Months after launching its one-in-a-decade review of the British telecommunications market, and capping months of negotiations with dominant national carrier BT, British telecommunications market regulator Ofcom confirmed Monday that it will pursue a legal separation of BT and broadband fiber network division Openreach in which Openreach would function as a “distinct company” within BT.
During the twelve-month period ending in March 2015, Openreach accounted for 40% of BT’s operating profit, and Ofcom Chief Margaret White told reporters that Ofcom’s recommendation represents “the biggest shake-up of [telecommunications] in a decade.” Since its inception ten years ago, Openreach has been required to extend network access to rivals on the same terms and conditions provided to BT customers. Nevertheless, Vodafone, Sky, Virgin Media and other competitors continue to raise questions about competitive and other advantages allegedly gained by BT through its ownership and control of Openreach. White said Ofcom’s recommended course of action would ensure “the market was delivering the best possible services for people and businesses across the UK.”
In addition to mandating “significant governance changes” at Openreach that include, among others, budgetary independence from BT and the establishment of a separate Openreach board, Ofcom would also require Openreach to consult with its wholesale customers on “large scale” investments. Ofcom, however, stopped short of mandating a full spinoff, explaining that such a step would result in significant “costs and disruption.” In remarks to the press, White warned that Ofcom could still pursue a full-scale break-up if BT and Openreach fail to act on the regulator’s separation plan.
While calling structural separation “a step in the right direction,” Sky CEO Jeremey Darroch lamented that Ofcom’s plan “falls short of the full change that would have guaranteed the world class broadband network customers expect and the UK will need.” Gavin Patterson, the CEO of BT, maintained, nevertheless, that his company has “listened to Ofcom and [the] industry” and would introduce “significant changes to meet their concerns.” Affected parties will be given the opportunity to comment on Ofcom’s plan during a consultation period that will extend into October.