Should BT and Openreach split to boost broadband Britain?

Regulator Ofcom wants to consider breaking off the Openreach infrastructure business from the core BT telecoms business.

BT could be required to split off its Openreach broadband network access company, under a review being conducted by telecoms watchdog Ofcom.

Ofcom's last strategic review in 2003 led to the creation of Openreach, through which BT offers access to its broadband network to competing providers who then sell broadband services onto consumers.

While Ofcom said this has delivered benefits, the regulator also said "some challenges remain". It said BT's network has evolved in recent years, with fibre lines running closer to premises, which may require different models of competition than those that worked best for the traditional copper-wire telecoms network.

This review process will include the following options, according to Ofcom.

  • Retaining the current model: Openreach would operate as 'functionally separate' from BT, and use regular market reviews to address any concerns around competition.
  • Strengthening the current model: This would involve applying "new rules to BT", Ofcom said. These could include controls on BT's wholesale charges, with stronger incentives to improve quality of service, or tougher penalties if BT falls short, the regulator said.
  • Separating Openreach from BT: According to Ofcom, this could deliver more competition and wider benefits for end users - and "remove BT's underlying incentive to discriminate against competitors". (BT has denied having any such incentive.) Separation could also offer ways to simplify existing regulation, Ofcom said, but "the process would be challenging and it may not address some concerns relating to Openreach - such as service quality, or the timing and level of investment decisions".
  • Deregulating and promoting competition between networks: Virgin Media and a variety of smaller operators own networks which allow them to provide phone and broadband services without using BT's network at all. This kind of 'end to end' competition, which sometimes involves running fibre lines directly to premises, can help given Openreach an incentive to improve its infrastructure. However, it could also lead to duplication of networks and weak competition.

According to Ofcom, UK consumers and businesses "have benefited from significant investment in communications services in recent years". This includes 4G mobile broadband which it claims is "now available to 42 percent of premises from all four operators" and 90 percent from at least one. Superfast broadband is now available to 83 percent of premises, Ofcom said.

Still there is more to do: Ofcom estimates that a broadband speed of 10Mbit/s is necessary to benefit from today's popular online services, such as on-demand video, but 15 percent of UK households cannot currently access those speeds.

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Ofcom admitted that the "availability [of superfast broadband] is a concern in more rural areas, particularly in the nations and regions, but also in some urban places where rollout costs or low incomes present particular barriers". No doubt these words will sound grindingly familiar to those customers living in rural areas who still have to tolerate a below average telephone service.

Todays' release of the discussion document marks the conclusion of the first phase of Ofcom's Strategic Review of Digital Communications. It will now move forward into the review's second phase, and is seeking evidence and responses to the discussion document by 8 October 2015. Details of the feedback from its request for input should be known early next year.

The full Ofcom review can be found here.

Further Reading:

Vodafone says BT should be made to spin off its broadband network

Sky slams 'excessive faults' on BT copper lines

Vodafone's core upgrade to aid network expansion

BT snaps up EE for £12.5bn