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Sky UK and BT Chiefs Spar Over Openreach’s Future and Broadband

Monday, October 3rd, 2016 (2:53 pm) - Score 2,413
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Sky’s (Sky Broadband) CFO and COO, Andrew Griffith, has today warned that the UK is at “serious risk of falling behind” other countries in the broadband league table, unless Ofcom splits Openreach from BT. Meanwhile BT’s CEO, Gavin Patterson, once again accused rivals of making “inaccurate claims” and “gaming the regulator to secure commercial advantage.”

The bitter row is of course a continuation of the same one that we’ve been hearing for the best part of two years, which is centred on Ofcom’s on-going Strategic Review of the United Kingdom’s market for digital communication services (mobile, broadband, phone etc.).

The headline piece of that review is a proposal by the regulator to partly address the long-running competition and investment concerns by turning Openreach, BT’s UK network access division, into a “ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members.” Failure to reach a deal on this could result in Openreach being forcibly split.

BT’s rivals, particularly Vodafone, Sky Broadband and TalkTalk, favour a split and claim that this is the only way to improve service quality and ensure the wider roll-out of pure ultrafast fibre optic (FTTP/B) broadband networks, as well as to deliver the investment that the United Kingdom needs.

On the other hand BT claims that the UK is already in a better state than its rivals say (e.g. 91% are within reach of a 24Mbps+ capable broadband connection) and they plan to invest £6bn into their broadband and mobile (EE) networks over the next three years, with 10 UK million premises gaining access to 300Mbps G.fast technology and 2 million more being covered via FTTP by 2020.

However BT’s rivals want a lot more fibre optic cable in the nation’s diet, as opposed to the cheaper hybrid-fibre approach of G.fast.

Andrew Griffith, Sky UK’s CFO and COO, said (Open Letter):

“If we look closer to home we can see that major EU countries that the UK may compare favourably with today, have plans to out-perform us tomorrow. Analysts predict that France will become the second largest European market for fibre to the home by 2019. Italy plans to roll out pure fibre to 250 Italian cities in the next three years, whilst Spain and Portugal already have more than 50 per cent fibre to the home coverage. It’s easy to see how Britain could be left in the slow lane.

And what is BT’s response as the monopoly owner of Britain’s national broadband infrastructure? To underinvest in fibre and continue to sweat its existing copper network. As a result, a mere 2% of UK households had access to fibre to the home last year, and plans to increase coverage are lacking in ambition.

There is a fundamental conflict of interest while Openreach – the BT division that owns and operates the national network – remains vertically integrated within BT Group. Because far from investing in the network, BT is actually a net recipient of cash from Openreach. It therefore has no incentive to invest more. Customers suffer and there is no motivation to improve its notoriously poor service.”

At the time of writing BT and Ofcom have yet to reach a deal over the future of Openreach, with reports at the weekend appearing to confirm that BT remains bitterly opposed to Openreach becoming a “legally separate company” (no CEO likes to lose full control over part of their business, even if the BT board would still have a say).

BT is also said to be worried about the related risks and costs of moving staff and pension liabilities to the “new” company. But if no voluntary deal can be done then Ofcom could push for the even more complicated (legally and financially) option of a full split. Sky’s Andrew Griffith believes that BT’s arguments against such a separation amount to “desperate claims.”

Andrew Griffith added:

“In response to this logical conclusion reached by so many, BT has made a number of desperate claims as it attempts to retain Openreach and its profits within BT Group – from the cost of separation to its pension scheme.

Whilst Ofcom can be forgiven for wishing they could duck the migraine-inducing topic of BT’s pension deficit, the reality is there are a multitude of City advisers experienced in providing tried and tested solutions to just such challenges. And perhaps shares in Openreach as a pure play fibre provider might be the long term investment asset that the BT pension trustees are looking for to plug their liabilities.

We need to see BT’s tired arguments for the stalling tactics that they are, and call time on this debate. The truth is that a motivated company finds solutions. A company that is not finds roadblocks.”

Meanwhile BT’s CEO, Gavin Patterson, hasn’t stayed silent and last week told the Broadband World Forum 2016 that it was wrong to accuse them of “investing in obsolete technology“, before pointing to the £3bn they’ve spent on deploying hybrid-fibre FTTC and a little FTTP connectivity to reach 26 million UK premises.

Patterson also highlighted the operator’s future FTTP and G.fast plans (as above), as well as their support for the Government’s proposed 10Mbps Universal Service Obligation (USO), as proof of their commitment.

Gavin Patterson, BT’s CEO, said:

“Breaking up BT would undermine network investment. It takes the whole of BT Group to make the case for massive network investments. Openreach cannot do it on its own.

Those arguing that splitting BT will boost investment fail to appreciate the huge risks. It would cost billions to split BT. This would be better spent on investment in networks. Openreach is best placed to invest as part of BT Group, as it benefits from lower funding costs, access to massive R&D capabilities and the ability to spread risk across a bigger business. And because it serves more than 500 communications providers on equal terms, these benefits flow to the whole industry.

In July, we made a proposal to Ofcom for reforms of Openreach to further strengthen its independence, which would preserve these benefits while minimising disruption and cost. We believe this is the best way to deliver the UK’s digital future.”

Ofcom has the power to make either model work if it really wants, yet it’s worth remembering that neither approach appears to offer a magic bullet for delivering both excellent service quality and connectivity to all.

Certainly none of BT’s rivals have offered a concrete plan for making such improvements, beyond the occasional generalised sound-bite. This is frustrating because they could club together and pledge a detailed strategy, combined with a proposed level of investment, if they really wanted.

In keeping with that it’s important to note that neither Sky, nor TalkTalk or even BT has pledged to deliver truly universal FTTP/H. Instead the arguments tend to centre on improving connectivity in urban areas (the low hanging fruit), except it’s the rural and some sub-urban areas in the final 5-10% that really need an upgrade and those are where the most vocal gripes can be heard.

Not to mention that everything in the commercial world has a cost and, one way or another, any improvements or upgrades will eventually affect the price you pay, such as via higher service charges or optional upgrades. This is true no matter what the outcome.

For now leaving BT in charge, albeit significantly reduced in power and influence, is currently Ofcom’s preferred path of least resistance. The regulator has of course to consider a much wider market than the big ISPs, such as the impact of their decisions on alternative network (AltNet) ISPs and backhaul suppliers etc.

Ofcom hopes to produce an answer to all of this by the end of 2016. Much may depend upon which side blinks first.

Leave a Comment
30 Responses
  1. Avatar MikeW

    @sky:

    Andrew Griffith’s tells us “a motivated company finds solutions. A company that is not finds roadblocks.”

    Virgin suggested you go get yourselves a spade, and start digging. Is that a solution for you, or a roadblock?

    Meanwhile, Ofcom wants fibre too. They reckoned that giving you access to ducts, and putting your own fibre in them, would give you an edge on both BT and Virgin. Is that a solution or a roadblock?

    If you want fibre, and you think it is so important for the country, and you care about the country, why not JFDI?

  2. Avatar AndyC

    Sigh……. Change the record sky. Or just bite the bullet and it yourself then you can then really claim “belive in better”

  3. Avatar Steve Jones

    It’s just a nonsense whilst Ofcom maintain a market that provides no incentives for investment in fibre and makes copper as cheap as possible. This is also compounded by the proposed new business rating regime that’s going to heavily penalise fibre/NGA investment (now I understand how its based).

    Also, reading the Telegraph article, there is precisely nothing new there. The issue of the pension deficit and its continuing call on OR cash into the future is just dealt with by hand waving (beyond noting that it’s now estimated at £12bn and there are folks in the city who can sort it out).

    Then there is the clear issue that even if OR was floated as a separate company, the shareholders just might choose the certainty of dividends in the short/medium term over the prospect of spending huge sums of money on fibre investments which Sky and TalkTalk will do their best to undermine any (debatable) return on by demanding the tightest possible control on costs. The evidence for this? TalkTalk have already done this by arguing for a halving of the wholesale cost of GEA/FTTC through a report they sponsored. Note that even if OR the OR board were to splash huge amounts of cash, that’s wholly irrelevant as they will have to persuade banks (or shareholders) to produce it. Then there’s the little issue of finding the trained workforce to do it. The existing BDUK contracts are stretching that to the limit.

    What TalkTalk & Sky are not prepared to do is countenance passing over more of the retail revenue for network investment through higher wholesale charges which is the only way it makes sense. They haven’t even bothered to support the existing GEA/FTTP service.

  4. Avatar AndyH

    The thing I don’t quite get is Sky/TT’s keep complaining about the lack of investment in UK fibre and how we are behind the rest of the world on speed, but they don’t even bother to offer FTTP themselves (even though it’s available to them).

    At the same time, I don’t believe Sky have even taken part in the g.fast trials (though I could be wrong here).

    • Avatar GNewton

      From a business perspective it may not make sense for them to offer BT’s FTTP as it’s only available for a tiny number of households, compared to VDSL. The whole telecoms environment in the UK, set in motion by Ofcom and the government years ago, has proved to be counter-productive, it’s nearly impossible to invest in this climate where BT’s strong market position has been heavily promoted with senseless amounts of taxpayer’s money.

      Besides, why should there be multiple access network infrastructures? You don’t do that with other utilities like gas, water, or electricity. The regulatory environment should be changed so that REPLACEMENT of existing copper access networks with fibre becomes the goal. Even if that means a separation of Openreach from the rest of BT!

    • Avatar FibreFred

      “From a business perspective it may not make sense for them to offer BT’s FTTP as it’s only available for a tiny number of households”

      Yet BT do and smaller ISP’s

      It doesn’t make sense to them for the same reasons as it took so long for TalkTalk and Sky to offer FTTC, to protect their LLU investments

      They offer FTTP in York (their own network) for an even tinier number of users, so I’m afraid your argument for them doesn’t add up

    • Avatar AndyH

      “it’s nearly impossible to invest in this climate where BT’s strong market position has been heavily promoted with senseless amounts of taxpayer’s money.”

      Yet the likes of Gigaclear and Hyperoptic have managed to do it. There was also nothing stopping Sky/TT taking part in the BDUK tenders. And “senseless amounts of taxpayer’s money” – so you’re saying BDUK has been a waste of money? In terms of rolling out superfast broadband to as many people possible in the shortest possible time period, I would have to disagree with you strongly.

      “From a business perspective it may not make sense for them to offer BT’s FTTP as it’s only available for a tiny number of households, compared to VDSL.”

      I would disagree here. We’ve passed 350,000 premises passed with FTTP now which is not an insignificant number in the competitive ISP environment. With the big ISPs really fighting for each subscriber with their offers and discounts, I would say it all adds up.

      “Besides, why should there be multiple access network infrastructures? ”

      It seems to work in every other G8 country.

    • Avatar GNewton

      @AndyH: You will always find that some of the smaller niche market ISPs tend to be more flexible when it comes to provide fibre. This is not the case for the bigger ISPs with their mass-market products. Sky invested heavily, but in the wrong products (LLU for ADSL2+), so this company is now stuck with its yesterday’s products. As regards the smaller ISPs like Gigaclear or Hyperoptic: It’s good to see at least one of them investing in their own fibre, the other one, as far as I remember, just specialises in larger apartment blocks and businesses, mainly making use of already existing fibre-runs or leased lines from BT and others, not necessarily digging up the roads everywhere. And with Gigaclear, they tend to focus on rural areas, but only if they have the certainty of enough subscribers. Again, it is not a mass-market countrywide offer.

      As I said, it might make sense to rethink the whole broadband strategy, it is overall a waste to have multiple parallel access networks in a town. You can only squeeze in so many access networks before it becomes uneconomic. Unfortunately, the UK’s biggest access network happens to be based on very old copper technology. Ofcom’s initiatives to at least open up BTs ducts and poles is a first step in the right direction.

      Please ignore FibreFred, he’s back to his usual calling names on other posters, some people just don’t have manners here.

    • Avatar AndyH

      “Unfortunately, the UK’s biggest access network happens to be based on very old copper technology. ”

      But it’s not old technology. The physical copper may be ‘old’ but the technology being rolled out to work on copper is cutting edge. It’s being developed and improved by leading global telecommunication hardware providers and rolled out worldwide. It’s certainly not unique to BT.

      BT could have chosen to build a smaller FTTP network across the UK and completely ignored FTTC. But you would then have a significant majority of the UK still on a normal broadband service (Sky would have complained at this also). You could also have seen BT not taking part in any BDUK bids, well this would also have left huge gaps in superfast coverage (in a lot of the tenders, BT was the only one submitting a bid).

      There is no need at present for every house in this country to have FTTP, no matter how much people here might want it. The day that broadband speeds offered don’t meet the modern world requirements, then you can call the technology put in by BT as obsolete and make a case for FTTP deployment to every house.

    • Avatar GNewton

      @AndyH: Since you are mentioning the BDUK: Yes, that was IMHO a waste of money, because BT is a commercial company, not a charity. Most areas would have been served by its VDSL eventually anyway. For early fibre adopters, who wouldn’t want to wait, a genuine Fibre-on-Demand product (not the one in its current incarnation) could have been a transitional step.

      If a market fails to serve its customers, then the whole telecoms and/or broadband framework needs to be re-addressed. In this context it would be interesting to find out how this country managed to get telecoms access networks installed nearly everywhere in the first place decades ago. How was it done with electricity? Was it easier decades ago to dig up the roads, and to set up the poles? There were certainly wrong decisions made back during the Thatcher era, however, nobody has stopped BT doing fibre for many years now. So other factors are involved here. One of them being BTs poor management towards its customers, as is evident from any major review site.

      What certainly doesn’t help here is the irrational emotional attachment towards BT amongst many. As I said, it is not economic to have multiple access networks in this country, infrastructure competition doesn’t work (except Virgin Media and a few smaller fibre companies). It is also not possible to re-nationalise BT, which would be attractive option, but is way too expensive. However, developing frameworks or strategies which would bypass BT, in the knowledge it won’t do widespread fibre for large areas, should be brought up by Ofcom. It already has to a degree, separating Openreach might be a next step, and still hasn’t been ruled out by Ofcom.

  5. Avatar Jonny

    Sky need to put their money where their mouth is.

  6. Avatar FibreFred

    Soooo boring now Sky whinging like a pathetic spoilt child

  7. Avatar FibreFred

    It isn’t even like you need to go digging for info and facts really is it.

    You have two telco’s (BT & Virgin) investing billions in physical infrastructure rollouts.

    You have two other telco’s (Sky & TalkTalk) investing £5 million in a trial that one party has admitted won’t continue with.

    And the latter are constantly telling Ofcom (the teacher) that the first lot aren’t investing.

    You couldn’t make it up

  8. Avatar finaldest

    This ongoing nonsense is pathetic. Can we just find a solution and get on with a proper FTTP rollout, even if it means G.fast as a tempory solution. If required then raise prices.

    OFCOM should get the lot of them into a room and lock the door and tell then that they cannot come out until an agreement is reached. Clubbing together with a mutual agreement is and would be a sensible option

    It’s like dealing with children.

  9. Avatar Evan Crissall

    The usual suspects – BT’s barmy army of trolls – is out in force tonight, defending the Beast!

    • Avatar TheFacts

      Somebody please explain in detail how separation will see a nationwide FTTP rollout. Even in VM and other areas.

    • Avatar FibreFred

      No, you are the troll Evan

    • Avatar asylum_seeker

      Evan, how dare you criticize BT!! Don’t you know that this behemoth only works in the interests of Joe Public and will one day provide FTTP/H to more than 95% of UK premises?





      Nurse…Nurse! I need my meds!!

    • Avatar FibreFred

      He isn’t criticizing BT on this occasion but as ever is trolling

    • Avatar AndyH

      He is one of the many many pseudonyms used by a certain person on site. It would be much better if Mark registered nicknames on the forum.

    • Avatar Apolloa

      Couldn’t agree anymore with you sir.

    • Avatar keith

      “… It would be much better if Mark registered nicknames on the forum.”

      And give them an appropriate tag such as User, ISP etc like TBB, that way we can separate opinions of staff from users.

    • Avatar FibreFred

      Don’t forget the tag [resident troll multi id, carpetburn/deduction]

  10. Avatar Apolloa

    I find it rather disturbing the number of people complaining about Sky here, have you all forgotten the money BT has invested into fibre is the tax payers money from Council contracts? Let alone BT are three times the size of Sky in value, 30 billion to around 12 billion. Yet all you lot shout is why doesn’t Sky just invest in the infrastructure. Well why doesn’t BT Openreach? Why do I not have Fibre To The Home, why does 90% of the UK have Fibre To The Cab only, if your lucky? Why does Open Reach build a network for as cheap as possible with tax payers money to profiteer in a monopolistic position with no consequence?
    I think people are mis-directing their complaints here.

    • Avatar FibreFred

      Please don’t be disturbed you just don’t grasp the situation as a whole.

    • Avatar MikeW

      Perhaps you missed the part where BT invested its own money in a (mostly) FTTC rollout before getting to tax-payer-subsidised section?

      Or perhaps you missed that VM has been spending its own money making their existing cable infrastructure ultrafast-capable, and has now started spending money to expand their coverage.

      Between the two main companies that spend on access network infrastructure, they covered over 75% of the country with their own funds … while the subsidies look like helping around 20%.

      As for the stuff that Sky is complaining about? The demand for Openreach to install fibre? Where do you think that would go first? Hint: it wouldn’t be the part of the country that needs subsidies. If Openreach separated, and *if* Sky invested (a really, really big ‘if’), you would still be last in the queue. Sorry for the bluntness.

      “Why does Open Reach build a network for as cheap as possible with tax payers money”

      The answer to the first part – just building the network as cheap as possible – is simply because it plays to BT’s strengths (the installed base of copper), and it gets semi-decent speeds rolled out considerably faster. That’s their choice in the commercial rollout (just like VM make their own choices). Hard to argue, as it seems to have worked for them.

      The answer to the second part – why continue with building the network cheaply in the subsidised portion – is partly answered because it is a continuation of the commercial rollout. It is cheap and fast to deploy. The BDUK projects *require* it to be cheap, and to reach as many people as possible, and to be fast to rollout. The tenders were open to companies other than BT: If anyone else could meet the cheap/value/speed-of-deployment requirements using “pure fibre”, the counties would have chosen them…

      “Well why doesn’t BT Openreach [invest in pure fibre infrastructure] ?”

      They’re following a strategy that plays to their strengths, and aiming to get “just good enough” speeds to a customer base that isn’t willing to pay extra for “better than good enough” speeds.

      Evidence suggests that, for the most part, these “just good enough” speeds are exactly that: just good enough for what people need right now, and match what people are willing to pay. They don’t want more … and that is true in the likes of Japan and South Korea just as much as the UK.

      Sky demand “more fibre”, but have little to back up that demand other than “other countries have it – we might get left behind [panic]”.

      The problem is … those other countries installed “more fibre” when it was the only option to reach 100Mbps (never mind gigabit) – places like Japan and South Korea; nowadays there are options for copper that didn’t exist 10 years ago (even 5 years ago). G.Fast, G.now and DOCSIS 3.1 offer capabilities that couldn’t be envisaged a decade ago, and these change the balance. Even Japan and South Korea are embracing these copper technologies.

      G.Fast will offer a continuation of the “just good enough” solution over the next decade, and likely longer. VM will continue with their “just ahead of BT” strategy too.

      Sky haven’t offered any evidence that this approach won’t be enough to keep “Digital UK” in business.

    • Avatar brianv

      Good call Apolloa. The hypocrisy of the BT trolls is boundless. If they imagine their handiwork on these forums – defending BT from the indefensible, smearing BT’s rivals and attacking BT’s critics – if they imagine any of that is going to enamour us to the BT Group then they’re deluded to boot!

      The use of covert propagandaists working these forums on behalf of BT is something BT Group should seriously reconsider. It looks really bad. Whether or not these operatives are run at arms length is irrelevant. Either way, they represent BT Group and through their online behaviour are causing the company immense reputational harm. And very likely encouraging migration of customers to more reputable alternatives. Exactly the opposite outcome to the one intended.

      BT is a telco that should stick to what it’s paid to do. That doesn’t include running online shills.

    • Avatar FibreFred

      The only thing causing immense harm is your continued residency on this respectable site under many aliases

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