BT has formally agreed to telecoms regulator Ofcom’s requirements for the legal separation of its network unit Openreach, which will now become a distinct company with its own staff, management and strategy.
The agreement means that Ofcom will now not need to resort to enforcing the legal separation of BT and Openreach through changes to regulation, and clears the path for the split to go ahead later in 2017.
Ofcom said that henceforth Openreach would have the “greatest degree of independence” that was possible without incurring the delays and disruption that would inevitably have arisen had full structural separation gone ahead.
“This is a significant day for phone and broadband users. 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.
“We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”
Gavin Patterson, BT chief executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure. It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.
“This has been a long and challenging review where we have been balancing a number of competing interests. 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.”
A total of 32,000 Openreach employees will be transferred under Tupe legislation to the newly incorporated business, which will be legally separated in the BT Group with its own articles of association, and its own branding distinct from BT’s.
Openreach CEO Clive Selley will now report to the Openreach chairman with accountability to Patterson in regard to any legal and fiduciary duties that are consistent with BT’s responsibility as a listed company.
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The new Openreach will be run by an independent board with a majority of directors independent of BT, with full power over strategy and budget allocation, as well as executive appointments, although BT will retain the power to veto the appointment of any future CEO.
Crucially, the terms of the agreement will see Openreach take full control of its physical access network, and the board make all decisions on future network builds and maintenance.
It will also be obliged to consult with customers other than BT – such as Sky or TalkTalk – on large-scale investments. These consultations will be subject to a confidential phase where customers can discuss ideas without them being disclosed to BT.
Ofcom said it would be watching BT and Openreach like a hawk to ensure the measures are effective, and as part of the agreement BT is to provide it with further transparency on how the two businesses interact.
Decision will ‘bring stability to UK market’
CCS principle analyst, operators, Kester Mann, welcomed the note of certainty after such a long-running and sometimes bitter dispute over the future of the UK’s national broadband network and strategy.
He added: “Resolving it now without having to go to Brussels to enforce a new structure will bring much-needed stability to a UK market still reeling from the Brexit referendum.
“BT’s rivals, notably Sky and TalkTalk, will publicly claim that the regulator should have gone further by enforcing a full structural separation. However, this option was always the most radical and controversial the regulator could have taken. In private, [rivals] should be more than satisfied with the changes Ofcom has pushed through.”
Thinkbroadband.com editor Andrew Ferguson cautioned that there was still a lot of hard work to be done, particularly with regard to what will be one of the largest Tupe transfers in history.
“While we may not see immediate product changes, with better control over its investment decisions we will hopefully see a bigger investment in staff on the frontline. This will then translate into better fault repairs and an accelerated roll-out of full fibre,” said Ferguson.