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UPDATE Centre for Policy Studies Calls for Ofcom to Initiate BT Breakup

Wednesday, February 17th, 2016 (2:41 pm) - Score 1,060
bt urban tower

The Centre for Policy Studies (CPS) has joined a growing chorus of people and organisations calling for BT to be separated from control of their national UK broadband and phone (Openreach) network, which the group suggests could “provide a market with a level playing field between all players.”

At present Ofcom’s on-going Strategic Review of Digital Communications is said to be “seriously” considering the option of breaking up BT, which if appropriate would require the regulator to refer the operator to the Competition and Markets Authority (CMA).

Politicians seem to be divided on the topic, with many supporting such a split (here) and others, such as Ed Vaizey (Digital Economy Minister), suggesting that it has “lots of potential to backfire” and existing “regulations have proved very effective” (here).

Meanwhile 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, but that may be a moot point if FTTH/P ends up becoming the favoured course. Equally there’s a risk that separating Openreach might harm investment in alternative network operators, since Openreach would perhaps be seen as the bigger target for investment. It also remains unclear whether smaller ISPs on Openreach’s network would be winners or losers in such a market.

In to this seemingly endless debate steps the CPS, which believes that separation of BT may be the best long-term fix for the United Kingdom’s telecoms market.

Daniel Mahoney, CPS Economic Bulletin, said:

“The UK’s broadband infrastructure is falling behind international competitors. BT has abandoned attempts to rollout ultra-fast fibre to premises broadband infrastructure. Instead, BT’s focus is on fibre to the network and sweating copper assets, which will provide comparatively slower speeds.

Structural separation of BT Openreach must therefore be considered for the UK’s broadband infrastructure. Regardless of whether there is merit in complaints about BT Openreach’s service provision, the current broadband infrastructure market appears anti-competitive.

The current broadband infrastructure system leads to a conflict of interest in two key ways. BT runs the UK’s broadband infrastructure and service providers are forced to use this infrastructure. Furthermore, BT uses its own infrastructure to provide internet services to customers, which is a major disadvantage to its retail broadband competitors.

Structural separation, however, could provide a market with a level playing field between all players, where the infrastructure that service providers rely on would not be owned by one company. This would be good for competition and good for consumers. There is every indication to suggest that a structurally separated BT Openreach – with various investors – might be more likely to invest in higher speed broadband provision. International precedents from Singapore and New Zealand provide favourable evidence for the structurally separated model.

Ofcom should refer the issue of structural separation of BT Openreach to the Competition and Markets Authority later this month. The Competition and Markets Authority can then investigate the matter and suggest the best ways of increasing competitive pressures in this market.

A delayed decision on this issue will be bad for broadband consumers and bad for the UK economy’s productivity. Previous delayed decisions on improving the UK’s infrastructure – such as that on Heathrow expansion – have been detrimental to the UK economy. Ofcom must not follow in these footsteps.”

A short summary of the bulletin can be found online (here), which echoes many of the arguments that we’ve seen before and suggests that such a move would foster the deployment of ultrafast FTTH/P in favour of hybrid-fibre solutions like G.fast. However it’s worth noting that this would not solve the connectivity problems for rural areas since none of the major players seems to anticipate 100% FTTH/P coverage or even close to it.

Ofcom aims to publish their findings by the end of this month, although it could still be delayed into March or later. At this point the weight of opinion seems to be moving in favour of those calling for BT to be split, but only the regulator can actually make the final decision and history shows that they tend to prefer a less aggressive approach. We shall see soon enough.

UPDATE 4:49pm

The official BT response is as follows.

A BT Spokesperson said:

“Unlike respected independent studies by Ofcom, the EU and others, this blog is under-researched and paints a false picture of UK broadband.

It compares the UK to other countries based only on average speeds, whereas other important measures – such as availability of services, prices and take-up – place the UK well against important international peers. There is also no acknowledgement that ultrafast speeds can be achieved at a fraction of the cost and in a fraction of the time using G.Fast technology pioneered by BT.

Independent analysts disagree that structural separation has been a great success elsewhere. They find that the few countries to try it have either higher broadband prices, slower roll-outs, much larger tax-payer subsidies – or a combination of all three.

There is simply no evidence that broadband investment would be higher or competition fiercer if Openreach became a smaller, weaker, standalone company. How could it, when the UK already has more than 500 firms competing in this market and Ofcom sets 96% of Openreach prices to level the playing field for them all?

As the blog highlights, the UK is in a stronger position than its European peers, and BT has outlined ambitious plans to invest in ultrafast broadband over the next decade.”

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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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44 Responses
  1. Avatar TheManStan

    Again, these policy wonks are quoting separation in markets (NZ and SG) with virtually no competition to the network.
    This simply isn’t the case here, previous policy has been to protect the competitor network (cable) to foster competition in the network, but without consideration to the future.
    The future is here and previous policy is what was wrong…

  2. Avatar FibreFred

    “Structural separation, however, could provide a market with a level playing field between all players, where the infrastructure that service providers rely on would not be owned by one company. ”

    Who would own it then?

    I’m bored now, just crack on with the decision, we’ve seen the same things said and none have shown why this would increase competition and be better for end users.

  3. Avatar Sledgehammer

    A nice can of worms for everybody to get stuck into.

  4. Avatar dragoneast

    Their simple point seems to be that, on principle, it is better for this “competition” and for consumers that the infrastructure is separated from the supply. Why then, the constant concern about competition and price in the energy supply market where we have precisely that separation? It looks to me as though it isn’t just 1+1= more than 2, as everyone makes out in this Alice in Wonderland debate. May be things should have been done differently in the past, but none of us can turn the clock back and live our lives all over again (save in our dreams). We have to start from here, even perhaps though the proverbial Irishman wouldn’t.

    So far still to me the arguments seem to be a triumph of hope over expectation. And without cogent reasoning about what would be better and why, rather than this marketing-speak guff, I tend to prefer managing the the devil-I-know (or even better choosing myself) than having the devil-I-don’t thrust upon me. I’m afraid the shrill voices from on high to the contrary that “we say it’s good for you” do not impress.

  5. Avatar GNewton

    According to Ofcom:

    “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;”

    It won’t be a miracle cure on its own to magically have fibre broadband then (the genuine one, not ASA’s copper version!). However, Openreach would be forced to act more like a business, and not as a pampered BT-child. And that could turn out to be good for everyone in the long term.

    The other option Ofcom says it would consider is that of deregulating and promoting competition between networks. That would seriously require the removal of a lot of red tape, including commercial fibre tax, and easier ways to do the necessary roadworks, etc. This won’t be likely to happen.

    I am afraid, Ofcom will probably stick to another option:

    Strengthening the current model by applying new rules to BT. That will be the worst option, and bad for the future of UK broadband.

    Either way, there is probably no prospect to ever achieve widespread fibre broadband in the UK in the next few years, and the UK will fall further behind internationally.

    • Avatar TheFacts

      How, in detail, would a separate Openreach result in FTTP appearing everywhere?

      In VM areas? Unlikely.

      In remote properties? Unlikely.

      Areas with 80M (or 50M etc) or more available? Unlikely.

    • Avatar FibreFred

      “However, Openreach would be forced to act more like a business, and not as a pampered BT-child”

      You use that sound bite quite a bit and it’s quite striking but what does it mean? Examples?

    • Avatar Gadget

      Surely the current regulatory environment, supporting the principle of “Equivalence” does much more than ensure BT does not have an incentive to discriminate – it specifically acts to ensure it does not happen? I do not believe there has been any significant and intentional discrimination shown by Openreach since its creation – so are we saying that separation is required because they might think about it, even if existing rules and procedures are in place to detect, stop and allow any action perceived to be discriminatory to be externally tested?

    • Avatar GNewton

      @TheFactsd: “How, in detail, would a separate Openreach result in FTTP appearing everywhere?”

      I didn’t say it would. Did you read my post?

      Why is future fibre broadband unlikely in VM areas? Couldn’t Openreach get the notion to start competing against VM?

  6. Avatar gerarda

    “There is also no acknowledgement that ultrafast speeds can be achieved at a fraction of the cost and in a fraction of the time using G.Fast technology pioneered by BT.” They just missed out “and for a fraction of the population”

    • Avatar MikeW

      And you missed out “big fraction”.

    • Avatar gerarda

      Only if BT get Gfast to give FTTP comparable speeds at ranges in excess of 500M will the numerator exceed half the denominator of the fraction.

    • Avatar MikeW

      So you’re making a unilateral declaration that ultrafast means 500M?

      And assuming that BT upgrades nothing more than the existing cabs?

    • Avatar gerarda

      No I am suggesting that nearly half of all premises are more that 500 metres from the cabinet.

      Given BTs reluctance to extend their commercial coverage of FTTC I doubt if they will put many new cabinets in to increase Gfast coverage

    • Avatar FibreFred

      Where do you get that figure gerarda?

    • Avatar MikeW

      Its very close to 50% premises above/below 400m. Or, more precisely, 50% above/below the electrical equivalent of 400m of 0.5mm copper.
      http://postimg.org/image/bp372fcnn/

      If Sckipio’s figures are right, then DPU’s located at the current cabs will give you a 200/50 service to half the country; 100/25 to 10% more. Still ultrafast by most definitions, and those sites with power and fibre already present will make for a cheap no-brainer.

      It wouldn’t surprise me if that was the cornerstone of the BT plan to get FTTdp to 10 million premises by 2020. How much more they add, and how much deeper they take fibre, as part of the 2020-2025 aim for “most of the UK” is indeed debatable.

  7. Avatar FibreFred

    Before people talk about splitting first debate what we are actually trying to achieve in detail

    Then look at solutions

  8. Avatar peter

    “A BT Spokesperson said:
    Unlike respected independent studies by Ofcom…”

    From that i trust he agrees with this study…
    http://www.ispreview.co.uk/index.php/2015/12/ofcom-name-worst-uk-mobile-tv-broadband-isps-q3-2015.html

    and finds the “respected” Ofcom say his company is one of the worst. Nice of BT to admit they are rubbish according to “respected” and “independant” studies.

    • Avatar FibreFred

      Openreach are not an isp (your article link) please try again

    • Avatar peter

      Where does it say it was an Openreach spokes person that respects Ofcom reports.
      Try Again

    • Avatar Mike

      Err that would be even more of a worry if that is an Openreach spokesperson. That would mean he respects Ofcom reports that slate BT Groups Retail division.

      That wouldn’t make much sense when trying to argue against separation if you think one of your Group companies are poor. Maybe he wants to remain a business in a group organisation with poop divisions bringing it down…

      Who knows most of the time BT talk nonsense so the nonsensical response its not much of a shock.

    • Avatar FibreFred

      The article is about splitting off Openreach

    • Clearly agreeing with something someone or some group stated means you agree with everything they’ve ever stated, right?

      The dialogue on this topic, across multiple articles, makes the comments section of the Daily Mail look positively factual and intellectual at times.

    • Avatar Mike

      And the BT response makes little sense, unless you are saying if Ofcom do decide to split them the spokesperson will still “respect” Ofcoms “Independent” study and conclusion to split them? BT (any division in the group) will not challenge it eh? Because they “respect” Ofcom so much?

      Its becoming harder to take anything BT have to say seriously when they have a unique ability to not think before they respond.

  9. Avatar MikeW

    “[CPS] suggests could “provide a market with a level playing field between all players.””

    Did they forget one of those players? Quite a big one? You know, the one that owns the biggest alternative access network? Oh come on … the one which is investing the largest amount in their access network, after BT?

  10. Avatar Dave

    The year is 2016 and I still cant get a usable broadband. BT cant get any worse!

  11. Avatar fastman

    dave which other operator is clamouring to come to where you are !!!!! — no I thought not

  12. Avatar Dave

    No one .. But who’s had all the our money for delivering me nothing.

  13. Avatar MikeW

    We all know this CPS report is just playing to the peanut gallery.

    If it was meant to shape debate with Ofcom, it would have been published before the consultation deadline 4 months ago.

    As it is, it just provides fodder for the bottom half of the internet, destined to live on in one of Dave Gorman’s found poems.

  14. Avatar Tempest3K

    One thing I haven’t seen mentioned in any report, is the possibility of BT (minus Openreach) actually using competitor infrastructure for backhaul etc where the cost is attractive and/or Openreach infrastructure is missing/inferior – they would surely be mandated to do this in shareholder interests?
    At the moment, all the money stays in the BT pot so why go elsewhere?

    • Avatar GNewton

      Good point! An independent Openreach would have to wake up and act like a business in order to keep its customers. This will benefit everyone, including the shareholders in both companies, as well as end customers.

    • Avatar TheManStan

      Nobody does PIA their own last mile infrastructure… apart from Openreach…

      Also, to do so would be anti-competitive in the sense that it would allow a dominant entity to become a monopoly…

      so in one breath you say competition and in the next you create a stronger monopoly.

    • Avatar FibreFred

      Again you use this phrase wake up and act like a business, what does that mean? Define acting like a business and why they aren’t doing whatever it is

  15. Avatar Al

    Sorry but I don’t think a split will make a blind bit of difference to me as an end user. On second thoughts it will make a difference as more and more resocurce will be focused on the areas with commerically viable areas leaving the final third or so to fend for themselves which is only marginal worse than we already get. As for Ofcom

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