Ofcom Proposes Radical Reform to BT Openreach

Regulator’s Planned Changes Represent a Major Shake-Up

More than a year after first floating the idea of structural separation of BT Openreach, Ofcom finally confirmed today that it was stopping short of a formal break-up of the company.

But the proposals the regulator outlined are about as radical and stringent as they could have been without taking this ultimate step. They reflect major concerns over investment, poor customer service and potential conflict of interest, as well as the drive and determination of Ofcom CEO Sharon White to significantly bolster the deployment of broadband infrastructure in the UK. Today’s announcement follows initial recommendations outlined by Ofcom in February as part of its comprehensive review of digital communications in the UK (see Instant Insight: Ofcom Publishes Initial Review Findings).

Openreach will become a legally separate company within the BT group. It will have its own board and be obliged to consult formally and act in the interest of customers such as Sky and TalkTalk. Openreach will make its own investment decisions and have its own brand, unaffiliated to BT.

It doesn’t come as a major surprise that Ofcom decided not to force BT to split Openreach. It would have been the most controversial action the regulator could have taken and would still not have guaranteed improvements for customers (see BT’s Broadband Pledges Hope to Preserve Openreach Structure). Indeed, the associated costs, time to implement, and potential for market disruption — likely leading to years of legal battles — would have threatened short-term infrastructure investment. As the UK negotiates its exit from the EU, this added uncertainty would have been unwelcome.

Although BT will breathe a sigh of relief that Openreach will remain a part of the group, Ofcom’s strongly-worded statement should leave it under no illusions that it needs to up its game. The threat of structural separation remains if Openreach is unable to act more independently from the BT group. Undoubtedly, the proposals put forward this morning represent the biggest shake-up in the UK telecom market for many years.

Inevitably, BT’s rivals will criticise Ofcom for being too lenient. Sky wasted little time in declaring that the proposals fell short of expectations and raised questions over long-term fibre investment. But privately, they’ll probably be reasonably satisfied with the hard line that Ofcom has taken. Although they campaigned keenly for formal independence, structural separation was always a long shot and today’s outcome represents at least a partial victory.

In many ways, it’s unfortunate that today’s announcement doesn’t draw a line under this controversial and protracted issue. Ofcom is now opening another consultation into its proposals by inviting further comment from interested parties. This suggests yet another round of lobbying will soon commence. In the interests of market stability and the certainty of broadband infrastructure deployment, the sooner final plans can be drawn up and implemented the better for all concerned.