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Openreach reformed, but remains part of BT as Ofcom aims to open up fibre broadband market

Telecoms regulator Ofcom wants to stimulate building of fibre broadband direct to homes and premises, but will not split up BT - yet

Openreach is to remain part of BT Group, subject to new, reformed conditions, telecoms regulator Ofcom has ruled.

In initial conclusions drawn from its Strategic Review of Digital Communications, first announced in 2015, Ofcom said that Openreach would be forced to open up its network of poles and underground tunnels to let rivals build their own fibre networks.

The regulator said Openreach needs to make it “much easier” for rivals to access its infrastructure by providing comprehensive and detailed information on the nature and location of what it owned, to help competitors plan their own networks. The watchdog hopes to stimulate competition in fibre-to-the-premises broadband in the way that its past rulings helped create a competitive market in ADSL services.

Openreach will also be made to take decisions on its budget, investment and strategy in consultation with the wider industry.

Ofcom said that up to now Openreach’s governance lacked independence, and that BT’s control over its decision-making and budget meant that Openreach was still incentivised to make decisions in the interests of its parent, rather than competitors.

The BT division will now have to serve all wholesale customers equally, consult them on plans, and make its costs and assets more transparent.

Split could still go ahead

This model may well require Openreach to become a ring-fenced, wholly-owned subsidiary of the BT Group, with its own purpose and board members, and if necessary, the regulator said it still reserved the right to make BT spin off Openreach as an entirely separate legal entity.

It will prepare more detailed proposals on how these changes to Openreach’s governance are to be implemented during the course of 2016. This will include consultation with the European Commission.

“People across the UK today need affordable, reliable phone and broadband services. Coverage and quality are improving, but not fast enough to meet the growing expectations of consumers and businesses,” said Ofcom CEO Sharon White.

“So today we’ve announced fundamental reform of the telecoms market – more competition, a new structure for Openreach, tougher performance targets, and a range of measures to boost service quality.

Read more about Ofcom's communications review

Industry stakeholders welcomed Ofcom’s wide-ranging review of the UK’s digital communications markets

In its submission to Ofcom’s Digital Communications Review, BT argued for Openreach to remain part of the BT Group and warned that a split will damage broadband investment

MPs have called for BT and Openreach to be split up, but have been heavily criticised for including misleading statistics in their evidence

BT CEO Gavin Patterson said: “Ofcom have today explained why breaking up BT would not lead to better service or more investment and that structural separation would be a last resort. We welcome those comments. The focus now needs to be on a strengthened but proportionate form of the current model and we have put forward a positive proposal that we believe can form the basis for further discussions with both Ofcom and the wider industry.

“Our proposal includes a new governance structure for Openreach as well a clear commitment on investment. Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation to bring matters to a clear and speedy conclusion,” he added.

“We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done. Our ducts and poles have been open to competitors since 2009 but there has been little very interest to date. We will see if that now changes.”

Guarded reaction

The Independent Networks Co-Operative (Inca), a consortium of smaller broadband providers, said it was disappointed that BT and Openreach had not been referred to the Competition and Markets Authority (CMA) as it had wanted. However it welcomed the fact Ofcom had recognised change was needed.

“We are disappointed that Ofcom hasn't gone further to challenge the control BT exercises over the communications market, but pleased that Sharon White and her team have recognised the need for significant changes,” said Inca CEO Malcolm Corbett.

“Inca members build new fibre and wireless networks, often in the most challenging areas of the UK. For too long they have struggled to make sense of the rules and restrictions surrounding access to BT's ducts and poles. A few stout-hearted companies are having a go - notably Warwicknet, Callflow Solutions and Hyperoptic - so steps to make it easier for competitors to use the existing infrastructure are welcome.” analyst Dan Howdle added: “Ofcom's decision to open up Openreach's poles and tunneling to competitors and to give them more say in future strategic and budgetary decision-making goes halfway to alleviating competitor complaints, but stops short of addressing the prime concern.”

Howdle said that with Openreach in the midst of its Broadband Delivery UK (BDUK) roll-out, along with all the risk that entailed, Ofcom’s decision not to split the two could be read as symptomatic of a desire to take the course of least disruption to the national broadband programme.

“It is, perhaps, a case of poor timing winning out over common sense,” said Howdle. “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 2.5 million UK homes that do not currently have access to superfast broadband.”

Compensation rules

Ofcom said it would introduce stricter rules on faults, repairs and installations, more transparent information on service quality, and automatic compensation for consumers when things went wrong, meaning users will no longer have to seek redress themselves, but will be refunded directly for any loss or reduction of service.

The regulator also announced plans to work closely with the government to deliver on previous promises of a universal right to fast broadband services, and will put new obligations in future spectrum licence auctions to cover rural areas with mobile networks.

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