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Ofcom and BT set out separate plans to increase Openreach independence

BT Group’s plans to give Openreach greater independence share some common ground with Ofcom’s recommendations, but will this be enough to ease its rivals’ anti-competitive concerns?

Ofcom has waded in with its take on what BT must do to allow its infrastructure division, Openreach, to operate as an independent company and in a less anti-competitive way.

The communications regulator has published an eight-point plan, detailing what needs to change at Openreach to diminish BT’s hold over the organisation, and ensure a fairer deal for competitors that rely on its network to deliver services to their customers.

However, if these changes fail to deliver on these fronts, Ofcom said a formal split between BT Group and Openreach is still a possibility.

“BT retains influence over significant Openreach decisions,” said Ofcom, in a statement.

“BT has an incentive to make these decisions in the interests of its own retail businesses, rather than BT’s competitors, which can lead to competition problems.”

To rectify this, Ofcom is calling for Openreach to be established as a distinct, legal entity inside the wider BT Group, with its own branding and whose actions would be overseen by an independent board of directors, with no prior affiliations to its parent company.

The CEO of Openreach would be appointed by this board, and be held to account by them, with no input from BT Group.

The company should own the network it operates, which – in turn – would better position it to make investment decisions involving Openreach assets, Ofcom said.

Furthermore, Openreach should have the freedom to develop its own strategy and annual operating plans, based on the budget handed to it by BT Group.

“This model would provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption – to industry and consumers – associated with separating the companies entirely,” the Ofcom statement said.

“It is designed to ensure that Openreach acts more independently from BT Group, and takes decisions for the good of the wider telecoms industry and its customers.”

“If it cannot achieve this, Ofcom will reconsider whether BT and Openreach should be split into two entirely separate companies, under different ownership,” it added.

Read more about BT and Openreach

Ofcom said it is seeking feedback on its proposals, and has invited interested parties to have their say until 4 October 2016.

Meanwhile, BT has published details of its own plans to shake-up the corporate governance of Openreach. These cover many of the areas outlined by Ofcom’s proposals, including establishing an independent board of directors and allowing the organisation to operate with a greater degree of autonomy.

Gavin Patterson, chief executive of BT Group, said the organisation is doing all it can to respond to industry concerns about how Openreach operates.

“These changes will make Opereach more independent and transparent than it is today, something both Ofcom and industry have requested,” said Patterson.

“Our proposals can form the basis for a fair and sustainable regulatory settlement and they can also enable Ofcom to bring its review to a speedier conclusion.”

Calls for Openreach independence grow

Ofcom’s proposals follow on from the publication of the Culture, Media and Sport Committee’s report into Openreach on 19 July 2016, which called for the subsidiary to be given greater autonomy when it comes to making spending and strategy decisions.

Matthew Howett, telecoms, media and technology analyst at market watcher Ovum, said the operating model being put forward by BT and Ofcom could be implemented in months, allowing all parties to focus on ensuring the UK has the broadband capacity it needs for the years ahead.

However, while Ofcom and BT might be broadly in agreeance with how Openreach should operate in future, Howett conceded the telco’s competitors may not be so enamoured with their proposals.

“For some, only full structural separation will be enough and it is important to note that Ofcom have kept this option on the table should its proposed model not deliver,” he said.

“Given the enormous costs and uncertainties, coupled with the weight of evidence, for Ofcom to proceed with structural separation now would be a disproportionate response, even if practically delivered.”  

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