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The UK media regulator wants to strengthen the independence of Openreach to promote competition. Photograph: Lynne Cameron/PA
The UK media regulator wants to strengthen the independence of Openreach to promote competition. Photograph: Lynne Cameron/PA

BT under increasing pressure from Ofcom to split from Openreach

This article is more than 7 years old

Regulator urges BT to separate from network division over competition fears, saying it is going to European commission

Ofcom has increased pressure on BT to table stronger plans to legally separate from Openreach, which controls the UK’s broadband infrastructure, by threatening to call in European regulators after months of negotiations over a voluntary deal.

The UK media regulator wants to strengthen the independence of Openreach to promote competition and boost the roll-out of superfast broadband but has failed to reach agreement with BT.

In July, Ofcom said a full sell-off of Openreach was not necessary but ordered BT to give the division more independence by making it a legally separate company, although it would still sit within BT Group.

BT has tabled what it says are “fair and sustainable” proposals to address concerns, but Ofcom has rejected them saying they do not go far enough to guarantee improvement in the UK broadband and telephone network.

Since then talks have reached a stalemate, prompting Ofcom to say it is now proceeding with formal notification to the European commission to force through a legal separation of Openreach, a tactic designed to turn the heat up on BT to get a voluntary deal done.

San Dhillon, the executive director at Exane BNP Paribas, saidBT has been “reticent and hesitant” to offer remedies that would truly make Openreach independent.

“I suspect that BT has been caught by surprise thinking that negotiations would be ongoing [in private],” he said. “The aim here is to hurry along what has been a protracted process by going public and filing to Europe while also pursuing the joint track of negotiations with BT. I expect that the endgame won’t be a unilateral move by Ofcom, it will be worked out with BT.”

Rivals – which include Sky, TalkTalk and Vodafone – argue that BT has deliberately dragged its heels in opening up the network to their engineers, which has hampered their ability to offer homes superfast broadband access.

Ofcom said it was “disappointed” that BT had “failed to offer voluntary proposals that address our competition concerns”.

“We are disappointed that BT has not yet come forward with proposals that meet our competition concerns,” said Ofcom. “Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

The move is only a partial victory for BT’s rivals, which have to access to the network to provide their own services to customers, who have lobbied heavily for a full breakup of Openreach.

“We welcome the fact that the regulator has finally made a decision,” said Dido Harding, the chief executive at TalkTalk. “While we do not think legal separation goes far enough to deliver the broadband consumers deserve, it is at least a step in the right direction.”

Under the new proposals, Openreach will become a “distinct company” with its own board and will be “guaranteed greater independence” on decisions on strategic investments.


A BT Openreach engineer working on telephone lines. Photograph: Steve Parsons/PA

A BT spokesman said: “We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom’s objectives without disproportionate costs. We are implementing these proposals … [and] we are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach chief executive and the form of legal incorporation.”

Hours before Ofcom’s announcement on Tuesday, BT said Mike McTighe, the former Ofcom director and City veteran, would be Openreach’s first independent chairman.


“We have continued to discuss with BT potential changes to its voluntary proposal,” said Ofcom. “We are now preparing to notify the European commission of our intention to implement these plans, requiring the legal separation of Openreach to make it more independent. Throughout this process, we remain open to BT bridging the gap between its proposal and what is required to address our strong competition concerns.”

The regulator wants Openreach to have a board made up of a majority of directors who are independent of BT, and remains concerned at the “level of influence” that BT Group executives could exert on its subsidiary’s management.

Ofcom also moved to explain why it had rejected rivals’ calls for a complete structural separation of Openreach and BT that would have made them two entirely separate companies.

“Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time,” said Ofcom.

Ofcom said its model for Openreach includes proposals to “publicly scrutinise and monitor its effectiveness” with the most direct method looking at whether its decisions are taken independently “without undue influence from BT”.

“If Ofcom’s monitoring suggests that legal separation is not delivering sufficient benefits for the wider telecoms industry and its customers, we will return to the question of structural separation – fully breaking up the companies,” the regulator said.

BT has repeatedly warned that separating Openreach from its business could have a major impact on its pension scheme, which has a deficit of £9.5bn, a concern echoed by the scheme’s trustees.

“Most stakeholders who responded to our consultation took the view that the concerns raised by BT, the unions and trustees relating to the BT pension scheme have been overstated,” said Ofcom.



More on this story

More on this story

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  • I’ve tried everything to get a BT line at my new-build, but to no avail

  • BT takes £145m hit due to accounting 'errors' at Italian division

  • Ofcom to investigate rising landline prices amid concern for elderly

  • After the Italian job, BT boss must make sure success doesn’t blow up in his face

  • BT and Openreach fail to make connection for pensioners

  • BT's shareholders will remember this profit warning for years

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