Broadband controversy will linger despite BT Openreach split

Communications experts have welcomed the news that the legal separation of BT and Openreach will go ahead, but it remains unclear how, or when, the state of the UK's broadband will change for the better

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Almost two years to the day after Ofcom first announced its Strategic Review of Digital Communications – covering the regulation of competition, investment, innovation, and the availability of products in the broadband, mobile and landline markets – the process has reached a sort-of conclusion with the news that BT and Openreach are to move ahead with their legal separation.

In reaching a final agreement with the telecoms regulator, BT appears at first glance to have accepted all of Ofcom’s conditions, establishing a legally separate business unit with its own board and branding, and the ability to set its own strategic direction, make its own investment decisions, allocate its own budget, and negotiate on an equal basis with all its communications service provider (CSP) customers. But up until recently, BT had vigorously resisted many of these ideas. So what has changed?

One can only speculate at what machinations took place behind the scenes to get to this point. Might the recent collapse in BT’s share price following revelations of a book-keeping scandal at its Italian business have led the board to consider the damage a fight over Openreach would cause? After all, CEO Gavin Patterson is widely held to have lost a packet over Italy, and at the time of writing on 10 March 2017, BT’s shares were heading upwards.

Or maybe, with government opinion swinging firmly behind fibre-to-the-premises (FTTP) broadband for the first time, as chancellor of the exchequer Philip Hammond made abundantly clear in both his November 2016 Autumn Statement and his March 2017 Spring Budget, BT and Openreach at last realised they would have to line up their internal policy with that of the government.

Or perhaps, with the triggering of Article 50 to take the UK out of the European Union (EU) now imminent, pressure from Westminster came to bear on BT and Ofcom to avoid the complexity of a legal tussle in Brussels during the awkward Brexit negotiations, and bring some stability back to a worried market.

Mark Shurmer, formerly BT director of regulatory affairs but now taking up the post of managing director of regulatory affairs at Openreach, would not be drawn on the backroom shenanigans, but said a “massive shadow” had been removed from Openreach’s staff, investors, pensioners and customers.

Shurmer stressed that BT’s position that the best outcome was the preservation of some kind of relationship between BT and Openreach had always been at the centre of its argument and this had never changed.

“It’s fair to say this has been a tough process for BT and one in which BT has faced a lot of criticism,” Shurmer told Computer Weekly. “That has been challenging for us at times, but we have taken those criticisms on board.

“We recognise that there needs to be a different approach, and I am confident this is a good solution for BT, its investors and customers.”

The view that avoiding the delay of a judicial challenge to full structural separation – whether that be in Brussels or London – was a positive, was held up by Martin Courtney of industry watchers TechMarketView.

“The timing of the announcement looks significant on paper, coming a day after BT Group announced a new chairman in Rio Tinto chief Jan du Plessis,” wrote Courtney in a research note.

“Like a football team appointing a new manager, we detect a desire to kick off with some positive news to boost confidence all round. But it is equally likely that du Plessis and other BT execs simply felt this particular Openreach battle was simply not worth fighting considering the company's more pressing concerns elsewhere.”

Ovum analyst Matthew Howett agreed that keeping Patterson out of the courts was probably for the best. “A voluntary agreement has always been the preferred outcome over a forced legal separation, not least because the EU route that Ofcom were planning to use is uncertain, is untested, and would likely have taken much longer to conclude,” he said.

Good outcome for consumers?

The majority opinion in the country now holds that FTTP, delivering gigabit broadband download speeds far above and beyond what is needed by most today, is the right, future-proofed solution for the UK as it seeks to enhance its digital economy – something that will become even more vital after Brexit.

However, this may not be the way things go just yet. Openreach CEO Clive Selley has always been a vocal supporter of a mix of technologies as the best solution to ensure every household and business in the UK has access to ultrafast broadband. This would include technology such as G.fast, an ultrafast delivery mechanism that makes use of existing copper lines.

Even though Openreach has swung more behind FTTP in recent months as the technology becomes more cost-effective to deploy, and government opinion shifts in its favour, it seems unlikely at this stage that its delivery programme will change, and its future network will be a mix of fibre-to-the-cabinet (FTTC), G.fast and FTTP. In short, this means that users should not expect to see a massive spike in their broadband speeds above and beyond what they were already in line for.

Tom Mockridge, CEO of Virgin Media, which operates its own hybrid fibre coaxial network in the UK and is therefore not dependent on Openreach, was especially critical in his view that short-term change was unlikely.

“Openreach is just the same old snail’s-paced network with a new shell,” he said. “Call it what you like, but it’s still BT – four times slower than Virgin Media.”

Read more about the battle for Openreach

Mark Collins, director of strategy and policy at alternative fibre network owner CityFibre, said that although it was good that the negotiations over Openreach’s future had concluded, there was nothing in the announcement that suggested Openreach would necessarily start to seriously address the UK’s lack of FTTP broadband.

“Ofcom’s focus needs to shift to encouraging alternative fibre builders to do the things Openreach can’t or won’t do – whatever its legal status,” said Collins.

Those with a clear stake in consumer rights were a little less critical of the agreement. They included Andrew Ferguson, editor of service comparison website Thinkbroadband.com, who was more optimistic and said the agreement sent a clear message that 2017 was the time to push on with delivering full FTTP services.

“The full-fibre revolution in the UK has been going on for a long time, but the mass behind it is growing and we are seeing evidence for some of the two million promised full-fibre premises passed by 2020, with lots of city centre areas that have missed out on superfast services before now in line for FTTP,” he said.

“I am hopeful that, with the certainty that today brings, that Openreach will look at expanding this significantly beyond 2020 and while the current belief is that G.fast will be the dominant technology in a decade’s time, there is a real chance that full fibre may beat it with the right investment decisions.”

Ferguson pointed out that fibre-to-the-cabinet (FTTC) services had always been built ready to support FTTP at a later date, so Openreach in reality already has fibre backhaul into 81,000 locations around the UK.

“It just needs the workers, budget and ambition to start pushing this out from those points to millions of homes,” he said.

Dan Howdle, consumer telecoms analyst at Ofcom-accredited comparison site Cable.co.uk, added: “This is a good day for the average broadband, TV and phone customer too, who will enjoy all the benefits the stoking of competition in a fairer marketplace is likely to bring, without suffering the costs and delays to infrastructural roll-out a full separation would have incurred. We should not, however, rule out a full separation happening at some point in the future.”

Hannah Maundrell, editor-in-chief of Money.co.uk, also said the agreement was a step in the right direction. “I hope it will eventually mean cheaper and better broadband for everyone,” she said. “With the government’s pledge to get everyone online in this week’s Budget, having a solid, able and independent party responsible for its roll-out is imperative.

“Households deserve an affordable, reliable broadband connection and a choice of supplier wherever they live. Hopefully, this move will take us one step closer to that being possible.”

Situation needs monitoring

In its announcement, Ofcom stressed that it would keep a very close eye on both BT and Openreach to ensure all parties followed through on the agreement.

“We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies,” said Ofcom CEO Sharon White.

Dido Harding, CEO at BT rival TalkTalk, agreed it was important that “robust Ofcom monitoring and enforcement” was in place to guarantee Openreach delivers the improvements the regulator wants.

“The new company will be better placed to deliver the improved investment and service that consumers and businesses deserve… We hope this is the start of a new deal for Britain’s broadband customers, who will be keen to see a clear timetable from Openreach setting out when their services will improve,” said Harding. 

Ovum’s Howett said questions remained over how Ofcom would monitor and enforce the changes, particularly with regard to removing and replacing the current undertakings that govern Openreach, and additional sticking points around the BT pension scheme and how assets will be transferred from BT to the new company.

“BT’s pension scheme is protected by a Crown guarantee, which is a piece of legislation that ensures the government would meet BT’s obligations to the scheme in the unlikely event that the company should be wound up,” said Howett.

“To implement the voluntary agreement with the smallest possible effect on BT’s pension scheme, the existing Crown guarantee would need to be maintained for Openreach staff that are members of BT’s pension scheme. Maintaining the Crown guarantee is a matter for the UK government and requires a change to existing legislation. It remains to be seen how quickly those changes can be achieved and, ultimately, how quickly all of this can be implemented.”

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