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Ofcom UK Asks for Feedback on Full Separation of Openreach from BT

Thursday, Jul 16th, 2015 (8:11 am) - Score 2,612

The telecoms regulator has today published a new discussion document as part of their major Strategic Review of Digital Communications, which asks for feedback on the vexed question of whether Openreach should be completely separated from BT so as to boost UK broadband and phone competition.

The last such review, which was conducted over a decade ago, effectively forced BT to open up their national UK telecoms network to more competition through Local Loop Unbundling (LLU) and also fostered the creation of BTOpenreach as a semi-separate network access operator (aka – “functional separation“).

Today Openreach takes responsibility for most of the access, upgrades and maintenance related work on BT’s national network, while Ofcom’s rules work to ensure some separation between BT’s commercial arm and Openreach in order to avoid the telecoms giant abusing their dominant position in the market.

Sharon White, Ofcom’s CEO, said:

This review is about ensuring people get the best possible communications services, wherever they live and work. Our priorities are clear. We want to promote competition, investment and innovation, so that everyone benefits from even better coverage, choice, price and quality of service in years to come.”

But many rivals feel that this is not enough, particularly the main beneficiaries of the last review (e.g. TalkTalk and Sky Broadband), with common examples focusing upon Openreach’s control over who can conduct engineering work on BT’s network and a lack of flexibility in third-party ISP control of FTTCfibre broadband” products and prices; we’d like to see ISPs have more control too, so as to help create a more diverse market.

BT’s move to muscle in on the mobile market by merging with EE also has mobile operators worried since few can match BT’s fixed line network, which could in turn be leveraged to help launch much cheaper or more flexible mobile packages that rivals may struggle to compete with.

In today’s update Ofcom claims that their past efforts have “delivered real choice, quality and value for phone and broadband customers over many years,” although in the same paragraph they admit that the “incentive for BT to discriminate against competing providers can be limited by regulation, but not removed entirely.”

The regulator notes that BT’s network has “evolved” over time and their “fibre lines” are now running closer to premises (still not close enough for some though), which Ofcom suggests “may require different models of competition than those that worked best for the traditional copper telecoms network.”

Ofcom also notes that Openreach’s performance, such as with regards to slow line installations and fault repairs, have not always been as fast or effective as they could have been; although new rules have already been brought in to tackle this (here). It’s for these and other reason that Ofcom is today seeking views and evidence on several “future regulatory approaches“.

Ofcom’s Mooted Regulatory Approaches for BT

1. Retaining the current model, where Openreach operates as ‘functionally separate’ from BT, and using regular market reviews to address any concerns around competition;

2. Strengthening the current model by applying new rules to BT – such as controls on its wholesale charges with stronger incentives to improve quality of service, or tougher penalties if BT falls short;

3. Separating Openreach from BT could deliver competition or wider benefits for end users. It would remove BT’s underlying incentive to discriminate against competitors. Separation could also offer ways to simplify existing regulation. However, 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;

4. 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 incentivise Openreach to improve its infrastructure. However, it could also lead to duplication of networks and weak competition.

We suspect that much of the focus will rest with the vexed question of Openreach’s separation. However Ofcom’s new CEO, Sharon White, has previously stated that she perceives the best way forward as involving a “lighter approach” to regulation.

Similarly it seems unlikely that the Government would seek to stir up the market at a time when they need BT on side to help deliver their Broadband Delivery UK programme and bring fixed line superfast broadband (24Mbps+) speeds to 95% of the country by 2017/18.

Meanwhile BT has already hinted that such a move is likely to discourage their investment in future services, such as the commercial roll-out of 500Mbps G.fast technology that’s due to start around 2016/17 (here and here).

Splitting up a commercial company is also no easy task and could tie the regulator up in legal squabbles for a long time to come and, as Ofcom alludes when it states that such a “process would be challenging and it may not address some concerns“, there’s no guarantee that the grass would be greener on the other side.

Instead Ofcom are perhaps more likely to take an easier path, which could involve options 2 or 4 above (maybe a combination). But that doesn’t mean to say there won’t be big and difficult changes for BT, with the regulator already proposing one as part of its 2016 Business Connectivity Review – Dark Fibre access (here). But rivals will want more.

Dido Harding, CEO of TalkTalk, said:

We are pleased that Ofcom is looking at all the options for the future of the telecoms market as part of its strategic market review. This is a once in a decade opportunity to make bold, radical decisions, such as the separation of Openreach. It is vital that Ofcom places customers at the heart of their decision-making process so that we end up with a competitive market that delivers the modern digital services and infrastructure Britain desperately needs.”

Mai Fyfield, Sky’s Chief Strategy Officer, said:

It is welcome news that Ofcom is putting the future of Openreach at the centre of its review. For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need.

We believe Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry. In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st century.”

A BT Spokesperson told ISPreview.co.uk:

We welcome this review and are confident it will find the UK broadband market to be both vibrant and healthy.

There has been huge progress this past ten years with an explosion in competition and broadband usage. Consumers are getting more for less and the UK has outpaced its European peers in terms of superfast broadband. As Ofcom say today, “This approach has delivered real choice, quality and value for phone and broadband customers over many years”.

Much of that progress is down to BT investing billions of pounds in fibre at the height of the recession. That investment wouldn’t have occurred had BT been split in two a decade ago and our ambitious plans for ultrafast broadband also depend on BT remaining intact.

Ofcom have overseen a regime that has balanced investment with competition and we hope they will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages.

The one area where consumers are getting a raw deal is Pay TV. There is no reason why UK consumers should pay half a billion pounds more a year than the European average. Ofcom have said they will consider whether to make it easier for customers to switch in this area but this isn’t enough. Much tougher action is needed to address the fundamental flaws in this market.”

It’s worth pointing out that Ofcom’s review, which notes that superfast broadband is now available to 83% of UK premises, will also focus on other areas too. In particular the regulator estimates that a broadband speed of 10Mbps “is necessary to benefit from today’s popular online services“, although they note that 8% of UK households cannot currently access those speeds.

The BDUK deployment should help to resolve much of the speed concern, but Ofcom are also on the record as wanting to see a tougher Universal Service Obligation (USO) or Commitment (USC). The Government have so far said that they will review the idea of a 5Mbps USO, although there is not yet a firm statement of intent to go further than that.

Ofcom is also looking at how it could make it easier for consumers to compare ISPs (we suspect this is more a reference to business connectivity as there’s no shortage of domestic comparison sites) and to further improve switching by expanding the migration rules to the mobile market and services bundled with Pay TV.

The closing date for responses to today’s discussion document is 8th October 2015 and Ofcom then intends to publish a statement, which will set out its draft proposals, by around the end of this year.

UPDATE 9:07am

Added a comment from TalkTalk above.

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 X (Twitter), Mastodon, Facebook and .
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