BT, Openreach forced to cut ties

Ofcom's wish has been granted and both companies will now legally separate.
Written by Charlie Osborne, Contributor on
Robin Jones, The Digital South

BT and Openreach have agreed to separate in a move desired by Ofcom and one which may help the UK's telecoms and broadband industry flourish.

On Friday, the companies revealed that almost two years after UK regulator Ofcom began a thorough examination of BT and Openreach's business practices, they have reached a voluntary agreement to separate.

According to Ofcom, the "tough but fair" decision will result in Openreach becoming a distinct, separate legal company with its own board within the BT Group.

Last February, Ofcom published a review of the companies and their practices, concluding that Openreach had an "incentive to make decisions in the interests of BT, rather than BT's competitors, which can lead to competition problems," and that BT had failed to work with competitors to ensure that they were aware of future plans and investment areas which could affect them.

In the UK, BT is generally considered to have a monopoly on existing broadband infrastructure. As a result, many competing services -- such as Sky, TalkTalk, and Vodafone -- have to work with BT's Openreach to piggyback on existing structures and lines, and the market, in general, is stifled as there is a lack of capacity for competition when it comes to telecoms and internet services.

In addition, rival firms must rely on an aging system which has not seen enough investment to cope with demand, as well as high prices and generally poor service.

Ofcom has previously threatened to enforce the split if no agreement could be reached to address issues of stifled competition, investment, and innovation.

"The new Openreach will have the greatest degree of independence from BT Group possible without incurring the delays and disruption -- to industry, consumers and investment plans -- associated with structural separation or the sell-off of Openreach to new shareholders," Ofcom says. "Openreach will become a distinct company with its own staff and management, together with its own strategy and a legal purpose to serve all of its customers equally."

How Openreach will work:

  • Openreach will become a distinct, legally separate company within BT Group.
  • The Openreach Board will run the company, and there will be a majority of directors independent of BT.
  • Openreach will develop its own strategy and annual operating plans, within an overall budget set by BT Group.
  • BT will transfer all 32,000 Openreach staff to work for the new company.
  • Assets will be controlled by Openreach alone, although BT will remain the owner in name of assets such as physical access networks.
  • BT will be removed from Openreach branding.
  • Openreach's CEO will be appointed, and be accountable to, the firm's own board. However, BT can veto the appointment of the CEO if it chooses -- as long as Ofcom is notified.

See also: If your broadband is dead, BT may have stolen your line

In addition, Openreach will be required to consult with rival firms -- and customers -- such as Sky, TalkTalk, and Vodafone when it comes to large-scale future investments, something that so far has been woefully lacking.

"This is a significant day for phone and broadband users," Sharon White, Ofcom chief executive said. "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."

"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," White added.

Employee pensions are also protected by a Crown guarantee, which means that in the event the firm dissolves, the UK government will back the pension pot, despite its current deficit.

BT will be required to work with Ofcom to make sure the changes, set to begin this year, go ahead smoothly.

In related news, in January BT launched Whole Home Wi-Fi, the first kind of mesh network connectivity in the United Kingdom.

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