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Ofcom: Openreach should be a 'legally separate' part of BT

Tuesday, July 26th 2016 by Phil Wilkinson-Jones

Ofcom has announced plans to make Openreach a “legally separate company”, although the infrastructure provider will remain part of the BT group.

Back in February, the telecoms regulator signalled its intent to overhaul Openreach as part of a wider review of the communications industry, but stopped short of recommending a full split from BT.

Ofcom said Openreach had to make it easier for its rivals to build on its fibre network and repair faults and install new lines more quickly.

It also promised automatic compensation for consumers when things go wrong.

Today’s announcement goes further, with Openreach now set to become a legally separate company – with its own board – operating within the BT group.

The Openreach board, which will have a majority of independent, non-executive members, would be responsible for appointing the company’s chief executive.

It will control its own budget and develop its own strategy.

There will be no direct lines of reporting from Openreach executives to BT and Openreach will have to consult formally with companies that use its network – including Sky and TalkTalk – before making large-scale investments.

Ofcom says staff working for Openreach should be employees of the new company rather than BT and that Openreach should own the physical broadband network it maintains.

Sharon White, Ofcom’s CEO, said the changes formed part of “the biggest shake-up of telecoms in a decade” and would deliver “the best possible services for people and businesses”.

Ofcom will now consult on its plans until 4 October.

Gavin Patterson, chief executive of the BT group, said: “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.”

'Repeating the mistakes of the past'

Sky’s chief executive Jeremy Darroch said: “Today’s proposal to create a legally separate Openreach is a step in the right direction, although falls short of the full change that would have guaranteed the world-class broadband network customers expect and the UK will need.

“In particular, leaving Openreach’s budget in the hands of BT Group raises significant questions as to whether this will really lead to the fibre investment Britain requires.”

TalkTalk CEO Dido Harding said: “The intention 10 years ago was to create a functionally separate division that served all customers equally, but that is far from what happened.

“The lack of clear rules and responsibilities meant that BT was (according to Ofcom) able to make £4bn in excess returns in a decade, and I fear that we’re repeating the mistakes of the past.”

Mark Collins, director of strategy and policy at infrastructure provider CityFibre, said Ofcom’s proposals fail to reduce the UK’s dependence on Openreach.

“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,” he said.

“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.”

A spokesperson for the mobile network Three said: “We are disappointed that Ofcom has fallen short of structurally separating BT, the only measure that would have delivered genuine competition and prevented BT from favouring itself.

“This is yet another example of UK regulators failing to stand up to BT after the CMA waved through its purchase of EE without any action following advice from Ofcom.

“Ofcom’s next big decision is the upcoming auction of 2.3GHz/3.4GHz spectrum and we urge the regulator to put consumers first and prevent BT increasing its holdings at the expense of a competitive mobile market.”

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