reforms to BT - Openreach relationship

Ofcom has promised significant reforms to BT Openreach in its Strategic Review of Digital Communications, but has stopped short of insisting on a full separation from BT Group.

Broadband providers such as Sky and TalkTalk had been been pushing hard to persuade Ofcom that the only way to ensure neutral access to the country’s core network was to force BT to spin off Openreach. But today, Ofcom announced that its preferred course of action would be to strengthen the existing model, rather than ripping Openreach away from the bosom of its parent company.

While this will be seen as a win for BT and a blow for its competitors, the message from Ofcom was that BT must reform how it manages the wholesale infrastructure portion of its business. The status quo for Openreach was ‘not an option’, the regulator said.

“We intend to set tougher quality of service standards for Openreach, publish performance data for all operators, and ensure consumers and small businesses receive automatic compensation if things go wrong,” the report said.

The regulator said that it was drawing up a detailed plan which would give Openreach ‘greater independence’, so that it behaved more like an sovereign company. In order to achieve the level of autonomy required, Ofcom said that Openreach would need further independent governance processes and its own technical and operational capabilities.

The watchdog said that BT had already reached out with its own proposal on how it could achieve the level of autonomy required, but Ofcom did not feel the proposed changes went far enough. It was also made clear that a change of ownership remained ‘a potential solution’.

Dido Harding, CEO of TalkTalk and one of the main proponents for a separation of Openreach, said: “Ofcom has done well in identifying many of the worst problems, including recognising, finally, that BT's control of Openreach creates a fundamental conflict of interest which hurts customers.”  

“But having accepted all this, Ofcom has produced 100 pages of consultation with little concrete action behind it. The risk is that we end up with ten more years of debate and delays, rather than facing into the problems and delivering improvements for frustrated customers now.”

Dan Howdle, telecoms expert at broadband and phone advice site Cable.co.uk, said that Ofcom had chosen the path of least resistance. "With Openreach currently in the midst of its BDUK superfast broadband rollout, aimed at reaching 95% of UK homes by next year – a rollout couched in £1.7bn of public money and a potentially vote-swinging degree of incumbent reputation – the decision should be seen as one of least disruption. It is, perhaps, a case of poor timing winning out over common sense,” Howdle pointed out.

"A recommendation to split would have absolutely been the right decision for the UK broadband industry, but, in the short term at least, perhaps not for the 2.5m UK homes that do not currently have access to superfast broadband."

Paolo Pescatore, director of Multiplay and Media at analyst firm CCS Insight, said that the review was just the first step in a process that may take many years.   “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,” he said. “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.”

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