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UK Government MPs Try to Revive Option of Breaking Up BT to Aid Broadband

Thursday, December 21st, 2017 (11:06 am) - Score 2,501

Newspaper reports have claimed that the Government may be reconsidering the option of completely separating telecoms giant BT from its UK broadband network business (Openreach), which is an approach that Ofcom rejected earlier this year (here) in favour of the less dramatic “legal separation” approach.

Generally it’s not been the best of years for BT (problems with pensions, Italian accounting scandals, Ethernet disputes etc.) and now a new report in The Telegraph (paywall) has claimed that Government MPs may be returning to the idea of breaking the operator up (i.e. forcing them to “sell off” their broadband division).

Apparently ministers fear that Openreach isn’t capable of delivering the next generation of broadband (the paper says “superfast” but by the context we think they mean ultrafast / FTTP connectivity), which comes less than a day after the Government rejected a voluntary offer from BT to deliver the new 10Mbps Universal Service Obligation (USO) for broadband (here).

A Whitehall Official told the paper:

“There are concerns that the market is just not competitive. Given what we’ve seen with BT’s current performance we want the delivery of the next generation of broadband to be quicker and more competitive.”

Quite how they expect any future deployment of FTTP to be quicker than the previous generation of cheaper FTTC is a mystery. Today “full fibre” is the Government’s current mantra of choice but it could take a couple of decades to fully deploy and many billions of pounds more, unless the hope is to rely on a cheaper but slower and quick to deploy hybrid fibre G.fast fix for the whole UK (this doesn’t match the current “full fibre” focus).

On the subject of breaking-up BT itself, we’ve already had that debate multiple times between 2015-2016. In the end Ofcom reached a voluntary agreement in March 2017 with BT that meant the “legal separation” of Openreach, which the regulator felt could deliver most of the desired changes, albeit without all the legal and financial chaos of a complete split or enforced sell-off.

As a result Openreach has adopted an independent board and they’re also in the process of giving rivals greater access to their infrastructure (e.g. Cable Duct & Pole Access), as well as introducing tougher minimum service quality standards and better information sharing etc. Over the longer term Ofcom reasoned that fostering greater independence and competition at the infrastructure level would deliver a more diverse and flexible market for faster digital connectivity.

In fairness we’ve seen quite a bit of progress since then. Hyperoptic, Cityfibre + Vodafone, Gigaclear, Community Fibre, TrueSpeed Communications, KCOM, WightFibre, Virgin Media and others have all announced or already begun a significant investment and expansion of FTTP/H/B connectivity (several millions premises will benefit from this). The market for alternative network providers is on the rise

Meanwhile Openreach has so far committed to rollout 330Mbps capable G.fast to 10 million premises by the end of 2020 (they’re currently in the final pilot phase) and they’ve also pledged to extend their 330-1000Mbps “full fibre” FTTP network to 2 million premises by the same date.

On top of that the operator is considering the possibility of a “large-scale” FTTP deployment to 10 million premises by around 2025 (here), which would come at a cost of around £3bn to £6bn. Finding a financially viable way to deliver that isn’t easy and BT has been campaigning for various solutions (e.g. more flexible regulation from Ofcom, co-investment with other ISPs, mass migration to FTTP and retirement of the old copper network, higher wholesale charges etc.).

Suffice to say that there’s no easy fix, at least none that won’t attract disputes or big competitive / regulatory disagreements, unless Openreach were to just stump up the money and do large-scale FTTP regardless (easier said than done, there’s already enough debt and pension woes to worry about). Nevertheless some difficult decisions will soon have to be made.

The big question in all this is, what difference would breaking-up BT from their broadband network actually make? There’s plenty of talk about rivals being able to invest in a slice of Openreach and thus fund FTTP, but most of those only care about urban coverage (the first 60-70% of UK premises) and such areas are already increasingly well served (e.g. Virgin Media, Hyperoptic and soon Cityfibre + Vodafone etc.).

Meanwhile in many suburban and rural areas you’re still faced with the same challenges of economic viability, which remain true no matter what happens with Openreach. Similarly by turning Openreach into a vehicle for the big ISPs to invest and hold control over a national network then you also run the risk of crowding out alternatives, which might reduce rather than boost competition at the network level.

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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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17 Responses
  1. Asrab says:

    This news points to the soon to be announced FTTP deployment from openreach of not being adequate

  2. AndyH says:

    “There are concerns that the market is just not competitive.”

    Competition comes from creating the right regulatory and investment environments, both of which are ultimately set by the government. If they want competition, they need to ask themselves why major telcos (apart from BT/Virgin Media) are investing substantial amounts in other countries, apart from the UK.

    If you look at Germany, Vodafone is spending €2bn there on fibre networks. The German Government is investing €100bn through a mix of private/public funding.

    If you look at France, Orange France is investing €15bn in fibre networks. The French Government is investing €20bn over 10 years.

    If the UK Government wants competition, it needs to get out its cheque book and substantially change the investment and regulatory environments.

    1. Asrab says:

      Agreed – cancel HS2 and divert some serious money this way, we will soon see many companies lined up to invest,

    2. Dave M says:

      I agree and with the reply about HS2. Its a massive waste of money. Invest in a communications network that is top notch and we won’t need to travel about so much. By the time HS2 is finished, probably late and over budget like every other similar project to this seems to, it will be already outdated and I’m sure other forms of transport will have also moved on.

    3. GNewton says:

      While the HS2 in its current incarnation is indeed a waste of money there will be still a need to improve transport infrastructure.

      As regards telecoms: It has always been a waste of money and resources to have multiple access networks built to end users premises, market competition for network infrastructures has been mostly a failure, especially with the worst possible telecom companies around like BT. The latter, even with all its regulatory limitations, still hasn’t done a good enough job, and it’s good to see that the option of making Openreach an independent company is coming up again. Another good starting point is a complete overhaul of Ofcom and ASA, both of which are not up to the task in their current form.

    4. CarlT says:

      Not sure if you actually read the story but you reckon this is a great thing, no surprise, and that it’s a natural infrastructure monopoly while the government seem to think this will magically increase competition at that level.

      With that in mind your view is incoherent. The best option with the monopoly view would be abandoning attempts to encourage infrastructure competition and separate Retail from the group and allow Openreach and Wholesale to merge.

      From the competitive point of view various changes can be made to make FTTP more cost effective and encourage build. Not planning to tax it and reforming wayleave would be a good start, as would continuing to tolerate new poles.

    5. FibreFred says:

      “market competition for network infrastructures has been mostly a failure”

      Apart from in the 50%+ of the country where it exists then?

      Unless you are saying BT and VM competition doesn’t work.

    6. GNewton says:

      @CarlT: I am aware that the government, as well as Ofcom, are desperately trying to increase or imporve network infrastructure competetion, and agree with you that making Openreach an independent, without anything else to change, won’t improve things.

      How is your proposal of separating Retail from BT and allow Openreach and Wholesale to merge so much different from an independent network company? OK, under your proposal it would actually own the network assets.

      I agree with your assessment that the whole idea of infrastructure competition needs to be re-considered or abandoned. And yes, the modern-day equivalent of the absurd windows tax, namely the VOA fibre tax, needs to be abolished.

    7. Fastman says:

      fro anyone oue who is vaguely objective Hs2 Phase 2A (covering birminghham – Crewe) is now a govenmenet bill to enable London – crewe to open by 2027 — it was never about saving 20 minutes to Birmingham ita around massve capacity increase to the WCML which will prospect of significant more train to places like rugby. and Northamptonshire Milton keynes and ammowing significant lorry movement to be exctacted from the M6/M1 corridor and will positively affect travelling for millions of people

  3. FibreFred says:

    Competition doesn’t work as some of the big telcos just want to suck on BT infrastructure without building there own.

    If Openreach is totally split talktalk and Sky won’t suddenly invest. Sky have made it clear they don’t want to rollout fttp. Talktalk just do press articles York will be there only deployment.

    What concerns me is that it will be a backward move and investment from BT will be less than what it is now.

    Anyway unlikely to happen it would be in the courts for longer than it takes to rollout

    1. Mike says:

      BT is basically an indirect state sponsored monopoly with regulations/taxes that benefit them, of course competition isn’t going to work…

    2. FibreFred says:

      No it isn’t. Any funding has been open, if no one else bids that isn’t BTs problem.

    3. AndyH says:

      What special taxes does BT have that benefits them?

    4. AndyH says:

      @ GNewton

      Those are claims, not proven facts. The same rules for business rates apply to everyone else and there is now an exemption for full fibre lines.

      The VOA’s revaluation of business rates in April hit BT and Virgin Media more than another else in the telecom’s industry.

  4. Mike says:

    Took em over 5+ years but finally even the government seem to be wising up to BT.

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