New UK Regulatory Regime Begins for Legally Separate Openreach

Ofcom has today confirmed that they’ve formally released BT from their 2005 Undertakings, which among other things means that Openreach is now subject to a different set of regulations and regarded as a “legally separate” company from its parent with its own independent identity, employees and board etc.

The changes stem from Ofcom’s 2016 Strategic Review of Telecommunications (summary), which ruled that Openreach were under-investing in their network, still had an “incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems” and that they had failed to “sufficiently” consult rival ISPs (i.e. those using their network) on future “investment plans that affect them.”

After a long period of negotiation BT and Ofcom eventually reached a voluntary agreement (here). The new deal aimed to boost competition by giving rivals better access to Openreach’s UK network and fostering an independent governance structure, as well as tougher minimum service quality standards, separate branding, new consumer protection measures, a larger build of FTTP broadband and better information sharing etc.

Implementing all this has taken awhile, not least due to the complicated debate over pension arrangements and the transfer of 31,000 employees (TUPE process) to become part of an “independent workforce” under Openreach instead of BT. The latter was completed at the start of this month and was the last primary obstacle to full implementation of Ofcom’s changes. Today the old regulatory regime has formally come to an end.

Mike McTighe, Openreach Chairman, recently said:

“Openreach now has its own Board, greater strategic and operational independence, a separate brand and an independent workforce – and we’re ambitious for the future.

We’ve set out a clear plan to invest in new, more reliable, future-proof broadband technology, and we’re right in the middle of our largest ever recruitment drive for 3,500 engineers – so it’s an exciting time to be part of Openreach Limited.

We’re determined to continue improving customer service, collaborating closely with our customers, and spearheading the national rollout of next generation broadband networks.”

The changes should carry Openreach through most of the next decade, at least until the regulator conducts their next major strategic review. Nevertheless some people expect that the calls for Openreach to be completely split from BT will be reignite when we return to this debate again for the next review.However the rapid rise of alternative FTTP providers (Cityfibre, Hyperoptic etc.) and a move away from older copper networks could create some very different market dynamics in the future.

At present there’s still a lot of uncertainty about how the next decade will pan out and whether or not all of those AltNet ISPs will be able to deliver on the many “full fibre” promises being made in their press releases. Not to mention how much customer take-up will be delivered in order to turn them profitable over the longer term.

On the other hand it’s possible that Openreach could out-build all of their rivals with FTTP and leave alternative providers to struggle, albeit predominantly affecting those in aggressively competitive urban areas. Equally those that do see some success, as well as some of those that don’t, are also likely to become the target of future consolidation.

Ofcom will next year conduct a full review of the new rules and their implementation by Openreach, which seems set to be a fairly smooth ride for the operator.

1. Simon

   October 31, 2018 at 11:19 am

   That’s great – can they also be disconnected from the public purse? It’s about time they started to use their OWN money like any other business seeing as they take direct payments from customers.

   Reply
   • TheFacts

     October 31, 2018 at 11:53 am

     They bid for contracts.
   • Meadmodj

     October 31, 2018 at 11:53 am

     That’s the issue. Do we want OR to be a strictly commercial company or not.

     The public money it receives currently is either the telephony USO, Vouchers or BDUK/LG Superfast subsidies. It has currently a national pricing policy so central and urban service cross subsidises rural areas. As highlighted by Wales recently in practical terms there is only one main provider although Gigaclear are doing their best.

     I would argue that there are sizeable amounts of public money going to others currently and not where it is needed.

     With Openreach increasingly under fierce competition in urban then if there is no realistic mechanism for cross subsidy or public funding then national pricing may be replaced by a stepped pricing for central MDU, urban, semi-rural, rural and very rural will be the result.

     We and the Government/Ofcom need to be clear what we want for the future. Its the current hypocrisy I detest.

     Whether part of BT or not Openreach remains a commercial unit that needs to produce a ROI. What is important is that OR are unlocked to be able to attract the investment funds required.
   • FibreFred

     October 31, 2018 at 11:59 am

     As above.

     They don’t get free money. They bid like other telcos
   • GNewton

     October 31, 2018 at 5:24 pm

     @TheFacts: Are you still posting your usual half truths here?

     The early large BDUK contracts, which were mostly awarded to BT, were highly biased towards BT. And of course it was a colossal waste of taxpayer’s money.

     Also, Openreach still is owned BT. The network assets are still owned by BT. Openreach’s budget is still controlled by BT.
   • FibreFred

     October 31, 2018 at 6:02 pm

     @GNewton,

     Are you saying they didn’t bid?

     I can’t see the half truth?

     “were highly biased towards BT” – Is this just your opinion or some independent finding? If not independent please don’t pass it off as fact.
   • Joe

     November 1, 2018 at 9:12 am

     They weren’t biased to OR but the reality was that only OR had the scale to deliver the bids (certainly early on less so today).
   • TheFacts

     November 1, 2018 at 9:33 am

     @GN – why was it a waste of taxpayers money, what was the alternative? Do you understand the clawback/gainshare elements?
2. tonyp

   October 31, 2018 at 12:37 pm

   Whilst I welcome OR not being a branch of BT, I am wondering if the disconnect from directly talking to subscribers is a good thing when problems arise? We shall see.

   For example, Network Rail (publicly owned) does engineering but doesn’t seem to interface well with the train operating companies which resulted in the May timetable fiasco. That said I am not wanting nationalisation again.

   Power Networks (or some such name) perform infrastructure work on power lines that the competing ‘electricity companies’ seem to have to accept without regard to customer needs.

   It seems to me that the regulators are supine when it comes to actually regulating rather than pro-active though I’m sure they will say we are all doing a great job.

   G.P.O., British Railways, C.E.G.B. anyone? No thanks!

   Reply
   • Meadmodj

     October 31, 2018 at 1:38 pm

     Previously OR have been prohibited from directly canvassing customers particular regarding forecasting demand/opportunity. Requests have to be initiated via the ISP. The exception appears to be New Build and community initiatives. But OR cannot be proactive particularly if they are say responding to a FoD request for a business they cannot approach neighbouring businesses and cannot use contact detail other than specifics due to GDPR. So the normal network/demand forecasting and common sense often get lost.
   • JamesMJohnson

     October 31, 2018 at 4:50 pm

     “Power Networks (or some such name) perform infrastructure work on power lines that the competing ‘electricity companies’ seem to have to accept without regard to customer needs”
     Hmmm…. DNO’s provide the infrastructure and the energy companies provide the supply. They don’t compete with each other… infact UKPN (previously EDF) was forced to split by OFGEM to avoid that.
     The DNO’s are very aware of the end clients need and communicate with them directly, trying to accomodate them as best as possible with generators etc if a suitable case is presented (medical equipement etc).
     Unlike Openreach you can speak to the DNO (UKPN, WPD, SSPN, NPG etc)… the Power networks and Communication networks operate very differently from each other throughout their organisations all the way down to customer service.
     Btw… the majority of the power infrastructure work that causes outages is work that needs to be done before a live line is pulled down by branches or a tree becomes ‘live’ resulting in the death of a member of the public.
     When infestation isn’t controlled either of them is normaly the outcome unfortunately.
     (Biased view of an IT Manager working on behalf of a DNO)

     Additional… there’s a consenting and carding process that requires your authorization before work is performed on your land. It’s not like the US where they don’t need permission.
   • Fastman

     October 31, 2018 at 5:38 pm

     Meadmod

     FoD request for a business they cannot approach neighbouring businesses and cannot use contact detail other than specifics due to GDPR. So the normal network/demand forecasting and common sense often get lost.

     FOD is a CP driven requirement on behalf of single resident

     if you were a person who wanted to do something and help your community you would not be asking for FOD you start at the community fibre partnership route first
3. paul

   November 4, 2018 at 6:44 pm

   clearly still favour bt, trying to get a new line installed every one soonest they can do it is 2 weeks if I went to bt they can install it this Thursday

   Reply

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