Months after British telecommunications regulator Ofcom confirmed plans to pursue the legal separation of dominant national carrier BT from its broadband fiber network division Openreach, BT announced last Friday that it has agreed voluntarily to restructure Openreach as an independent company that will have its own staff, management and investment strategy. Since its establishment a decade ago, Openreach—which accounted for 40% of BT’s operating profit during 2015—has emerged as BT’s most profitable unit. Although Openreach is required to extend network access to rivals on the same terms and conditions provided to BT customers, rivals such as Vodafone, Sky and Virgin Media have raised questions about competitive and other advantages allegedly gained by BT through its ownership and control of Openreach and have thus called on Ofcom to mandate a full spinoff of Openreach from BT. Though resisting calls for a spinoff, Ofcom announced last July that it would pursue “significant governance changes” at Openreach that include, among others, budgetary independence from BT and the establishment of a separate Openreach board.
Capping what BT CEO Gavin Patterson described as “a tough negotiation,” BT and Ofcom forged a voluntary agreement which paves the way toward a legal separation in which BT would maintain its ownership of Openreach while allowing Openreach to operate as a distinct entity from BT. The restructured Openreach would operate under its own brand name and board of directors and would also be free to explore co-investment opportunities with third parties. The agreement is contingent upon passage of a law that would guarantee the pensions of 32,000 employees to be transferred to the new Openreach. As Ofcom CEO Sharon White proclaimed that “the new Openreach will be built to serve all of its customers equally,” Patterson told reporters that BT and Openreach “now have . . . regulatory clarity and certainty in order to continue to invest, and a giant shadow has been removed from our business, our staff [and] our pensioners.”