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UPDATE Ofcom Shows How it Will Monitor Openreach Independence from BT

Thursday, July 13th, 2017 (9:25 am) by Mark Jackson (Score 628)
openreach_2017_document

Earlier this year Ofcom reached a voluntary agreement over the “legal separation” of BT’s network access division (Openreach). Today the UK telecoms regulator has set out how they intend to monitor and enforce the changes, which will be conducted via a dedicated Openreach Monitoring Unit.

The process began in February 2016 when Ofcom first proposed a series of major changes under their Strategic Review (full summary), which aimed to build a new framework for the next decade of telecoms and broadband regulation in the United Kingdom.

The review found that Openreach had an “incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems” and that the BT had failed to “sufficiently” consult rival ISPs, such as those that piggyback off their network (e.g. Sky Broadband, TalkTalk etc.), on future “investment plans that affect them.” The regulator also claimed that Openreach had under-invested in its network to the tune of “hundreds of millions of pounds“.

Ofcom proposed to solve all this by giving rivals greater access to BT’s national infrastructure and fostering an independent governance structure for Openreach (effectively “become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members“), as well as tougher minimum service quality standards, new consumer protection measures and better information sharing.

A voluntary agreement between Ofcom and BT was finally reached in March 2017 (here) and since then there have been a lot of changes. Openreach now has a new Chairman and Board (the majority of members are said to have “no affiliation with BT Group“) and they’ve also setup a compliance committee. The operator has also begun to develop a process for engaging with telecoms companies on planned services and investments.

Today Ofcom has set out their approach to monitoring and enforcing these changes.

Ofcom’s Statement

How Ofcom will monitor outcomes

• Ofcom wants Openreach reform to deliver better phone and broadband services to people and businesses. A more independent Openreach talking to its customers will have the right incentives to invest in high quality networks to deliver real improvements in broadband services.

• We will measure, and report on, the availability of fibre broadband networks, including ‘full-fibre’ networks. We will also examine whether consumers and businesses across all parts of the UK are receiving decent speeds.

• We also want to see a step change in quality of service. We will report on repair and installation times, including whether engineers are turning up on time.
• We will closely monitor how BT meets its commitment to deliver the same benefits in Northern Ireland, where Openreach itself does not operate.

How Ofcom will monitor compliance

• Ofcom is now establishing a dedicated Openreach Monitoring Unit, to monitor carefully whether the new arrangements are implemented successfully.

• The unit will assess whether the new governance rules are being observed, and whether Openreach is acting more independently of BT. This means making its own decisions and treating all its customers equally. It will consider whether BT and Openreach are living by both the letter and the spirit of the Commitments, and creating a successful culture that values Openreach’s independence.

• Ofcom will report on this compliance six months after the Commitments come into effect, and then every year.

The Commitments will replace, and enhance, the current BT Undertakings

• We have decided, after consultation, to release BT from its past Undertakings 30 days after BT confirms it has met certain conditions in its new Commitments.

However it’s worth noting that the reform cannot be completed until the Government finishes their amendment of the Crown Guarantee, which underwrites the BT Pension Scheme, so that it maintains pensions protection for members of the scheme who transfer to the new Openreach. The new Digital Economy Act 2017 has already introduced the required power but secondary legislation is needed to implement it.

On top of that BT’s pension trustees must also formally approve the changes and a consultation on the transfer of employees to the new Openreach will then need to be conducted. Only then will the new commitments come into effect to replace Ofcom’s previous undertakings.

Sharon White, Ofcom CEO, said:

“The new Openreach will be built to serve all its customers equally, acting independently and taking investment decisions on behalf of all its customers.

BT has made positive progress towards implementing the reforms. Once they are complete, Ofcom will keep a careful eye on whether Openreach is working for telecoms users, ensuring BT and Openreach live by the letter and spirit of their commitments. If we see problems emerging, we won’t hesitate to act.”

As part of the new monitoring process Ofcom said they “will examine whether all UK consumers and businesses using Openreach’s network are receiving decent speeds, and the right service to meet their needs“. The regulator will also measure and report on Openreach’s “contribution to growing fibre broadband networks, including ‘full-fibre’ lines which are currently available to only around 2% of UK premises.”

At present Openreach only plans to make ultrafast “full fibre” (FTTP/H) broadband networks available to 2 million UK premises by 2020, although during May 2017 they announced a forthcoming consultation that could conceivably extend this coverage to 10 million premises passed by around 2025. However this would require support from both Ofcom (i.e. soft regulation) and rival ISPs; the latter will be difficult as rivals rarely agree with everything Openreach wants.

The regulator also expects the legally separate company to be responsive to different models of investment proposed by its customers, including co-investment and risk sharing, and it will check to make sure they’re delivering. Suffice to say that BT and Openreach have quite the headache to nurse.

An Openreach Spokesperson told ISPreview.co.uk:

“We support Ofcom’s Statement and we’re getting on with the job of creating a more independent Openreach. We’ve already made a lot of progress.

Our CEO now reports to the Openreach Chairman and is accountable to the Openreach Board which has a majority of independent members.

We’re also working more closely with our CP customers. We’ve introduced a new confidential phase to our consultations with them and this week we unveiled our new, distinct brand which removes all references to BT Group.

There are still some preconditions that need to be met before Openreach is fully incorporated, but we’re acting like Openreach Limited already.

We are committed to delivering better outcomes for UK consumers and businesses, including better service, faster speeds and broader coverage.”

Ofcom has attempted to build a solution for what is a highly complicated market, although it probably won’t deliver the magic bullet that some people expect (at least not over the short to medium-term) and that’s particularly true for rural areas, which with a few exceptions (e.g. B4RN, Gigaclear) will always be stuck at the back of the pack due to the high cost of commercial upgrades.

However, over the longer term, Ofcom hopes that fostering greater independence and competition at the infrastructure level will deliver a more diverse and flexible market for better / faster digital connectivity. Time will tell. We should point out that some of the finer details involved in all this, such as on the issue of Quality of Service, are still the subject of on-going consultations.

UPDATE 4:15pm

Cityfibre doesn’t approve.

Mark Collins, Director of Strategy and Policy at CityFibre, said:

“Openreach will never be impartial while it remains owned and funded by BT. Whilst Ofcom has set up a team to monitor how quickly Openreach scrubs the BT logo off its vans, a leopard cannot change its spots.

We would urge Ofcom to redirect its resources and work to help us build the independent full fibre networks of the future, rather than spending even more time and effort policing the networks of the past.”

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5 Responses
  1. NGA for all

    I cannot see how a clause like this brings any change. Openreach do not even set the financial envelope for investment from the revenue and profits it brings in.

    2.17.4 Openreach Limited will be responsible for setting its own strategy to meet its purposes, within a financial envelope set by BT Group. In doing this, it will consider the interests and strategies of all its downstream customers, including BT. The Governance Protocol provides for transparency for Ofcom on the nature and substance of interactions between Openreach and BT Group on significant investment decisions.

  2. Steve Jones

    It will be interesting to see how a co-investment model works given that BT Group, not Openreach has ownership title to the network assets. I wonder if this is just a round about way of saying that Openreach will be expected to carry out passive infrastructure uplifts at its own cost. There are already hints of that in that Ofcom seem to expect OR to do things like clear blockages and just recover the whole lot from existing wholesale charges. Which is a bit tough given that those costs have, to date, been carried by the business cases for existing developments.

    Also, with a co-investment model will the resulting services have to be delivered on the same equivalence basis of the current wholesale product set, or will the co-investor be able to maintain monopoly access.

    It also looks like Ofcom want to be very intrusive in guiding the direction of investment decisions, not just letting commercial logic do its work.

    • NGA for all

      LoL Is the notion a PIA2 partnership with no wholesale requirement running in parallel to the VULA upgrades?

      Parliament wanted transparency on BT’s capital and costs supporting BDUK subsidies and we end up here.

      The Openreach fibre access consultation will be easy to write. VULA and selective FTTP continues. We are seeking the removal/replacement of telephony regulations so FTTP can be accelerated. Please send us your forecasts for PIA2/FTTP.

  3. Steve

    I think it will be intersting to see who moves from Ofcom to BT in the next year or two, no doubt on at least double the old Ofcom salary!

  4. Anon Engineer

    ‘We also want to see a step change in quality of service. We will report on repair and installation times, including whether engineers are turning up on time.’

    Engineers turning up on time is one thing but timing installs and repairs is asking for trouble. Getting engineers to try and adhere to timescales to complete tasks has only one result, cut corners, poor quality and customer dissatisfaction. Focus should be on get it right and get it fixed no matter the time it takes!

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