Why BT’s Openreach separation is ‘tough but fair’ resolution with Ofcom

BT and Ofcom have reached an agreement to ensure Openreach will become a legally separate company, bringing to a conclusion one of the more protracted imbroglios around the UK’s broadband infrastructure.

The telecoms giant said that around 32,000 employees will transfer to the new Openreach Limited, which will have its own branding separate from the BT logo. Ofcom, the industry’s governing body, said BT had met its competition concerns.

As this publication reported in November, Ofcom pushed for a separation between BT and its subsidiary to promote ‘innovation and fairness in the market’, adding that while “some progress had been made… [it] has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

“This has been a long and challenging review where we have been balancing a number of competing interests,” said BT chief executive Gavin Patterson in a statement. “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.”

Matthew Howett, practice leader of Ovum’s regulation and policy advisory service, said that while there was ‘no doubt’ not all parties would be satisfied by the outcome, the agreement was ‘tough but fair’.

“Although from Ofcom’s point of view BT complied with everything the regulator asked for, some of BT’s largest competitors were still holding out hope for a full structural separation of Openreach from BT Group,” said Howett. “Throughout the process, Ofcom has reiterated that a structural separation is off the agenda.”

This makes for an interesting point; as the BBC put it, BT ‘still owns Openreach but have little control’, which could potentially lead to issues for shareholders. Yet there are also plenty of positive aspects going forward.

“The expectation is that this agreement will provide BT with the regulatory certainly and clarity required to look at its investment program, particularly in terms of extending the fiber footprint,” Howett said. “Separately, BT has also said that it stands ready to support the government’s universal service obligation for broadband, conditional upon reaching the right settlement with Ofcom.

“Now that has been achieved, plans can be developed.”

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