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Global Media and Communications Watch The International Legal Blog for the Tech, Media and Telecoms Industry
Posted in Policy & Regulation, Telecoms & Broadband Jamie PollockAlice Wallace-Wright

A conscious uncoupling: Ofcom’s proposals for Openreach

Ofcom’s announcement of plans to make Openreach a “legally separate” company within BT have been met with muted cheers from some in the telecoms world, while others caution that the proposals do not go far enough to ensure the UK gets the investment it needs.

In February of this year, the regulator set out a ten-year vision for ensuring the quality and availability of communications services in the UK.

Ofcom’s initial conclusions pointed towards concerns about Openreach, the division of BT that maintains the UK’s largest phone and broadband network for BT’s retail arm as well as its competitors.

Those competitors, including Sky, TalkTalk and Vodafone, have long protested that they receive an inadequate service from Openreach which undermines their own businesses. Much of the criticism has focussed on underinvestment in the UK’s internet infrastructure, resulting in a failure to improve national broadband speeds and network coverage.

Customer service has also been a bugbear for BT’s competitors, with accusers claiming that Openreach provides them with a secondary service, resulting in long waiting lists for call-outs and missed appointments.

Tuesday’s proposals are an attempt by the UK regulator to restructure the telecoms landscape in the UK to alleviate some of these concerns and reform Openreach governance in order to make it more independent. Ofcom sees a more independent Openreach as critical to improving BT’s responsiveness to all of its customers. To this end, it has proposed what looks like a “legal separation” of Openreach from BT, including:

  • Openreach will become a distinct company with its own articles of association;
  • a board of directors will be established for Openreach, consisting mostly of non-executive directors who will not be affiliated with the BT Group, but would be appointed and removed by BT in agreement with Ofcom;
  • direct reporting lines from Openreach executives to BT Group will be removed, barring exceptions agreed with Ofcom; and
  • Openreach will have its own strategy and budget, although these will need to be signed off by BT.

Ofcom’s plan is not, therefore, the “structural separation” that some had hoped for. Whilst it has left the option of structural separation on the table, Ofcom maintains that Openreach can operate more independently from BT without being split into a separate company under different ownership. Its model seeks to give Openreach further autonomy without the costs and disruption structural separation may entail.

Tim Farron, Liberal Democrat leader, expressed concern that the proposals “will leave millions of customers with poor quality broadband”. Directing his dismay at the regulator, he said that “if a watchdog yet again fails to bark, perhaps it is time to put it down”. Mr Farron’s main expressed concern is that BT’s continuing control of Openreach’s budget will stymie the roll-out of technologies such as fibre optic broadband. This is a position shared by Jeremy Darroch, chief executive of Sky, who said Ofcom’s proposal “falls short of the full change that would have guaranteed the world-class broadband network customers expect”.

Yet the response has not been entirely negative. Although Sky, TalkTalk and Vodafone have always favoured structural separation, yesterday’s proposals were not met with complete doom and gloom.

Talk Talk CEO Dido Harding, who has long lobbied for a complete split of Openreach from BT, acknowledged that “a legally separate Openreach is a step in the right direction”. The persisting problem for her though, and for others who had urged Ofcom to go further, is that the regulator’s solution means continuing with a system seen as inherently beneficial to BT.

For those frustrated by Ofcom’s proposals, there may be some cause for positivity. On the same day it put forward its proposals for Openreach, Ofcom published an update as part of its strategy to encourage the large-scale deployment of new ultrafast networks, including the provision of fibre direct to homes and businesses.

Looking further afield, those who have criticised Ofcom for a failure to be bold may be buoyed by the prospect of Britain’s exit from the European Union. Some commentators have suggested that an Ofcom unshackled from the cautious influence of other European regulators could go further in its interventions to ensure investment and quality of service.

For now, however, it seems that claims that Openreach’s direction, strategic priorities and technology choices are influenced by BT are unlikely to disappear.

Ofcom has invited comments from interested parties by 4 October 2016.