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UPDATE Ofcom in Major UK Strategic Review of all things Broadband and Telco

Thursday, March 12th, 2015 (8:29 am) - Score 1,934

The United Kingdom’s national telecoms regulator has today announced the start of a major strategic review into the country’s digital communications market, which could have significant implications. It will look at everything from competition and investment, to future innovation and the availability of broadband, phone and mobile services.

Admittedly Ofcom are constantly conducting reviews of the UK’s various telecoms focused sectors, but this one will be more akin to their last major study that ran from December 2003 to September 2005.

The result of that review forced BT to, among other things, open up their national network to more competition through Local Look Unbundling (LLU) and also fostered the creation of BTOpenreach as a semi-separate network access operator (aka – “functional separation“).

Ofcoms 3 Key Points of Focus (Strategic Review)

1. Ensuring the right incentives for private-sector investment, which can help to deliver availability and quality of service;

2. Maintaining strong competition and tackling obstacles or bottlenecks that might be holding the sector back; and

3. Identifying whether there is scope for deregulation in some areas.

The 2005 Undertakings had a huge impact on the national telecoms market, which now benefits from a more diverse range of broadband ISPs with greater control over their systems, prices and services.

But many feel that this is still not enough, particularly the main beneficiaries of the last review (e.g. TalkTalk and Sky Broadband), with common examples consisting of Openreach’s control over who can conduct engineering work on its network, the calls for broadband to be added into the Universal Service Obligation (USO) and a perceived lack of flexibility in third-party ISP control of FTTC “fibre broadband” products and prices.

As a result some now demand the total separation of Openreach from BT, while others would simply be happy with greater control over the existing products that can be sold and even more access to the operators cable ducts etc. On top of that we wouldn’t be surprised if the issue of wavelength unbundled for pure fibre optic (FTTP/H) lines was also revisited, although that market remains small and thus is not likely to see strict regulation anytime soon.

It’s likely that Ofcom may even touch on BT’s desire to merge their Wholesale division into Openreach, which could create a number of competition concerns (here). All of these issues and more will likely be investigated by the regulators review.

Dido Harding, TalkTalk’s CEO, said:

We are delighted that Ofcom is undertaking a proper strategic review of the market. Britain can have a fantastic digital future with better infrastructure and higher take up of broadband driving stronger economic growth, but the current industry structure is not going to deliver that.

A decade ago, Ofcom failed to break up BT and instead created Openreach. Whilst the last ten years have seen a lowering of prices and increased take-up, it is increasingly clear that the current market structure is not fit for purpose. BT’s proposed merger with EE threatens to make a bad situation worse. It will further starve Openreach of the focus and capital it needs and will extend BT’s dominance of the market. The larger group will have nearly 40% of the entire consumer telecoms market and nearly 70% of the wholesale market.

It is crucial that we now seize this opportunity to structurally separate Openreach. A fully independent Openreach focused exclusively on infrastructure would be incentivised to maximise coverage and improve quality of service for customers. It would end BT’s ability to erode competition, stimulating innovation, consumer choice and lower prices. Separation would accelerate investment in Britain’s digital infrastructure as other providers will have the level playing field they need to build the competing modern infrastructure that our economy desperately needs.”

Naturally BT, which has invested considerable money into its national infrastructure, will be resistant to any such ideas. In particular we wouldn’t be surprised if BT were to warn that any future plans to deploy faster connectivity, such as the 2016/17 and onwards roll-out of 500Mbps capable G.fast broadband to “most homes” (here), might be put at risk if Ofcom were to impose any major new regulation. But for now they’re being subtle.

A BT Spokesperson told ISPreview.co.uk:

We welcome confirmation of this review, which was signalled by Ofcom last year. Ofcom has helped to create the world’s most competitive telecommunications market – one where prices are among the lowest while the speed and availability of superfast services leads Europe’s largest economies.

Its rules do now need to be simplified and modified given the market has changed out of all recognition. The UK needs an updated regime which will promote yet further investment whilst ensuring all companies can compete on an equal footing.

We look forward to engaging with Ofcom as it updates its rules to take into account the explosion in competition over the past decade.”

But the review isn’t just about BT and Ofcom will also look at the ever changing market for mobile communications (e.g. future 5G and current 4G) and the challenges faced by a struggling fixed line phone sector. On top of that it’s likely to examine KCOM (KC’s) continued hold over Hull (East Yorkshire) and whether Virgin Media’s move to expand their cable network to around 60% of the UK might expose them to new regulatory requirements (here), although anybody hoping for wholesale access to Virgin’s network might end up disappointed.

Ofcom has made clear that they intend to continue supporting the markets development by “providing a clear and strategic regulatory framework“, which they said would be designed to both promote competition and to support continued investment and innovation that can benefit consumers and businesses. So far the Government has not directed Ofcom to make any earth shattering changes, although if any review is going to produce one of those then it would surely be this.

Steve Unger, Ofcom’s Acting CEO, said:

We have seen huge changes in the phone and broadband markets since our last major review a decade ago. Only five years ago, hardly any of us had used a tablet computer, high-definition streaming or 4G mobile broadband.

The boundaries between landline, mobile and broadband services continue to blur, and people are enjoying faster services on a growing range of devices. Our new review will mean Ofcom’s rules continue to meet the needs of consumers and businesses by supporting competition and investment for years to come.”

All of this comes at a time when the Government are developing a new Digital Communications Infrastructure Strategy, which is looking some 10-15 years ahead to see what kind of services we might all require in the more distant future (here).

Ofcom’s review will clearly be used to inform the above debate, although equally it might be the Government’s strategy that informs the regulator since they’re shortly expected to publish their proposals. But as ever the fast approaching 2015 General Election means we can all expect to see some big promises, albeit usually without much detail or budget to support them.

The first phase of Ofcom’s strategic review will examine “current and future market factors that may affect digital communications services, and current regulatory approaches“, which will begin with evidence gathering and industry engagement. Apparently Phase One should be finished by Summer 2015, with Phase Two (developing initial conclusions and draft proposals) due to complete by the end of 2015.

Ofcoms Strategic Review of Digital Communications

UPDATE 9:08am

Added a comment from BT above.

UPDATE 9:53am

A new analyst note from Macquarie, which is close to TalkTalk’s position, has set out which issues they think Ofcom’s review should focus on.

Macquarie’s Analyst Note

· BT’s network design is very suitable for VDSL (FTTc) technologies and the glide patch to g.fast. However with other European operators rolling out FTTh, is the current UK broadband lead sustainable?

· Is BT’s move to IP fast enough? BT recently announced a plan to move to an all-IP network in the UK by 2025; Swisscom has a target of 2017 and Deutsche Telekom in 2018.

· In the UK VDSL (BT Infinity) is a premium product (additional £10-20 pm). In France there is no premium.

· In certain markets there is no need to pay for a “line access” fee – this fee in the UK is around £16-70 pm depending on which operator.

· How does Virgin Media’s plan to roll-out FTTh to another 4m homes (+30%) impact the market dynamics?

· How does Ofcom ensure businesses such as CityFibre have the room to execute on their business models without being throttled by Openreach?

· Is there merit is separating Openreach from BT? BT Consumer has OCF margins of 20% compares with TalkTalk at 7.2%.

· How does Ofcom treat Openreach in geographies where it is the monopoly provider of infrastructure? Is there merit in regional regulation?

· BT UK (BT ex Global Services) has a proforma OCF margin with EE of 25%. This compares with DTE at 22%, ORA at 23%, KPN at 19% and Belgacom at 13%.

· In FY 04/05 BT UK’s OIBDA margin was 38%, OCF margin was 17% and absolute capex and OCF were £2.44bn and £2.28bn. In FY 14/15 we target BT’s OIBDA margin at 47%, OCF margin at 30% and absolute capex and OCF at £1.8bn and £3.3bn.

The mention of Virgin Media’s roll-out being “FTTh” appears to be slightly confusing as, while there might be a bit of FTTP, it’s mostly still based off their cable DOCSIS network.

Overall Macquarie expects TalkTalk and Vodafone to gain from any changes.

UPDATE 2:23pm

A few more industry comments have arrived.

Greg Mesch, CEO of CityFibre, said:

CityFibre welcomes Ofcom’s announcement for a full strategic review of digital communications. The past decade has seen major improvements in service competition, but at the very high cost of underinvestment in digital infrastructure by BT. In infrastructure terms, the UK communications market is under performing, with one of the lowest shares of fibre-connected buildings in Europe. BT’s new focus on content and mobile will further exacerbate this problem.

CityFibre is one of the few companies that is truly investing and building next generation digital infrastructure – our rollout of UK Gigabit Cities is underway. To accelerate this programme and deliver meaningful infrastructure competition, this strategic review must consider the optimal structure for pro-competitive fibre investment. The creation of a true level playing field for infrastructure investment, whether that means structural separation of BT or not, is crucial if the UK is to get the digital infrastructure it deserves.

This is an opportunity through which we can engineer the right infrastructure environment to attract investment, catalyse innovation and improve services for business and consumers.”

Malcolm Corbett, CEO of INCA, said:

In our view the Strategic Review needs to consider the option of a fully structurally separated infrastructure organisation. This can be achieved in a way that promotes investment in competitive infrastructure providers and creates beneficial outcomes for all industry players whether delivering comms infrastructure or offering services to businesses and consumers. Enabling our industry to operate more competitively – including re-use of publicly funded infrastructure – will itself encourage more investment and lead to better outcomes for our communities and the UK as a whole. The review should also consider mandating a copper switch-off date which would provide certainty to investors in new digital networks.

Any moves towards structurally separating OpenReach from the rest of BT will require involvement from the Competition and Markets Authority, therefore we urge Ofcom to engage in early discussions to ensure that this option can be properly developed.”

UPDATE 13th March 2015

A comment from Sky, which mirrors TalkTalk’s.

Jeremy Darroch, Sky’s CEO, said:

Structural separation of Openreach is at the heart of creating a sustainable industry; one that provides the capacity and incentive to invest whilst also harnessing the power of multiple competing retailers to drive higher take up and lower prices for customers.

Ofcom must now take the opportunity to address Openreach’s conflict of interest as a subsidiary of BT or risk extending the problems that are affecting the industry and its customers today.”

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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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56 Responses
  1. TheManStan says:

    If TalkTalk are concerned that mobile communications distract ISPs from customers interests, why not break up all ISPs with mobile components… no distraction for any of them that way.

    Seriously though, there should be equivalence for all, on delivery of products. So if TalkTalk and others can deliver mobile comms why should others be excluded?

    Also, would TalkTalk really benefit from an independent Openreach?
    They would benefit short term through disruption to BT, but a fully independent Openreach would have lower turnover and diversity.
    Unlike the other utility providers who have full monopolies over network to customers, Openreach has or will have a competitor to the most attractive part of the customer base in VM.
    Without the diversity that yields higher revenues and without the guaranteed income that is normally afforded (to other utilities) their debt will be more expensive and their costs will increase.

    1. DTMark says:

      I think this is the most relevant point:

      “Is there merit is separating Openreach from BT? BT Consumer has OCF margins of 20% compares with TalkTalk at 7.2%.”

    2. NGA for all says:

      The regulator and any respondent only has to read BT’s evidence to PAC on rural broadband and read the subsequent NAO findings in January 2015 to make the case for separation in the national interest. Creating a national world class data transport infrastucture does need state intervention and policy making, and if that intervention is abused by a board investing in its retail business then the split is inevitable and self inflicted.
      It is unfortunate, but maybe Talk Talk and BSkyB can invest and own some of Openreach so equivaelnce is paid for rather than granted.
      Let’s hope the independent review of the state aid measure by Oxera builds upon the NAO reports and itemises fully all state aid receipts and BT’s capital contribution to Sept 2014. This would not be pretty but it is needed to inform this review and provide further support to BDUK seeking value for money and a fibre access programme involving more than installing 200 cabinets a week. It would also show whether BT Group has any future contribution to make to the UK’s data transport infrastucture.
      I think a separated Opereach would be good and would permit the ambition for all fibre access networks to be recovered with appropriate incentives in place to achieve a more complete modernisation of the network. The latter does not seem likely under the existing structure.

    3. TheManStan says:

      But how long would the Openreach “devolution” process take?

      Lots of nitty gritty that has to be agreed, debt burden, etc… process, existing BT shareholder issue of shares in newco and the liability apportioned for the ever burdensome legacy BT pension pot… which is a major drain on the operating income each year, OR is abit more than a quarter of revenue. Any substantial increases in tops ups could have a significant cost increase to pass on.

    4. Steve Jones says:


      There is absolutely zero evidence that OpenReach is being starved of investment in favour of BT Consumer. The latter’s investment in things like sports rights stand on their own. BT Consumer is a profitable business in its own right. However, what it does do is provide a reliable customer for OpenReach. Could you imagine OpenReach investing in FTTC without considerably buy-in from a retail customer? The LLU operators were (and to a large extent) are distinctly lukewarm about support for marketing FTTC-based product with very little marketing and what looks like zero effort to “up-sell” to existing customers. That’s not surprising, as LLU is surely more profitable for them (and they have cost to recover). You can see this in the relatively low percentage of customers of TalkTalk and Sky customers on FTTC.

      So far from this ridiculous idea that BT Consumer handicaps OpenReach, it’s actually one of the reasons why they can invest in the network as it provides a core customer. As it is, TalkTalk are actively investing in alternatives to OR.

      Also, your contention that OR has sufficient turnover to produce a full fibre network is nonsense. OpenReach’s total turnover is only about £5bn, of which only about half comes from the basic network. (The rest is mainly FTTC and the provision of business leased circuits of some sort). Quite how you expect core business to finance abut £25bn capital investment on a turnover of about £2.5bn (for the core network), I’ve no idea. The numbers simply don’t work unless there’s a major increase in the wholesale cost of a basic link (be it fibre or metal path). As one essentially substitutes for the other, there’s precious little chance of enhanced revenues. Another little problem is that competition from VM and specialist fibre suppliers in low-cost areas will prevent cross-subsidies supporting rural areas.

      In any event, Ofcom don’t, in themselves, have the power to split off OR from the rest of BT. It would need a reference to the Competition Commission and would take years and probably stop OR investment dead due to the uncertainty. The there would be huge legal wrangles (like how would the pension deficit be split-up? As most of the 340,000 people in the BT pension scheme came from the network side, then that might mostly be OR). BT Consumer might not be a viable business given that it has been prevented from investing in its own network capabilities by regulatory action (unlike the LLU operators).

      The list goes on, and it would take years to sort out, would be open to legal action from shareholders, and very likely require legislation.

    5. Astroturfer says:

      Can’t see that this separation was especially devastating to Japan’s place in the broadband hierarchy after NTT was forced to divest its fixed-line retail business, had the wholesale/infrastructure arm split into NTT East and NTT West, and was forced to unbundle dark fibre between COs / exchanges.

      Merge Openreach and BT Wholesale as BT want, split Retail off, BT can either run mobile as part of retail or as a separate unit with them as the controlling shareholder.

      Given BT are supposed to be profitable at each level with no subsidy between the different units none of this should be a problem, and indeed having to compete for business will surely promote investment, right?

    6. Steve Jones says:


      The individual parts of BT are profitable, but that doesn’t mean they will be separately. They share overheads (which is the benefit to all as it reduces OR costs which would otherwise be reflected in wholesale costs). Additionally, the strategic investment plans have been made on the basis of the whole and on the regulatory environment. The most obvious is that BT Consumer have not been allowed to invest in network capability (like Sky and TalkTalk have been able to do). This would place them at a major disadvantage.

      This would all take years to sort out, and there is plenty of scope for legal action, especially in view of investments (not just BT) have made.

    7. NGA for all says:

      @Steve You mis-understand. UK infrstructure may need more pubic investment or incentives and this is a contributing factor to the arguements supporting the separation of OR. No Gov would want to invest more, given how BT Group have chosen to play silly buggers on rural for the last two years.

      The advent of BT/EE may permit the common costs to be absorbed and split differently.

      The notion that its all too hard is poor. If EE merger is conditional on a future split the detail would be arrived at pretty quick.

      A separate OR +BTW is likely to gain SKY and TalkTAlk custom. Do they want or need to own network in many places or access to the same wholesale services as a BT retail. ALA/VULA points to the latter if given the opportunity.

      You comment on Openreach access to capital is at odds with a regulator introducing minimum quality standards and fines for failing to deliver service. We would also need to discuss again BT’s capitalisation of its operational costs to get a better picture of ‘capital’ investment in OR.

    8. Astroturfer says:

      I understood that the different parts of BT were supposed to operate with separation between them, and that a ‘reasonably efficient operator’ should be able to profitably beat BT Retail pricing.

      Sharing of overheads, beyond things like the pension scheme, accounting, etc, would seem to be a pretty heavy violation of this alleged separation. Shared operational expenses could be allocated to Openreach to lower its regulated profitability level for example.

      BT Retail are supposed to order products from BT Wholesale as everyone else does, and they get a substantial discount due to their buying power. BT Wholesale order from Openreach as everyone else does and would I imagine likewise receive discounts for bulk purchasing. This wouldn’t change.

      There is no reason at all why BT Retail shouldn’t be price competitive if separated from Openreach / Wholesale unless they are relying on subsidy from Openreach/Wholesale. Plusnet appear to be managing okay despite being an arm’s length part of Retail based purely on purchasing power.

      Beyond ‘BT Group’ overheads there should be no other shared overheads anyway.

      So – allow Openreach / Wholesale / Global Services to continue as BT Group. Separate the Business and Retail units and merge into EE, rather than the other way around, providing them access to EE’s corporate assets.

      Make this alongside unbundling of dark fibre a condition for both merging of Openreach and Wholesale into a single unit and for the EE acquisition and I’m not sure BT Group will jump up and down too loudly. The shareholders will obviously be provided shares in BT Retail PLC in proportion to their holding in BT Group and could potentially see substantial value from it.

      If BT have made a presumption on future regulation outside of guarantees provided previously that’s their problem. I’m not sure they could sue the UK government based on how they expected to be regulated in the future but only based on legally binding undertakings and assurances given to them.

    9. GNewton says:

      @SteveJones: Your reasonings here on this forum are somewhat biased, and only presented from the perspective of someone who is either employed by BT, or is a shareholder, or is otherwise financially dependent on this company.

      Openreach has never been fully independent, it is owned by BT Group, like a number of other fake companies under its same ownership. This is only beneficial for its greedy shareholders, but holds back the UK with regards to proper netxgen telecom services, just look at the copper-VDSL madness imposed upon this country by BT.

      Replace Ofcom with a proper regulator, fully make Openreach (under whatever name) a separate company, more strictly regulated (Ofcom is a failure in this). And scrap the BDUK, stop giving taxpayer’s money to BT which has no need for it.

      And something needs to be done to get the sheer incompetence and laziness of BTs engineers and customer services!

    10. Astroturfer says:

      Well that’s this conversation thoroughly derailed. We’re back to banging on about NGA rollout, FTTP and BDUK.

      This is a new and exciting topic that isn’t covered nearly often enough in the comments section here.

    11. Steve Jones says:


      Shared overheads were actually considered of specific benefit by Ofcom as they are deemed to reduce wholesale costs. That also includes things like great supplier bargaining power so that BT could get better deals on everything for any number of services and supplies. The point was that all the resellers of OpenReach products would gain from reduced wholesale costs.

      However, BT Consumer are not allowed to gain an advantage from this in terms of being able to charger lower retail prices. That’s because for key products BT Consumers prices are not regulated on the basis of not using predatory pricing (that is pricing below cost), but that they have to priced so that a reasonably efficient operator can make a profit. So BT Consumer cannot price as low as it might be able to do in order to maintain market share are there is a “floor” under pricing. (Witness the latest “margin squeeze” test on Infinity).

      In fact, with BT, it operates at two levels. BT Wholesale have to price their ADSL products to give a margin to LLU operators and, of course, BT Consumer have to also have a margin so that other users of the BTW products can maintain a margin.

      Note that this regulatory practice goes far beyond what the competition actdictates. That merely prohibits predatory pricing.

      And no, I’m not a BT employee, but I am a shareholder. That gives me an interest of course, and when all is said and done these are assets which were either sold by the government or built up since privatisation (since 1984 the entire core network has been refreshed at least twice over). As these are privately owned assets, and the state has seen fit to impose a very intrusive regulatory regime which, retrospectively, greatly disadvantaged shareholders (not part of the deal when the shares were sold), then there is a very good reason why investors should be treated fairly and not have arbitrary decisions made about their assets.

    12. Steve Jones says:


      I should add that VDSL is not madness. It’s the logical investment decision for Openreach given that there is no realistic prospect of getting a return on the £28bn that a fibre deployment would have cost (and that’s the lowest credible estimate from the BSG report). To put this in perspective, the entire wholesale revenue of the physical network connectivity products for OR is only about £2.5bn are year. Such a roll-out would have taken at least 10-15 years and there would be a considerable length of time when copper and fibre has to be run in parallel (witness the relatively tiny Jersey Telecom roll-out). That’s not even factoring in that Openreach aren’t even allowed to compel a fibre transition as they have to offer MPF.

      If wholesale prices were increased to pay for this, then there would be a mass exodus to VM in the low-cost areas which would further undermine the whole thing.

      Even if Openreach had done down this route, where on earth do you think the investors would have come from to finance it? None in their right mind would have even considered lending money or buying bonds to pay for it.

      In contrast, FTTC is a (relatively) quick and cheap technology to roll-out and meets a lot of immediate requirements whilst increasing revenue to Openreach. Even if Openreach had been a separate business, they would (under the current environment) have come to that same conclusion as there’s no incentive for a general fibre roll-out. Indeed, many investors in the city would have chosen to see dividends maximised and just rely on the unexciting, but reliable, regulated return.

      Have a look at the Australian NBN project. They are financed to the equivalent of about £48bn (when adjusted for differences in the number of premises) and are managing only 400k premises per year (and they aren’t even touching about 8% which will require satellite). The OR commercial rollout was over 10 times that rate at a fraction of the cost and has taken a quarter of the time.

    13. DTMark says:

      1. “The core network” is not the issue here. The issue is that the last mile received, so far as I am aware, the sum of zero investment between about 1984 and 2012. It is an old GPO telephone network. It is not suited to modern applications. “Talking around” this subject doesn’t change that issue.

      2. The DCMS project was the opportunity for “everyone to get something” and it was dodged.

      3. ROI doesn’t seem to be an issue when there’s a sniff of competition, most especially in rural areas.

      4. There is no such entity as ‘BT Retail’ any more than there is such an entity as ‘Openreach’. The entity is a single company called (laughably really) British ‘Telecommunications’ Plc.

      5. There is a direct conflict of interest when the infra provider is also a retail player. Because:

      6. BT pays the cost price. Everyone else has to pay the Wholesale price. “Margin squeeze” whether “intentional” or not, is built into this vertical monopoly model. It can never work to attract investment from multiple sources, nor can this ever deliver the expected benefits to the customer.

    14. GNewton says:

      “Have a look at the Australian NBN project. ”

      The Autralian NBN turned into the current mess after the new Coalition government took over and wrecked the original NBN, now burdening the Autralian taxpayers with tens of Billions of Dollars. They have copied all the mistakes done in the UK with regards to telecoms.

      And as I said: Your reasoning is quite biased towards BT favortism. Fortunately, there are still many poeple out there who can see hiw wrong it was to waste taxpayer’s money on BT, a private company, who never had any need for it.

      The whole farce and failures of these so-called gap-funding models should be included in the UL strategic review. And in the interim, the BDUK should be immediately scrapped!

    15. Gadget says:

      DTMark – I believe your assertion in 6) is completely wrong based on the Ofcom undertakings http://stakeholders.ofcom.org.uk/binaries/telecoms/policy/bt/consolidated.pdf which state in Section 5.46 “AS will not supply any product to any other part of BT unless it also offers that product to other Communications Providers on an Equivalence of Inputs basis.” and policed by the EAB as created in Section10.

    16. DTMark says:

      I don’t see anything in section 10 which says the following:

      “BT shall make products available to all purchasers at the same effective price at which they are available to the BT Group”

      .. or similar.

      Can anyone point me at where it says that?

    17. Steve Jones says:



      On page 6

      ‘“Equivalence of Inputs” or “EOI” means that BT provides, in respect of a particular product or service, the same product or service to all Communications Providers (including BT) on the same timescales, terms and conditions (including price and service levels) by means of the same systems and processes, and includes the
      provision to all Communications Providers (including BT) of the same Commercial Information about such products, services, systems and processes’

      Of course where BT Consumer sells a product they will be making a profit at both wholesale and retail level, but why that might be considered to be an advantage to BT Consumer as a whole, I’ve no idea. After all, the access network is owned by BT, so it wouldn’t matter (in that respect) if OR was separate or not. Yes, BT Retail can make a profit, but then that’s another division which also represents shareholder investment. No doubt BT as a whole is worth more than the sum of the parts because of the strategic coupling and reduced overheads, but that’s not exactly a crime. After all, should Sky be prevented from selling broadband and TV bundles when they are a regulated wholesaler of content?

    18. TheFacts says:

      @GN – If it was a mistake to waste money on BT what were the alternatives?

      The last mile options are either copper, fibre or wireless.

      FTTC is giving thousands a solution quickly with capacity into the near future and maybe beyond. Here the only application for >100M that as come up is for multiple 4k video streaming, not that a compelling reason.

      Investing the same amount of government money into a fibre rollout would see nothing like the coverage over a much longer timescale.

      There seems to be no call from anyone for an £Bx investment for fibre, particularly as the vast majority of the country will soon be covered by VM, FTTC and others. Or is there?

    19. DTMark says:

      Right. But where does it say that the price to other operators must be the same as the *cost price* to the BT Group?

    20. GNewton says:

      @TheFacts: “If it was a mistake to waste money on BT what were the alternatives?”

      You know this is a stupid question, don’t you, since you already answered this question for yourself some weeks ago, with your nationwide FTTP proposal!

      BTW: How are your Google lessons going?

    21. GNewton says:

      DTMark: “Right. But where does it say that the price to other operators must be the same as the *cost price* to the BT Group?”

      It doesn’t.

      The reply from TheFacts was just another example of how he can’t make his mind. Only a few weeks ago, he boldly proclaimed his own vision of nationwide fibre rollout, he’s a far cry from this today.

      Here are some immediate steps to be taken for damage control:
      – scrap the BDUK, stop throwing taxpayer’s money at BT who has no need for it
      – make Opereach a completely independent company
      – introduce a nationwide fibre-on-demand product with averaged-out deployment costs

    22. FibreFred says:


      It clearly says “(including price and service levels)”

      Same price to BT as other SP’s

    23. DTMark says:

      No. Read again.

    24. Paul says:

      “Right. But where does it say that the price to other operators must be the same as the *cost price* to the BT Group?”

      I could not see that mentioned anywhere either.

  2. Al says:

    Let’s hope they also look at the 10% or so of the country where BT has a monopoly on the broadband market as they are non-LLU exxchanges, with no market forces to drive down prices.

    1. TheFacts says:

      10% of land area or properties?

      Monopoly or single supplier?

    2. Steve Jones says:

      They already do. BT Wholesale and Openreach are required to have flat price charging for all wholesale prices. If they were to reflect true costs, then prices in those areas would be higher. BT Consumer prices are the same at all locations.

      The reason why other areas are cheaper is simply because the costs are lower and LLU operators find it cost-effective to install their own equipment. Unless LLU operators were compelled to provide retail products at all locations on an equal price basis, then I don’t see that changing (and they will fight that hard as it would put up prices in their other areas).

    3. GNewton says:

      @TheFacts: Seriously, why are you so afraid of Google?

    4. Paul says:

      “BT Consumer prices are the same at all locations.”

      Clearly not according to Ofcom and Plusnet as one example of different charges dependent on location and exchange.

  3. DTMark says:

    The complete lack of joined-up-thinking is staggering.

    This review needed to come before the DCMS project proposition (now called BDUK). Indeed when you examine the original DCMS goals, those could never have been achieved without this review and enacting a number of the proposals.

    But then that’s why the DCMS goals for the project were abandoned (the “superfast broadband project”) and replaced with the scaled-down “give money to BT” project.

    Scaled down in terms of results, but not spending. Quite the reverse. We could have saved a fortune in taxpayer’s money and ended up with something far better.

    1. NGA for all says:

      It only became inevitable when 1) BT Group’s bid startegy for BDUK involved 40+ discrete confidentiality agreements where the only secret is the amount of cash flow created in a contract which is governed by state aid and 2) the ambition to take over EE. The latter gives Ofcom a reason, the former will provide the justification.

      Your right about the cash unfortunately. The Phase 1 bids of c£1.7bn (£1.2bn state subsidy) and c£500m of BT is really at odds with visibile actuals of c£23k (NAO -Jan 15) per cabinet (all in and before BT’s contribution) times 30,000 cabinets which would equal – c£800m.

      The milestones to cash process does switch to actuals for those components and LA’s it is managing, but there are big gaps between circa 8,000 cabinets (1.6m homes passed) installed to Sept 14 (Total cost £184m before BT’s contribution) and the greater than £300m of state aid recorded in BT accounts for the same period.

      It would be good to see a full reconciliation to Sept 2014 to give BT the opportunity to remove this arguement.

    2. TheManStan says:

      But that was the same confidentiality strategy provided for all bidders in the process. The fact that it ended up being a one horse race could not change the bid rules, that would have taken a repeat of the process for a sole source supply and even more delays…
      You’d need all 40+ regions to agree to the cancellation and redefinition before any results were declared… and after any bid results announced would have allowed BT legal redress…would have been a very messy indeed.

    3. NGA for all says:

      @the man stand – …confidentiality strategy provided for all bidders… This did not exist.

    4. TheManStan says:

      Don’t be so naive…

      So Fujitsu when were in the process they were not requesting confidentiality?
      All commercial operators in the bid process would have requested confidentiality.
      It would be commercial suicide to make known any internal cost structure.

    5. NGA for all says:

      The Man Stan The NAO commented on the scoring on transparency and BT scored lowest. Why even reference access networkless Fujitsu?

      It was stupid to speak of £100k cabinets when press relaeses showing subsidies of less than £15k.

      There was much to be gained from transparency. It fact it was going to be essential and indeed remains the case if the split is to be avoided.

    6. Bob says:

      BDUK was a prime example of how not to do things. There was clearly not a level playing field when a 100% of the contracts went to BT

      Most companies with contracts to that value would automatically split it between 2 suppliers for commercial reasons and to compare technical and price performance. The split typically going 80% to the lowest cost compliant bidder and 20% to the next lowest cost compliant bidder

      With BDUK they have pretty much put BT back in a monopoly supplier position and we have seen no innovation what little FTTP and FTdp BT were rolling out has ground to a halt and we are left with FTTC with no real way forward from it

  4. GNewton says:

    Openreach needs to be 100% separated from BT and become subject to stricter regulation.

    Something similar was done in other countries with great outcomes, see for example New Zealand (https://en.wikipedia.org/wiki/Chorus_Limited)

    Also what’s needed is a different regulator, Ofcom itself has been a failure, as is evident from today’s messy broadband situation in the UK.

    1. TheManStan says:

      Yes, very successful… but no real competition… which OR does have in VM in the commercially prime areas.

    2. DTMark says:

      Given that the greatest area of expenditure is in laying ducting..

      .. and that in some percentage of cases, BT (more so than VM)’s buried duct work is ancient, knackered and full-to-bursting..

      .. and that it would be in the interests of all operators to expand coverage at the cheapest possible price..

      .. it cannot be beyond the wit of man to come up with a solution which starts from that perspective.

      This will however require “SMP regulation” to be addressed, something which holds back private investment e.g. VM will always be careful not to step into that territory.

    3. Gadget says:

      and what specifically about the regulation would you tighten/change/add?

  5. gerarda says:

    It would be better if their was a strategic review of Ofcom’s role as regulator. How such an inept,technologically ignorant body can continue to go unchallenged is beyond me.

  6. FibreFred says:

    Good luck splitting it off, if it did happen (very doubtful) I don’t think TT would see the benefits they expect.

    Why do TT even care they have their own FTTH venture now, throw decent money into that and you don’t have to buy from BT again 🙂

    1. Bob says:

      The issue is the local loop. It is not viable for competitors to put in their own local loops when BT currently have a 100% of that market. WE have seen with Cable that this did not work. VM still have massive debt even decades after the network went in

      Proper separation off the local loop is the best way forward. This could be a non BT company or a wholly owned BT company

    2. GNewton says:

      “Proper separation off the local loop is the best way forward. This could be a non BT company or a wholly owned BT company”

      I think the idea of a complete separation of what’s currently known as OpenReach is for BT NOT to be the owner of it!

    3. TheFacts says:

      What would separation achieve and would an investment for FTTP happen?

    4. FibreFred says:

      “I think the idea of a complete separation of what’s currently known as OpenReach is for BT NOT to be the owner of it!”

      As you hate BT that doesn’t surprise me, only a few things to sort out then

      1) How to force a private company to sell off one of their biggest areas
      2) All of the legal side of
      3) A buyer

      Oh and 3) would have to be a buyer that doesn’t come in and do whatever you think BT are doing so badly now as there’s no point in replacing a big private company with another big private company?

  7. Engineer says:

    great another review… ran by the government for the sake of running a review… i suppose ofcom bods have to earn there salary somehow

  8. Jonathan says:

    Does this mean that finally people in hull who are stuck with KC will possibly have a fixed line alternative

  9. FibreFred says:

    I just love how people think that splitting off Openreach will suddenly lead to a FTTP UK wide rollout, tons more competition and lower prices.

    I doubt it would achieve any one of them never mind them all.

    1. AndyH says:

      They can keep hoping and complaining though.

  10. Bob says:

    Clearly the current setup has failed to achieve any real competition in HS Broadband, the UK is falling further and further behind due to BT failing to move beyond FTTC

    Rolling out a second local loop to compete where BT already has a 100% of the market is never going to work. The key to getting completion appears to be proper separation from BT of the local loop

    The present set up encourages BT to try to keep competition out. If the local loop becomes a separate company it could still be BT owned then you change the dynamics. This new company actually has a direct interest in getting as many users on the local loop as possible. It would make full fibre a much more attractive option

    1. FibreFred says:

      Why would it make it more attractive does FTTP suddenly get cheaper if OR is split off but still owned by Bt ?

      I think having another last mile supplier IS the best way for competition it works between Bt and virgin it will work if when sky & tt do it on a wider scale too

    2. TheFacts says:

      How does full fibre become attractive? Needs big investment.

  11. fastman2 says:

    virgin do not open their ducts to any one — that not going to change any time soon

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