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No split for Openreach as Ofcom orders 'overhaul' instead

Thursday, February 25th 2016 by Ellen Branagh

Telecoms regulator Ofcom has stopped short of splitting Openreach from BT, instead announcing an 'overhaul' of the infrastructure company as part of its Strategic Review of Digital Communications.

The initial conclusions from Ofcom's review, announced today, will see Openreach forced to open up its network of telegraph poles and underground tunnels to allow rivals to build their own fibre networks.

The regulator will also impose tougher requirements on Openreach to repair faults and install new lines more quickly, and will introduce automatic compensation for consumers when things go wrong.

The move is likely to be a disappointment to BT's rivals, who have called for Openreach to be split from BT completely to force greater competition and investment in the UK's broadband market.

BT had insisted a split would be damaging rather than beneficial and earlier this week CEO Gavin Patterson pledged more investment in fibre broadband if it got "regulatory certainty".

Openreach being required to open up its telegraph poles and ducts to allow rival providers to use them to build their own networks would promote the rollout of ultrafast broadband networks as an alternative to the "partly copper-based technologies" used by BT, Ofcom said.

It said Openreach will have to provide comprehensive data on its ducts and poles in a 'digital map', allowing competing operators to invest and plan their networks.

Ofcom said despite Openreach's obligations to treat all its customers equally, its review had found the company still had an incentive to make decisions in BT's interests, rather than BT’s competitors.

But rather than splitting them, it said plans to 'overhaul' Openreach’s governance and strengthen its independence from BT, as well as forcing greater transparency.

Performance tables

A new model, to be proposed in detail later this year, could require Openreach to become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, but Ofcom also reserved the right to require BT to spin off the infrastructure business as an entirely separate company.

In measures to help consumers, Ofcom said Openreach will be subject to tougher, minimum requirements to repair faults and install new lines more quickly. It will also introduce performance tables on quality of service, naming the best and worst operators.

It also plans to bring in automatic compensation for consumers and businesses when things go wrong so broadband, landline and mobile customers won't have to seek redress themselves.

Ofcom said it will work with the government to deliver the new Universal Service Obligation so everyone can get fast, affordable broadband.

The regulator's measures also extend to the UK's mobile networks.

Ofcom plans to put new obligations in future spectrum licences to improve rural mobile coverage and said it will make sure that consumers have accurate and easy-to-use coverage information, to help them choose the best provider, which will in turn put pressure on operators to improve coverage. It is also due to consult on plans to make it easier for mobile customers to switch provider.

Ofcom CEO Sharon White, said: “People across the UK today need affordable, reliable phone and broadband services. Coverage and quality are improving, but not fast enough to meet the growing expectations of consumers and businesses.

'Further discussions'

“So today we’ve announced fundamental reform of the telecoms market – more competition, a new structure for Openreach, tougher performance targets, and a range of measures to boost service quality.

“Together, this means a better deal for telecoms users, which will improve the services and networks that underpin how we live and work.”

BT CEO Gavin Patterson said the company's focus now needs to be on a "strengthened but proportionate" version of the current model.

"We have put forward a positive proposal that we believe can form the basis for further discussions with both Ofcom and the wider industry," he said.

“Our proposal includes a new governance structure for Openreach as well a clear commitment on investment. Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation to bring matters to a clear and speedy conclusion.

“We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done. Our ducts and poles have been open to competitors since 2009 but there has been little very interest to date. We will see if that now changes.

“We are keen to understand and address Ofcom’s concerns so we will review their paper in detail. A great deal of what they are proposing is already in place and we are open to discussions about how the current rules can be amended and updated. A voluntary, binding settlement is in everyone’s interests and we will work hard to ensure one is reached."

Additional reporting by Phil Wilkinson-Jones

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