BAD NEWS for BT as 121 Cross-party UK MPs Call for Openreach Split

The Government itself might still have big doubts about the merits of splitting BT from control of their national phone and broadband network (Openreach), but a new report backed by 121 cross-party MPs has supported separation to boost performance and competition in the UK telecoms market.

According to the Government’s Digital Economy Minister, Ed Vaizey, splitting BT from Openreach has “lots of potential to backfire” and existing “regulations have proved very effective” (here). However separation is currently being “seriously considered” as part of Ofcom’s major Strategic Review of Digital Communications, which will publish its findings by the end of February 2016.

On the flip side BT contends that it has continued to meet Ofcom’s existing regulatory targets and that any attempt to split their business might tie the process up in legal battles. Questions also remain over how BT’s debt / pension pile might be apportioned in the event of a split, as well as the impact on consumer prices from all of the related changes (better services cost more money) and what kind of market model might be adopted in its place. BT has also warned that their plans to roll-out ultrafast (G.fast) broadband could suffer.

Never the less a new “Broadbad” report from the British Infrastructure Group (BIG), which was setup by Grant Shapps (Conservative MP for Welwyn Hatfield), has brought together 121 cross-party Members of Parliament in support of calls for BT to lose control of its Openreach division.

The study claims to highlight “the serious problems that the UK broadband network is facing” and argues that the current situation of “large inconsistencies in service leading to millions of citizens and businesses experiencing slow or non-existent connections is now untenable“.

The report contends that “our future is being held back by systemic underinvestment stemming from the ‘natural monopoly’ of BT and Openreach“, which is “stifling competition, hurting our constituents and in the process limiting Britain’s business and economic potential.”

Cross-Party Report Statement

“We believe that Britain should be leading the world in digital innovation. Yet instead we have a monopoly company clinging to outdated copper technology with no proper long-term plan for the future. We need to start converting to a fully fibre network so we are not left behind the other nations who are rushing to embrace digital advancement.

However, we will only achieve this by taking action to open up the sector. Given all the delays and missed deadlines, we believe that only a formal separation of BT from Openreach, combined with fresh competition and a concerted ambition to deliver will now create the broadband service that our constituents and businesses so rightly demand.”

The report itself does not appear to represent a detailed assessment of the market (only Ofcom can deliver that), but it does look at some of the most common complaints about the industry and then largely appears to accept them at face value, without doing a deeper analysis. Some of the data is also out of date and cannot thus be relied upon.

BT’s forthcoming 300-500Mbps G.fast technology also gets described as a “short term fix“, with the report claiming that BT will use it to “strain every last bit of profit they can from the outdated and struggling copper network.” The assumption is once again that the grass will be greener on the other side and that separation is the best fix, although this has yet to be proven.

Key Findings

• Openreach has so far received £1.7 billion in taxpayer subsidies to connect harder to reach areas of the UK to superfast services, but has repeatedly failed to deliver.

• Around 5.7 million people in the UK have internet connections that do not reach Ofcom’s ‘acceptable’ minimum speed of 10Mbit/s. 3.5 million of these people live in rural areas.

• Poor internet connections are costing the UK economy up to £11 billion per year.

• 42% of SMEs report experiencing problems with their internet connectivity and 29% also report poor service reliability.

• Following the announcement that BT will be merging with EE it has been calculated that BT will have a 40% share of the retail telecoms market and a 70% share of the wholesale market.

• The time has come for BT to be forced to sell off Openreach to encourage more competition and a better service for every internet user and for the benefit of the UK economy.

In fairness we don’t entirely agree with the first point (or some of the others due to shaky data) as, for all its faults in other areas (e.g. BT’s dominance of contracts, lack of support for altnets, overbuilding etc.), the Broadband Delivery UK programme has made reasonable progress and is still delivering a significant boost to national superfast broadband connectivity (example). A pure fibre (FTTH/P) network would have taken many years longer to roll-out, required many billions more of investment and would have also struggled to reach rural areas (except via altnets).

Sadly the report doesn’t set out a detailed plan for what should replace Openreach or indeed explain how the new structure might be able to deliver where BT has allegedly failed, which is again an area that seems to have been left up to Ofcom.

Funnily enough one of BT’s most outspoken critics, Chi Onwurah MP (Labour’s Shadow Minister for Culture & the Digital Economy), isn’t named on the report, but ISPreview.co.uk did manage to catch up with her for a comment yesterday. Onwurah actually worked with Ofcom as part of their last Strategic Review in 2005 and so has some unique insight.

Chi Onwurah MP told ISPreview.co.uk:

“The structure of BT/Openreach is a complex issue, I worked on it as Head of Telecoms Technology for Ofcom during the Strategic review of Telecoms ten years ago. As we saw with the splitting and then re-integration of the Baby Bells, creating a sustainable separate entity can be difficult.

As such it is not a decision best made by politicians but for the competition authority and the sector regulator. I believe Ofcom need the political cover to make the best decision in the interests of consumers and business in the UK, without being intimidated by phalanxes of lawyers.

I regret that this Government does not seem to be providing that cover, with Ed Vaizey almost acting as BT’s mouthpiece at times. I also believe strongly that competition delivers the best outcome for consumers and businesses and that the market is suffering from a lack of competition in the provision of superfast broadband.”

On the consumer side BT is often perceived to be the evil empire of UK telecoms, which is the price that most big businesses tend to pay for being so dominant and having such control. But for all their faults they have also done a lot of good service delivery, even though we tend to expect considerably more.

However if Ofcom is to replace the incumbent with a new approach then we can only hope they design one that delivers something better and fairer, albeit without dramatic price rises or slowing down the delivery of faster connectivity. Easier said than done; all eyes towards Ofcom.

UPDATE 5:24pm

BT has issued a statement in response.

A BT Spokesperson said:

“We take any criticism seriously but we think this report and its recommendations are misleading and ill-judged. Independent data from Ofcom, the EU and others repeatedly place the UK number one for broadband and superfast broadband when compared to other large EU countries.

90 percent of UK premises can already access a fibre optic broadband connection. That will soon climb to 95% and above. We understand the impatience for progress to be even faster, but improving broadband is a major engineering project that involves contending with all manner of physical and geographic challenges.

The idea that there would be more broadband investment if BT’s Openreach infrastructure division became independent is wrong-headed. As a smaller, weaker, standalone company, it would struggle to invest as much as it does currently.”

UPDATE 27th Jan 2016

Better late than never, here’s a Gigaclear quote.

Matthew Hare, Gigaclear CEO, said:

“The BDUK program is delivering Superfast upgrades to hundreds of thousands of properties. But MPs are understandably frustrated by what they see as a lack of progress in addressing poor broadband in their rural constituencies. The BDUK upgrade by BT has been designed to give a speed boost to superfast to as many homes as possible: the “inside-out” approach.

This has left those who started with the worst broadband performance generally still without good broadband. And they are not shy to tell their MPs that they are unhappy. In the areas that Gigaclear has been selected as supplier, we have agreed to build out Gigabit FTTP networks to better than 99.9% of the properties currently not getting superfast service – a comprehensive and future-proof solution, eliminating broadband woes.“