Ofcom has announced that it is proceeding with a formal notification to require the legal separation of Openreach from BT, after BT failed to offer voluntary proposals that address our competition concerns.
Openreach is a subsidiary of BT which maintains the UK’s broadband network, which is also used by rivals Sky, TalkTalk and Vodafone. It has often been criticised for working in the favour of BT. Ofcom in July made the decision to make both BT and Openreach more independent, but not wholly separate, which drew criticism from major rivals.
In March 2015, Ofcom announced a Strategic Review of Digital Communications: the first of this kind in ten years. Following the publication of a Discussion Document in July 2015, Ofcom set out the interim conclusions and next steps to implement their strategy.
The strategy focuses on five areas:
- the guarantee of universal broadband availability at a sufficient speed to meet modern consumer needs;
- support for investment and innovation in ultrafast broadband networks (such as fibre to homes or businesses) by giving BT’s competitors improved access to its infrastructure;
- improvements in the quality of service delivered by the whole of the telecoms industry, including Openreach, BT’s access network division;
- increased independence of Openreach from BT so that it is more responsive to all of its customers; and
- consumer empowerment so that people can understand the array of choices available to them and are able to switch to the best value deal easily.
Ofcom required BT to provide proposals which would address these concerns as part of its decision. However, it states BT has failed to do this. BT has fallen short of addressing how much influence BT Group executives would have on Openreach, according to Ofcom.
Ofcom stated today,
“Ofcom is pressing ahead with its plans to improve broadband and telephone services for people across the country, pursuing better service quality and encouraging greater investment in networks. Creating a more independent Openreach – which works in the interest of all providers, not just BT – is an important part of achieving this.
We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. 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.”
In July, we set out our competition concern that BT has the incentive and ability to favour its own retail business when making strategic decisions about new network investments by Openreach. This concern arises because BT runs the national network, Openreach, as well as its own retail business.
We proposed reforms to address this structural issue, to provide regulatory clarity and confidence to the industry, and ultimately better outcomes for people and businesses. A more independent Openreach would be well placed to invest in ‘full fibre’ broadband for everyone.
Our proposal requires Openreach to become a distinct company with its own Board. This would comprise a majority of non-executive directors, including the Chair, who are not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.
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”
Ofcom has today published the non-confidential responses to the July consultation on Openreach. These responses reflect a wide range of views.
Around 94,000 people responded to the consultation via an online campaign. Some 90,000 of these were identical responses written by the campaign, calling for action to improve the UK’s telecoms infrastructure; including the full, structural separation of BT. A few responses shared positive experiences of BT and urged no further action.
A significant number of the 4,000 non-standard responses raised concerns about slow broadband speeds, the availability of fibre broadband and the quality of service from major service providers. Most concerns related to BT, with a smaller number of complaints about other providers including Sky, TalkTalk and Virgin Media.
Ofcom believe a legal separation is still the best course of action to take,
“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. Therefore, this is the approach with which we are minded to proceed.”
BT said its proposals were “fair and sustainable”, and that it would continue negotiating with Ofcom.
“In July, alongside our proposals, we published BT’s voluntary plan, which the company argued should address our concerns. We were clear that BT’s plans did not go far enough.”
“We have continued to discuss with BT potential changes to its voluntary proposal. Although we have made some progress, BT has so far failed to offer proposals that would adequately address our concerns. BT’s proposals still fall short in important areas. These include the transfer of people and assets, and the level of influence that BT Group executives could exert over the management of Openreach.”
Ofcom are now preparing a notification to the European Commission to require the changes to increase Openreach’s independence.
