Digital Economy Minister Ed Vaizey Opposes BT and Openreach Split

The UK Government’s Digital Economy Minister, Ed Vaizey, has said that he is a “sceptic” of proposal that BT could be split from control of their national broadband and phone network (Openreach) and warned that it has “lots of potential to backfire.” Penny for your thoughts Ofcom.

At present the national telecoms regulator, Ofcom, are undertaking a major Strategic Review of Digital Communications and one of the options on the table involves the controversial idea of separating Openreach from BT. It’s important to stress that this is not the same as renationalising Openreach and the wider industry might also take on some of the responsibility.

The regulator has suggested that this option could “remove BT’s underlying incentive to discriminate against competitors” and might even offer ways to “simplify existing regulation“, although they admit that the “process would be challenging” (e.g. legal challenges, difficulties over apportioning BT’s debt pile and pensions, rising consumer prices etc.) and might not fix all of the issues with service quality (install delays, fault fixing etc.). Most of BT’s biggest rivals, such as TalkTalk, Sky Broadband and Vodafone, all support a split (here).

The UK Labour Party has also hinted that it too would favour such an approach (here) and Chris Bryant MP recently said, “The situation is now so bad that Ofcom’s review should work on the presumption that Openreach should be split from the rest of BT unless their review produces conclusive evidence to the contrary. At the very least Openreach should be held accountable for its poor quality of service.” Labour also wants Ofcom to have more teeth for intervening in the market.

On the flip side BT admits that it still has work to do on the customer service front, although they claim to have met the vast majority of Ofcom’s regulatory requirements and warn that separating them from Openreach would result in “huge uncertainty” and “fundamentally undermine the case for future investment.”

As such it was perhaps only a matter of time before the Government waded into the argument and Ed Vaizey MP has now warned that a split could be risky, before adding that existing “regulations have proved very effective“. But at the same time Vaizey also hinted that the Government would still “go with the trend” of Ofcom’s review.

Ed Vaizey, Digital Economy Minister, said (FT Paywall):

“I think full separation would be an enormous undertaking, incredibly time consuming [and have] lots of potential to backfire. Ofcom is looking at it, I am a sceptic but we will have to see what Ofcom comes out with … If broadband is so terrible, why are we the leading ecommerce nation in the world?.”

On the remark about being the “leading ecommerce” nation, consumers don’t strictly need superfast connections to shop online and we did benefit on this front from having an early start with recognising the importance of Internet connectivity, but equally we won’t necessarily retain this position if our foot is taken too far off the gas.

Vaizey also said that “most people” regarded 24Mbps (this is what the Government officially deems to be the starting point for their ‘superfast’ definition) “as the kind of broadband speeds they need … in reality, most people can live with 6-8 mbps“, which some may perceive as being a bit short-sighted.

Of course you can survive with a basic connection that might only deliver 6-8Mbps, assuming you live alone and don’t have any big data demands. But faster connections allow you to get more things done faster and that helps productivity, especially for businesses and those with data hungry families. Furthermore it also opens a door to future innovation and richer content or services (4K etc.).

Strictly speaking there’s nothing surprising in what Ed Vaizey has to say because the Government has a huge public investment in BT through its national Broadband Delivery UK programme, which is predominantly working with the operator to deploy “superfast” (24Mbps+) speeds to 95% of the UK by 2017/18.

Furthermore the Government also want to foster “ultrafast” (100Mbps+) speeds going forward, not to mention those plans for a possible 5Mbps Universal Service Obligation (here). Suffice to say that anything which might delay or complicate that, such as a BT split, would be politically problematic. Ed Vaizey’s intervention on this issue is also likely to carry some weight within Ofcom.

In the meantime BT’s rivals at least appear to be serious about delivering an alternative, but we should all be cautious until they spell out precisely what they’d do and how much investment they’d make. Only then will it be possible to judge whether Openreach is truly going to be better off as a separate company, otherwise this is all just businesses fighting each other and in that battle we, the consumers, are little more than numbers to be bargained over. Ofcom’s first proposals should surface by around the end of 2015.