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Interview – Sky’s Position on Separating BT from its UK Telecoms Network

Monday, December 7th, 2015 (1:12 am) - Score 3,913
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4. Sky has recently echoed many consumer frustrations by criticising Openreach’s record on service delivery, fault fixing and general performance or lack thereof (here).

Similarly we often cover reports where consumers have been forced to wait months for a new service to be provisioned, as well as delayed repair work or problems with a shortage of broadband capacity that can slow local speeds. How do you envisage an independent Openreach being able to practically solve these things (e.g. hiring more engineers)?

Sky’s Answer:

Various factors have contributed to Openreach’s poor quality of service. Openreach is not prioritised by BT Group management in terms of internal resource, management time and effort – and this situation will only worsen with the addition of mobile following the acquisition of EE. Additionally, Openreach operates as a cash cow for BT. This has led to underinvestment in the copper network on which all broadband is still reliant, with a rise in faults as a result.

A separate Openreach would solve these issues. It would have dedicated management focus and the ability to take investment decisions independently in pursuit of a customer-orientated 21st century network utility business. We believe that an independent Openreach focused entirely on the operation of its network, and with a desire to establish a reputation for excellence, would have a very different culture and ethos than it does as part of a large BT Group.

5. Many of the potential improvements that have been hinted at above, such as in regards to better broadband and engineering performance, would of course come at a cost. At the same time investors will want a return. Isn’t there a danger that consumers might end up having to suffer even sharper price rises in order to help pay for such enhancements?

Sky’s Answer:

There is no doubt that an independent Openreach would continue to need to be regulated by Ofcom, including the setting of charge controls to ensure that its charges were reasonable. Structural separation would enable the removal of regulation of BT’s vertical integration – for example the 2005 Undertakings could be removed. However, regulation of its market power as the operator of the UK’s only ubiquitous fixed line telecoms network would continue to be required.

The experience with LLU demonstrates clearly that tough competition at both the network and retail levels in fact drives prices down over time.

6. Does Sky support the position that an independent Openreach should continue to deliver modern broadband and phone services to smaller ISPs on a broadly fair and non-discriminatory wholesale basis (i.e. maintaining the status quo or even improving upon it)?

Sky’s Answer:

As we say above, there would still be a need for targeted regulation on an independent Openreach, on issues specifically associated with the natural monopoly. But establishing Openreach as an independent company would enable regulation to be simplified significantly.

7. It has been suggested that the process of splitting Openreach, if approved, could take many years to complete. What is Sky’s view on the likely time-scales involved in the split itself. How quickly could it realistically be done, given that such separation is likely to be very complex and BT has threated to tie the process up in legal battles?

Sky’s Answer:

The idea it would take years is nonsense. The hard work – functional separation – is already done, with Openreach having separate management, its own accounts and payroll. BT has split out business divisions before – for example in 2002 it spun out its mobile business, BT Cellnet, apparently with ease. Such spin-outs happen all the time. And the recent structural separation of Telecom NZ demonstrates that the argument that it would take many years is just wrong.

While BT opposes separation currently, in the long-run it is likely to be in shareholder’s interests. It’s notable that in New Zealand, aggregate value of the two entities which voluntarily separated has increased since separation.

It is certainly true that BT could do everything it could to prevent separation, including devoting huge amounts of resources to litigation. In our view, the fact that BT has made such threats is again indicative of the problem. A long, expensive legal battle would not be in either the interests of shareholders or the country.

8. The BT Group carries some big debts and burdens, not least in terms of their pension deficit. What in your view would be an amicable solution to this issue?

Sky’s Answer:

It is not really that an amicable solution is required. When companies split there are standard procedures for working out which assets and which debts belong to each of the new entities. These issues are not novel – companies choose to split themselves all the time. Determining what goes where is not a major hurdle, despite BT’s claims to the contrary.

9. The Government’s Digital Economy Minister, Ed Vaizey, recently said that he was a “sceptic” of the proposal to split BT and warned that it has “lots of potential to backfire.” What is Sky’s view of this position and are you concerned that it may influence Ofcom’s decision making process?

Sky’s Answer:

The decision Ofcom needs to make is whether the market meets the test to make a referral to the CMA for a market investigation reference. John Fingleton, the former head of the OFT, recently said that the test was ‘passed in spades’. We have no doubt that Ofcom will take an independent, considered view on that issue.

End.

ISPreview would like to thank Sky for their willingness to engage with us on this most complicated of topic’s. The question of Openreach’s separation, away from the unavoidable simplification of mass media coverage, is a minefield of complication and one that Sky has been willing to debate. We are most grateful for that and their input through Alan Sewell.

Equally we’re aware that not all of our questions have been given a clear answer, which leaves plenty of aspects left to be resolved and for that we’ll have to wait and see what Ofcom ultimately decides next year. If history proves any measure then the regulator will likely pick a half-way solution over full separation, but Ofcom still has the option to surprise us.

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Mark Jackson
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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37 Responses
  1. Avatar Bob2002

    If the commercial detractors of Openreach can start making some firm(ish) public commitments to nationwide FTTP then I’m interested, otherwise, much as it irritates me, I’ll stick with the G.fast rollout.

    • Avatar Ignition

      That’s the rub really, isn’t it?

      They’ve had ample opportunity to open their wallets and wipe the floor with Openreach if they’re so appalling, but have chosen not to.

      I find it far more likely that Sky, TalkTalk, etc, want Openreach split because they want more control over existing products, and want to pay less and improve their profit margins, nothing at all to do with their having a desire to deploy FTTP.

    • Avatar FibreFred

      How odd ignition I thought the exact same thing

    • Avatar MikeW

      To me, the answers to questions 2 and 5 lay this one out.

      Question 2 tells us that Sky have no interest whatsoever in making a firm commitment to fibre. If they did, that would be the time to make such commitments.

      Question 5 tells us that they expect Openreach to still be heavily regulated, so that Sky can continue to make their profit. They expect “tough competition” to drive down prices, just like LLU, so they really want things to be even cheaper. But just what is “tough competition” in the access network?

      In truth, even with a standalone Openreach, the biggest competition to fibre is copper *within* Openreach. The biggest threat to deployment of full fibre and, critically, persuading people to invest in it is cutting the cost of “just good enough” copper.

      Sky’s commitment to “ever cheaper” copper is the very anti-thesis to a commitment to long-term investment in fibre.

      It is all about Sky wanting cheaper copper, more market share, more profit. Not fibre.

  2. Avatar Steve Jones

    Mostly pre-prepared generalities with absolutely no hint of what Sky would commit to. Also some ridiculous analogies with Cellnet. Cellnet was never an integrated part of BT. It was always a separate company founded in 1985 as a joint venture with Securicor and remained that way until 1999 when BT bought out Securicor’s interest. Just 3 years later it was split off following the financial crisis that hit the telecoms industry following the .com crash and the ridiculous amounts that were bid for mobile licences across Europe (I think it was about £20bn in the UK from memory). The split was “voluntary” (in reality forced by major shareholders) and what became O2 was launched debt free (again with major shareholder pressure as it was thought O2 would be untenable as an independent company if it had carried the debt incurred in it’s establishment). This could all be done as it was a voluntary split (so only the shareholders needed to agree to the proposal). BT Group (rather then Cellnet) had taken on the debt burden in the first place and Cellnet was a debtor of BT group (partly done as Securicor were largely a sleeping partner and didn’t do much in the way of financing). As BT and Cellnet never shared anything, staff, systems, management, pension scheme, infrastructure and so on, it was an easy split.

    A forced split will be a very different thing indeed. There are joint burdens, HR teams, pension schemes. It will be a field day for the lawyers and it would get very messy indeed.

    • Avatar GNewton

      @SteveJones: “A forced split will be a very different thing indeed. There are joint burdens, HR teams, pension schemes. It will be a field day for the lawyers and it would get very messy indeed.”

      Wrong! As Sky correctly pointed out, the functional separation is already largely in place. It would actually be of benefit to shareholders like you to have a full split of BT, this way the remainder BT could become fully deregulated. And Openreach, though still being subject to Ofcom regulation, could be more streamlined, and it would be forced to act more like a business. A win-win situation for shareholders, customers, and BT.

    • Avatar Ignition

      Perhaps you could explain why, if it’s such a win:win for everyone, people you’d expect to be quite smart such as major BT shareholders have no appetite for it.

      These people couldn’t care less about whether BT Group involves Openreach or not. They’re in the game to make money. They presumably are better at this than you or I given they do it for a living.

      What do you know that the people who do this professionally don’t?

      Surely if it were this self-evident they’d have already agitated for it to happen without 3rd party involvement in order to maximise shareholder value?

  3. Avatar DTMark

    “We believe that separating Openreach would make investment in FTTP networks covering a substantial part of the UK far more likely. In part, the ability to compete.. would create the scope for other operators to invest – operators like Gigaclear, Hyperoptic and City Fibre, who are already delivering fibre networks in the UK today. Such competition is likely to be a key catalyst for investment by Openreach itself.”

    .. is the key. This was the correct BDUK approach from the start, to maximise private investment and build something for now and for the future. Sadly this wasn’t the approach taken.

    Sky don’t mention their scope for investing in Openreach alongside Gigaclear et al though which seems odd.

    Recapitalisation of Openreach by effectively turning it into a partnership between infra players provides the potential capital to build something worthwhile.

    Which then just leaves BT a set of dazzling new stand-out products to come up with, with good USPs (wholesale VDSL – giggle) supplied with superior customer service, for them to be able to win decent market share and pay those pensions. In other words, to stand head-and-shoulders above everyone else and show us how good they are.

    I wonder if BT would be ready for such an opportunity to win market share based on providing quality products and services in a genuinely competitive environment.

    • Avatar Ignition

      ‘Which then just leaves BT a set of dazzling new stand-out products to come up with, with good USPs (wholesale VDSL – giggle) supplied with superior customer service, for them to be able to win decent market share and pay those pensions. In other words, to stand head-and-shoulders above everyone else and show us how good they are.

      I wonder if BT would be ready for such an opportunity to win market share based on providing quality products and services in a genuinely competitive environment.’

      Sorry but what are you talking about here?

      Are you referring to the Retail or Openreach arms?

      Retail nothing is going to change. They have to make money. It’s abundantly clear that offering high quality products with great customer service doesn’t deliver the kind of volume sales BT Retail need. The UK market simply isn’t geared towards people in any volumes paying more for better quality broadband. Sky and TalkTalk ensured this would be the case with their low cost, low quality LLU programmes.

      People are far happier to pay for premium TV than they are broadband, which is why Sky themselves see broadband as a value-add and retention tool for their TV.

      If you’re referring to Openreach what genuinely competitive environment?

    • Avatar DTMark

      One example:

      VDSL. At the moment, ISPs can only sell the products that BT have designed. Therefore there are no realistic USPs for an ISP to offer. The bits of the infra that matter most are the same. The package tiers are the same. The speeds will be broadly the same. The main thing that changes is the name on the invoice.

      With a completely separate Openreach, perhaps with investment from a variety of companies who also get to own it, no single supplier can design the products which others must sell. You get a true split of providers and infrastructure.

      You don’t get infrastructural choice, but then that would matter far less than it does now if the network was any good.

      There are two ways I can see forward.

      The first is as described above. Multiple investors in and owners of Openreach.

      The second is the route of infrastructural (“true”) competition however since the government killed that with BDUK, only the first option can really work.

    • Avatar Ignition

      Openreach would be owned by the existing shareholders in BT Group.

      There’s nothing stopping Sky et al from building competing networks in areas that are commercially viable. This is nothing to do with BDUK.

      Hyperoptic have been and continue to do so with a fraction of the resources available to Sky.

      If Sky are serious I cannot see why they haven’t offered to invest in co-funding a network with a separated Openreach. It’d be great for PR and help convince the politicians of the value of such a move. I find it far more likely they have no interest in such investments but want products that more closely fit their aims and, most importantly, balance sheet.

      Sky’s priority is as much control of products end to end as possible at as low a price point as possible. Even the poster child for this kind of separation, NTT, had a significantly different experience with lots of competitive investment in infrastructure and an acceptance of wholesaling. This won’t be enough for Sky. They don’t want to spend money competing and aren’t happy with wholesale products they can’t fully control.

    • Avatar Steve Jones

      @DTMark

      Any inward investment from customer companies in the form of equity investment would dilute the ownership of the existing OR shareholders (who would be the existing BT shareholders). They are not going to agree to that unless there was a possibility of increased returns. Vodafone, Sky & TalkTalk are not going to just give away money. They will want a return too.

      As there seems no prospect at all of revenue growth (I don’t see any sign that the ISPs want to pay more than the absolute minimum for any new services – they already complain abut the costs of the GEA products) then how is this injection of capital to be paid for?

      So far it’s all vapour. The deep suspicion is that they are primarily interested in disrupting and weakening BT as much as possible.

      The BT/OR separation achieved fall far short of what would be required for full structural separation. It would be a very expensive process, and who would pay?

  4. Avatar Ignition

    So others will miraculously come forward and invest in the UK to compete with Openreach if Openreach are separated from BT Group?

    Sky and others are perfectly happy renting wholesale products from Openreach. Sky extremely reluctantly began using FTTC, having tried to protect their LLU returns as much as possible.

    Sky, TalkTalk, etc, are commercial operations that want products on their terms so that they can maximise their profits. I seriously doubt that they could care less what those products are as long as they are profitable.

    Their feigned altruism and apparent interest in ultrafast networks to drive ‘Broadband Britain’ forward really doesn’t become them.

    France and others have more FTTP because, rather than bleating to the regulator about the evil incumbent and demanding separation, alternative operators JFDI and started large, fibre-deep build outs in competition, which as Sky said in turn was a catalyst for the incumbent.

    There is nothing beyond RoI stopping Sky et al from doing the same.

    When Sky have delivered FTTP to more premises than the start-up Hyperoptic then I’ll perhaps begin to pay more attention. It’s time for them to stop with the trials they have in pockets all over the place, put their money on the table, and get building with scale. Unlike Openreach they’ll get to keep whatever they build to themselves if they so wish. Fully integrated operations, a far stronger business case to invest.

    • Avatar Chris C

      I understand where you coming from, but I expect there is one big thing preventing them from doing that.

      Lets say e.g. Sky decide to FTTP large parts of Leicester, do you think openreach would just sit there ignoring it? openreach would duplicate the rollout doing their own FTTP rollout alongside it, sky would then have a problem of funding a rollout to only duplicate a competitor’s network and struggle to convince customers they offer something better. BT have past behaviour of this e.g. previous areas deemed unviable for ADSL suddenly become viable when a competitor steps in. Its clearly much better for sky for openreach themselves to do the rollout and they purchase from openreach, yes its about the profits it always is, but rolling out their own FTTP would be a big issue unless openreach guaranteed they wouldnt also roll it out in reaction.

      In terms of service levels from openreach they are hideous, openreach charge very high engineer fee’s in return for very poor service, weeks wait for installation, no same day callout’s for consumers, testing for a weak SIN compliance as their fault diagnosis procedure, threats of fee’s if openreach fail to find a fault using their unfit for purpose fault finding process.

      Meanwhile my friend in romania can report a fault at 1pm and a engineer has attended and fixed by 5pm without any callout fee’s.

      Even virgin media have much better fault reporting processes.

    • Avatar Ignition

      I’m sure BT would rise to competition. Sadly there is virtually none as no-one else beyond Virgin Media is actually investing. Sky, TalkTalk and Vodafone seem to prefer complaining to Ofcom in an attempt to weaken BT alongside copious amounts of platitudes to building networks.

  5. Avatar TheManStan

    Poor comparisons, NAtGrid and Chorus (NZ) are both absolute monopolies with effectively zero competition.

    • Avatar Ignition

      Also the Chorus FTTP network is being heavily state subsidised. All this apparent mass of funding that Openreach would come up with in pursuit of excellence is coming from the New Zealand government.

      We simply can’t do that here. EU State Aid rules.

  6. Avatar GNewton

    I fully agree with this statement:

    “It would have dedicated management focus and the ability to take investment decisions independently in pursuit of a customer-orientated 21st century network utility business. We believe that an independent Openreach focused entirely on the operation of its network, and with a desire to establish a reputation for excellence, would have a very different culture and ethos than it does as part of a large BT Group.”

    At the moment, BT has serious issues, as reflected on all major review sites such as TrustPilot, ISPReview, or BTs own business forum. Simply starting to act as a customer-focused business, rather than displaying an incompetent and lazy “can’t do” culture, could make a difference. And it could attract more long term investments like a utility company.

    • Avatar Ignition

      Why would it need to do that unless Sky or someone else gets their wallet out and acts as competition?

      So ridiculously naive and frankly hilarious given the source to imagine that Openreach would miraculously pursue excellence if separated. They would do what most other companies do, what they have to to make money.

      Sky don’t throw money at things in pursuit of ‘excellence’. They spend what they have to to keep ahead of or equal to the competition and make money. Were they to pursue ‘excellence’ their entire contribution to ‘fibre broadband’ in the UK would be somewhat more than a co-funded few thousand premises in York and a further few thousand in trials around the country.

      Sky’s current router they offer ‘fibre broadband’ customers is hardly excellent – it’s the bare minimum they thought they could get away with with its 2.4GHz only, 100Mb Ethernet ports. I believe they are improving it as part of their converged home offering because they need to keep up with the competition and want to make more cash, not out of the kindness of their own hearts or the desire to spend money being ‘excellent’.

      They still don’t sell anything above 38Mb via the website. Where’s the excellence?

    • Avatar GNewton

      @Ignition: “They still don’t sell anything above 38Mb via the website. Where’s the excellence?”

      What about Sky’s “Sky Fibre Unlimited Pro” package? Easy to find on its website at http://www.sky.com/shop/broadband-talk/fibre-optic/, which is an up-to 76Mb offer for £30 per month plus line rental.

    • Avatar Ignition

      The one they don’t sell via the website but you have to phone up to order you mean?

      See the exact sentence you quoted.

  7. Avatar Al

    Is there any legislation etc.. preventing Sky or any other company from building it’s own network? If VM can build one so can Sky, so open your cheque book and build one to compete with OR.

    The sticky point is the final third/quarter that are the less econmical areas to rollout to, selling your ideas to Ofcom is one thing, but as an end user I want to know how any change to the current situation it will benefit me.

    • Avatar DanielM

      VM never built it, it has been there for years (owned BY NTL/Blueyonder)

    • Avatar TheFacts

      Over 100 companies have code powers to dig up the roads for telecomms.

    • Avatar Ignition

      VM were a merger of ntl and Telewest that was acquired by Liberty Global. The networks were a combination of networks built by various companies acquired by ntl and Telewest and some networks built directly.

      Regardless obviously ‘someone’ that wasn’t BT built the networks, so the point stands.

      Sky haven’t built because they have chosen not to do so. I presume they haven’t seen a business case.

    • Avatar GNewton

      @TheFacts: “Over 100 companies have code powers to dig up the roads for telecomms.”

      So what? Do you want 100 competing telecom companies digging up the roads? Maybe you can share your business plan with us!

    • Avatar FibreFred

      Quite a trollish remark clearly his point was that out of 100 companies why are only a handful using them?

      I see that you have resorted to your usual personal picks at TheFacts now you can’t respond with anything sensible to other parts of the thread

    • Avatar GNewton

      @FibreFred: You can’t let it go calling names on other posters, can you? If you have personal grudges against other posters, take it elsewhere.

      @TheFacts: The point I was making it that it doesn’t necessarily make sense to multiple telecoms building access networks in the same area. You only have national grid supplying the electricity at your premise, the same is true with water pipes, so why would you waste resources on building multiple telecom infrastructures, and even worse, also keep the old ADSL-based networks in there, too?

  8. Avatar FibreFred

    It’s good to see ignition posting as the voice of reason and I say that knowing he isn’t and to my knowledge hasn’t ever been labelled a bt fanboy, something that I and others have been just because we have similar reasonable views.

    • Avatar Ignition

      I’ve been accused of astroturfing by Chris Conder. I consider it an implication that I’m doing something right.

    • Avatar PureEvil

      The BT astroturfing on here and elsewhere is a failure. Never subtle, is it. BT shills attempting to marginalise discourse. Lots of mutual back-slapping to bolster the Party Line. Pathetic really.

  9. Avatar Steve b

    There is absolutely no doubt that FTTP is the optimum solution and that we as a progressive nation need to aspire to 100% coverage, but let’s look at the real world. The provision of FTTP in Brownfield sites remains hugely expensive. The cost of providing new ducts and indeed, repairing existing duct systems, remains a real barrier. If it were so easy to do, why hasn’t Sky, Talk Talk etc bit the bullet and starting providing it. The answer of course, is that they know what it costs and equally, they know that return on investment is a long term issue.
    Gigaclear, Fibrecity etc have to be admired for their willingness to invest huge sums in what is still a very risky business case, but does anyone actually believe that Sky, Talk Talk et al will be happy to invest many millions in a cutting edge fibre infrastructure on a large scale. I would suggest the answer is no they will not. They would be happy for Openreach to be pushed down that route such that they could then jump on that band wagon, but truth is that none of them will put their money where their mouths are and start providing FTTP on a large scale.
    Conversely, I will admit that it is time the UK forced developers to provide Superfast broadband on new developments as standard and not wait any longer to make it a planing pre-requisite.

  10. Avatar FibreFred

    If the Sky and Talk Talk fttp venture is going so well in York then why can’t they just repeat the same elsewhere and two fingers to BT?

    If it’s not going well, what does that tell us ?

    • Avatar DTMark

      Becau7se the conduct of the BDUK project has set a precedent. Broadband infrastructure is something the taxpayer pays for, not private companies.

      The government has already picked the winner and by definition the losers and structured the project in such a way that this was the only possible outcome.

      The amount of long-term damage done by BDUK is incalculable.

    • Avatar Ignition

      Evidently Virgin Media didn’t get that memo given they are enlarging their cable network by nearly a third.

  11. Avatar M

    Where are you Google? save us!

  12. Avatar fastman

    there are areas where there a significant FTTP contentration — Milton Keynes for Example where FTTP has been there for 3 – 4 years —

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