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Ofcom to force through 'legal separation' of BT and Openreach

Tuesday, November 29th 2016 by Phil Wilkinson-Jones

Ofcom is to force through the “legal separation” of BT and its Openreach division after BT failed to voluntarily address the regulator’s concerns.

Openreach is the part of BT responsible for developing and maintaining the UK’s biggest broadband network, used by providers including Sky, TalkTalk, Plusnet and BT itself.

In July, Ofcom set out plans to make Openreach a “legally separate” company albeit remaining a part of the BT group.

The regulator was concerned that BT had “the incentive and ability to favour its own retail business” when making investment decisions about Openreach.

It said its proposed reforms would provide a better service for consumers and increase confidence in the industry.

BT submitted a voluntary plan it said would address Ofcom’s concerns but despite lengthy negotiations over potential changes, the regulator found BT’s proposal still fell short in important areas.

Now Ofcom appears to have lost patience with BT, saying it will notify the European Commission of its intention to force through its plan. It adds, however, that it is still open to "further voluntary proposals" from BT.

The new, more independent Openreach will be required to have its own board with a majority of non-executive directors not affiliated with BT.

The company has already taken steps in this direction, announcing on Monday evening that Mike McTighe is to become the first Openreach chairman.

Mr McTighe is a former Cable and Wireless, Philips and Motorola executive who also spent eight years on the board of Ofcom.

'Letting consumers down'

Ofcom will consult publicly on a submission to the European Commission in the New Year before submitting a detailed plan.

It will also monitor how successful its changes have been and if it doesn’t see enough improvement will return to the question of what it calls “structural separation” – the full break-up of BT and Openreach.

A spokesperson for Sky, one of the most vocal critics of Openreach, said: “Let’s not forget why we are here – BT Openreach has continued to fail consumers.

“This is why we have always said that we want a solution that is clear and executable and in the best interests of consumers and industry. We will now watch closely as to how Ofcom executes its proposals.”

TalkTalk CEO Dido Harding said it was a “step in the right direction” but warned: “Openreach has been letting consumers down for far too long, unable to meet promises of even minor improvements and becoming a household name for all the wrong reasons.

“If major changes cannot be delivered, then they should move to structurally separate Openreach once and for all.”

David Walter, director of home services and propositions at SSE Retail, said legal separation between the retail and infrastructure divisions of businesses can improve transparency and customer service.

“This practice has worked well in the energy market and we believe it will benefit customers in the broadband market as well,” he said.

A BT spokesperson 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 have just appointed Mike McTighe to be the first chairman of Openreach. We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach CEO and the form of legal incorporation.

"We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future.”

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