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After much wrangling, BT has finally given way to demands from communications regulator Ofcom to legally split Openreach, its division which runs the UK’s broadband infrastructure.
Although it will still be part of the wider BT group, Openreach will become a distinct company in its own right, with its own staff, management and strategy.
Ofcom said the move constitutes the “biggest reform of Openreach in its history”. The regulator, along with BT’s competitors, have been concerned that because BT owns the infrastructure that connects the majority of UK homes and businesses to national broadband networks, it is able to make strategic decisions that directly favour its own retail business.
Ofcom and BT have agreed that Openreach will become a legally separate business within BT. Openreach’s management will be legally required to make decisions in the interests of all Openreach’s customers. Around 32,000 staff will transfer across to the new company and all BT branding will disappear from Openreach. The firm will also be required to consult formally with customers - like Sky, TalkTalk and Vodafone - when it wants to make large-scale investments.
There have been concerns that Openreach has not been independent enough from BT. Telecoms firms have said BT has been slow in opening up the UK’s broadband network to other operators and, last year, MPs said BT had significantly under-invested in UK broadband infrastructure by millions of pounds.
Ofcom has wanted to reform Openreach for some time. Last year it set out competition concerns that BT has “the incentive and ability to favour its own retail business when making strategic decisions about new network investments by Openreach.”
“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,” the regulator added.
This move won’t please everyone. Some critics think Openreach will only be truly independent if it is completely sold off. But a complete split could take a long time and prove costly. Legally separating Openreach will be much easier.
Sharon White, Ofcom chief executive, said: “This is a significant day for phone and broadband users. The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT.
“We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”
Gavin Patterson, BT chief executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure. It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.
“This has been a long and challenging review where we have been balancing a number of competing interests. We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”