Ofcom’s Strategic Review to Rule on Future of BT Openreach Next Month

Still not good enough, BT. The CEO of Ofcom, Sharon White, has told MPs that BT still isn’t investing enough into UK broadband infrastructure and confirmed that the regulator would “absolutely” give a final verdict on Openreach’s future in December. But the changes might have to be forced through.

Earlier this year the regulator posted its initial Strategic Review recommendations (full summary here and here), which found “evidence” to show that Openreach “still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems“. Ofcom also felt as if BT was failing to push enough investment towards improving national broadband connectivity and that engineering services needed to become better at fixing faults, especially for broadband.

A variety of changes were proposed to help tackle this, such as making it even easier for rival ISPs to access Openreach’s fibre optic lines and cable ducts, tougher minimum service quality requirements, greater access to data on the operator’s physical network / performance and the prospect of “legal separation” (i.e. akin to splitting Openreach from BT’s control, albeit not full “structural separation“).

Since then BT has also pledged to invest £6bn into UK broadband and mobile (4G and 5G) connectivity, which among other things has included a pledge to support the Government’s 10Mbps Universal Service Obligation (USO), a plan to make 300Mbps capable G.fast broadband available to 10 million premises and 1Gbps capable FTTP to 2 million premises by 2020; with both rising to cover “most” of the UK by 2025.

However much of what BT has proposed will only benefit the more commercial friendly urban and sub-urban areas, where good connectivity already exists. But Ofcom wants BT to go further and also warned that telecoms operators are now “right at the bottom” of the customer service rankings. “I think they are now out of kilter with where public expectation is,” said Sharon.

Sharon White, CEO of Ofcom, told MPs:

“As the committee knows we set out very clearly a model for legal separation of openreach from BT, that was subject to formal consultation and we’ve received 100,000 responses. We are giving due consideration to all the views that have been put forward and we expect to be able to say something publicly very shortly.”

Sharon, who was speaking during yesterday’s Culture, Media and Sport Committee event (video below), also confirmed that Ofcom still hadn’t been able to reach a voluntary agreement with BT but would continue to press forward and publish an official statement on their final determination in December 2016. No delays.

Apparently the regulator is continuing to have “discussions with BT“, but Sharon noted that a gap still existed between both sides in “two or three rather important areas.” It’s known 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) and they’re also concerned about the related risks / costs of moving staff and pension liabilities to the “new” company.

Sharon White added:

“BT hasn’t seen Openreach as a legal entity and we believe that’s an important gap. We think it’s important that the CEO of Openreach reports to an independent board, not through to BT Group. So that’s very much the status.

Obviously if BT matches our proposal from [July 2016] then we can move to reform very speedily. If not then, as we set out in July, we do have the powers to mandate and oblige BT to reform Openreach, which we will do.”

Interestingly Ofcom hinted that they were still open to the nuclear option of structural separation, but they remain “mindful of the costs and potential disruption” involved. Sharon clearly still prefers legal separation, which she said would offer more “consumer benefits” and avoids some of the costs of a “structural” split.

However if no deal can be done then it sounds like Sharon will attempt to force through “legal separation” rather than take the path of a full structural split. This has apparently already been discussed with the European Commission’s competition authority. December should be interesting.