Market Insight

Ofcom once again stops short of separating BT’s Openreach

July 26, 2016  | Subscribers Only


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The UK regulator Ofcom has published its latest report on the future of BT’s Openreach, recommending changes to the management structure of the wholesale unit but once again stopping short of calling for a complete separation.

Ofcom has recommended the formation of an independent company within BT, with executives reporting directly to the Openreach board (and not BT’s), and the division taking control of its internal budget and its relationship with its customers (which include the UK’s alternate broadband providers including Sky, TalkTalk, and Vodafone). Openreach would also be obliged to consult formally with customers on large-scale investments, while there would be a 'confidential' phase during which customers can discuss ideas without this being disclosed to BT.

Ofcom said this would provide Openreach with the “greatest degree of independence” from BT without incurring the costs and disruption - to industry and consumers - associated with separating the companies entirely. The regulator will now launch a further consultation on the issue, which will run until early October 2016.

Our analysis

Openreach already has its own board and operates largely separately to its parent. The changes proposed are not expected to make a huge difference to Openreach, since the unit has been effectively separated from BT’s commercial operations for 10 years now and its wholesale prices are heavily regulated.

The latest statement from Ofcom will be a disappointment to BT’s rivals, since the regulator has once again stopped short of calling for a complete separation of Openreach. Over the past few years a number of BT’s rivals including Sky, TalkTalk, and Vodafone have called for the separation of Openreach, following largely unsubstantiated claims that BT’s ownership of the UK’s copper network is a barrier to competition and has an impact on prices, investments, and services.

These calls were amplified by BT’s acquisition of mobile operator EE, which rivals claim will further damage competition in the UK telecoms sector. However Sky is undoubtedly smarting from BT’s heavy investment in its new BT Sports channels, which have grabbed many key sports rights, taking on Sky at its own game. However Sky has dominated the UK pay TV sector for decades now, and BT is merely offering fair competition.

Ofcom has recently granted BT’s rivals increased access to Openreach’s fibre ducts and poles. BT welcomed the decision, saying it has removed a great deal of uncertainty and allowed them to refocus on network investment. BT is the biggest investor in fibre in the UK, having already ploughed some £2.5 billion into its network over the past six years to bring high speed broadband connectivity to a third of UK homes.

 

Geography
UK
Organization
BT BT Group BT Openreach
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