Last week, Ofcom announced detailed plans to make digital communications work for everyone – including major reform of Openreach.
In February, Ofcom outlined over the next ten years and beyond, by delivering a step-change in telecoms services for everyone. These plans focused on a more independent Openreach; greater choice of broadband networks, including fibre connections to homes and offices; better quality of service across the whole industry; and better broadband and mobile coverage for people and businesses.
In February, Ofcom said that Openreach must become more independent from BT, and has today proposed how this should work.
Openreach to become a distinct company. Openreach should be a legally separate company within BT Group, with its own ‘Articles of Association’. Openreach – and its directors – would be required to make decisions in the interests of all Openreach’s customers, and to promote the success of the company.
Openreach to have its own Board. The new Board should have a majority of non-executive directors, including the Chair. These non-executives should not be affiliated to BT Group in any way, but would be both appointed and removed by BT in consultation with Ofcom.
Executives accountable to the new Board. Openreach’s Chief Executive should be appointed by, and accountable to, the Openreach Board – not BT Group. The Chief Executive would then be responsible for other executive appointments. There should be no direct lines of reporting from Openreach executives to BT Group, unless agreed by exception with Ofcom.
Greater consultation with customers. Openreach would be obliged to consult formally with customers such as Sky and TalkTalk on large-scale investments. There should be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group.
Staff to work for Openreach. Ofcom’s principle for the new model is that people who work for Openreach should be employees of the new company, rather than BT Group. This would prevent any real or perceived conflict of interest, and allow Openreach to develop its own distinct organisational culture.
Openreach to own assets that it already controls. Openreach should own its physical network. This would allow the Openreach Board to make decisions that depend on investing in, and looking after, Openreach’s assets. There may be costs in transferring assets or people to Openreach, which would need to be mitigated.
A separate strategy and control over budget allocation. Openreach should develop its own strategy and annual operating plans, within an overall budget set by BT Group.
Independent branding. Openreach should have its own brand, not affiliated with BT Group, to help embed the organisational culture of a distinct company.
Views on the plans outlined should be received by 4 October.
Mark Collins, Director Strategy & Policy, commented: “Fundamentally, today’s proposals do not address Ofcom’s key objectives of reducing the country’s dependence on Openreach and encouraging essential investment in fibre. Whilst correctly identifying Openreach as the principal source of the industry’s dysfunction, it is hypocritical of Ofcom to focus on a restructured Openreach as a panacea.
“Further debate and navel-gazing as to the appropriate structure of BT will continue to create a period of uncertainty at a time when the industry needs clarity, direction and competitive investment. Openreach has a critical role to play, but it is not prudent to entrust them with sole responsibility for our digital future.
Gavin Patterson, BT Group Chief Executive, said: “The UK is the most digitally advanced nation in the G20 and further investment is required if it is to keep and extend that lead. That’s why we are poised to invest a further six billion pounds in our UK networks over the next three years”.
“We have listened to Ofcom and industry and are introducing significant changes to meet their concerns. These changes will make Openreach more independent and transparent than it is today, something both Ofcom and industry have requested.
“Openreach is committed to delivering better service, broader coverage and faster speeds and these changes will enable it to do just that. Our proposals can form the basis for a fair and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Review to a speedier conclusion.”
Kester Mann, Principal Analyst, Operators at CCS Insight said “Ofcom’s proposals are about as radical and stringent as they could have been without taking the ultimate step to structurally separate Openreach from BT. They show clear focus to address flaws within the current model and a desire to bolster broadband infrastructure service and deployment in the UK.
The decision not to force BT to split Openreach comes as little surprise. It would have been the most controversial action the regulator could have taken and would still not have offered guaranteed improvements for customers. Indeed, the time to implement, associated costs and market disruption – potentially leading to years of legal battles – would have threatened short-term infrastructure investment.
Although BT will breathe a sigh of relief that Openreach will remain a part of the group, Ofcom’s strongly-worded statement should leave it under no illusions that it needs to up its game. Indeed, the threat to hive off Openreach still remains if it is unable to act more independently from the BT group.
Inevitably, BT’s rivals will criticise Ofcom for being too lenient. But although they campaigned hard for formal independence, today’s outcome still represents a partial victory. Structural separation was always a long-shot and companies such as Sky and TalkTalk will stand to benefit from greater infrastructure investment, customer service and independence.
Today’s announcement doesn’t draw a line under this controversial and protracted issue. Ofcom is now opening a consultation on its proposals and by inviting further comments from interested parties, so expect the next round of lobbying to soon commence. In the interest of stability and market certainty, the sooner final plans can be drawn up and implementation gets underway the better.”
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