Openreach owns the pipes and telephone cables that connect nearly all businesses and homes in the UK to the national broadband and telephone network. It is a subsidiary of UK telecommunications company BT Group.
Ofcom (The Office of Communications) is the government-approved regulatory and competition authority for the broadcasting, telecommunications and postal industries of the UK.
Ofcom have now stated that BT Group must make some structural changes to the way it operates, especially with regards to Openreach. The regulatory authority has stated that Openreach must become a “legally” separate company from BT – with its own independent board – under new plans to reform the former state monopoly’s infrastructure division.
Back in February 2016, Ofcom identified serious failings with BT’s current ownership model of Openreach. However, it did not recommend a full separation. Today, it stands by its decision but has outlined how a structural separation will work.
No direct reporting from Openreach to BT
Ofcom has said that BT has an incentive to make Openreach decisions in the interests of its own retail businesses, rather than the UK telecoms industry as a whole. This can, and often has, led to competition problems with other service providers who use the Openreach infrastructure.
Ofcom has outlined that Openreach should become a legally separate company within BT, with directors required to make decisions in the interest of Openreach’s customers – even if they are direct competitors with BT’s retail businesses.
Ofcom has also said that the new board should have a majority of non-executive directors, who should not be affiliated to BT Group in any way but would be both appointed and removed by BT in consultation with Ofcom.
Openreach’s chief exec should be appointed by, and accountable to, the Openreach Board, with no direct lines of reporting from Openreach executives to BT Group.
Once the changes are in place, Openreach will also be obliged to consult formally with its majority customers such as Sky and TalkTalk on large-scale investments. This is something that has been avoided during it G.Fast roll-out plans in England. Open reach will also operate under its own independent branding.
Sharon White, Ofcom’s Chief Executive, said:
We’re pressing ahead with the biggest shake-up of telecoms in a decade, to make sure the market is delivering the best possible services for people and business across the UK.
The moves are 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,” said the regulator.
Ofcom said BT has notified it of plans to deliver changes to Openreach’s governance, to make it more independent and accountable to its customers. “We welcome BT’s acknowledgement of the need to reform Openreach, and elements of BT’s proposal.”
“However, there remain important areas where it does not fully address our concerns. For example, the need for Openreach to be a legally separate company, and for Openreach to have confidential discussions with its customers without oversight by BT.”
Kester Mann, principal analyst, at CCS Insight said:
Ofcom’s proposals are about as radical and stringent as they could have been without taking the ultimate step to structurally separate Openreach from BT.
Industry experts across the UK have identified that the structural change in BT Group may pave the way in bringing high-speed fibre-optic broadband to even more customers in England and Wales. This is something that has been promised by BT several years ago, but stalled – even in key areas of the capital.