Market debates BT's access division

Will you reap the benefits of openreach through cheaper broadband, or will it just make life more comfortable for BT's competitors?

Ben Verwaayen, chief executive of BT Group, on Thursday revealed details about the company's creation of a new services division, openreach, and the telco's successful avoidance of a break-up at the hands of regulator Ofcom.

Verwaayen stressed that the decision to create a new division was "good news" for BT and maintained that the company had jumped, rather then been pushed by Ofcom, into making the decision.

"This is a settlement — we're not going for some regulated construct where we've been dragged kicking and screaming," he said.

However, Lars Godell, principal analyst in Forrester's telecom and networks research team, said he would be surprised if that was the case. "[BT] have been masters at playing the regulatory game for many years. I'm not sure they got as good a deal as you would expect."

According to the BT boss, openreach is expected to be operational in four months time with products available to ISPs in the spring of next year. The new division will encompass BT's 25,000 engineers, whose vans will be rebranded as part of the changeover.

ISPs will also see some differences in how they deal with the telco, with a new engineering booking system and postcode database.

The whole process is expected to cost the telco around £200m, in addition to marketing and retraining costs.

Steve Robertson will head the new BT unit and will be among the execs who will receive what he called "incentives" if openreach hits its targets. While the benefits are yet to be finalised, Robertson said: "They will translate into cash — and hopefully plenty of it."

Conversely, Ofcom could also impose penalties on BT if it fails to abide by certain regulations, among them proving it is providing all other ISPs with the same processes, systems and service that it provides to itself.

BT is expected to start its discussions with ISPs on these arrangements from as early as two weeks' time.

Will the new-look BT actually make any difference to the industry on a large scale and to service providers in particular? The UK's ISPs seem to be treating the announcement with cautious optimism.

Cable and Wireless chief executive Francesco Caio said in a statement: "The undertakings that Ofcom has won and the new division BT has had to create demonstrate the effect its monopoly control of access has had in undermining competition to date. Together, they present an opportunity to drive real change but there is still a difficult journey ahead."

Meanwhile others, including Easynet, said the question of local loop unbundling would be the key test of the telco's dedication to opening up the market.

Scott Morrison, research director at analyst firm Gartner, said the reaction from ISPs was justified. "The caution comes from past experiences — things don't ever go as smoothly as they hope. The optimism comes from if it works out, it will genuinely represent an open playing field."

Forrester's Godell, however, said the changes will benefit ISPs rather than end users.

"To me, this shows that Ofcom are more interested in the welfare of ISPs than of end users. It's a constant dilemma for European regulators — do they benefit the end users or the competitors?" he added.

It's a suggestion borne out by Verwaayen himself. "At the end of the day, the cheaper part is at the behest of the service providers," he said.

There have also been suggestions that BT is grooming openreach for a spin-off. It wouldn't be first time the telecoms giant has launched a new company on the market — think mmO2 — and, although Verwaayen denied such a move would ever be seen during his tenure, industry watchers aren't ruling it out.