Regulator Ofcom 'took on' BT but its bigger test will be convincing a sceptical comms industry that it has gone far enough.
Ofcom's ruling not to split off Openreach from BT reflects the regulator's lack of strategic vision and its inability to take a tough decision for the better, according to Ricky Nicol (pictured), Chief Executive at Commsworld. He believes Ofcom's reluctance to break Openreach away from BT is more about the pension deficit within the Group and the financial issues this would create, rather than any real strategic play. He said: "This will be the last throw of the dice for BT to hold onto Openreach and is a result of short-sighted conclusions from Ofcom.
"It is wrong to maintain what is effectively a monopoly. This will not encourage investment in the critically important infrastructure the UK needs for prosperity and development. We have many customers still waiting, after more than two years, to get connectivity; and over 20 customers have been waiting for more than a year. The UK is desperate for an improvement and the best way is via a competitive choice for customers."
Full separation was never an option given the complications of pension fund obligations, noted Adept Telecom's CEO Ian Fishwick. "There are probably more ex-employees than employees and most worked before Openreach even existed," he said. "So if you break off Openreach how do you decide what portion of the pension issue it takes with it? Many have been under the false impression that Openreach was a separate company with its own financial accounts. It never has been and it is amazing Ofcom has allowed this for so long.
"Perhaps the biggest issue is how the cash generated from Openreach's profits is used. Should BT be allowed to treat it as Group cash and fund areas like football TV rights? Or should Openreach be forced to spend its own cash on improving the UK's infrastructure? I sit firmly in the latter camp. Whether anything changes depends on how this will be enforced. The devil is in the detail."
SAS CEO Charles Davis called on Openreach to rethink its future role in the industry. "A fundamental mind-set change is required by Openreach to show that the carrier industry can enable UK businesses rather than be seen as a limiting factor," he stated. "The status quo that BT has been able sustain has delivered little improvement to businesses and consumers. Of course there are complex issues for Openreach to resolve in a BT-exit such as who to manage the pension fund, but just like Brexit workable solutions can be found."
According to Ralph Gilbert, Director at Focus Group, there is a long way to go to level the playing field, a situation not helped by Openreach being under the umbrella of the BT Group. "I am concerned about the proposal," he commented. "It would seem the larger CPs such as BT Retail, TalkTalk and Sky will be major Openreach customers which means smaller CPs may struggle to compete if there are preferential rates on infrastructure services."
These issues ultimately depend on how Openreach operates as a distinct company and how its leaders make decisions. Under Ofcom's proposals non-executive directors, including the chair, will form the majority of the new board and be appointed and removed by BT in consultation with Ofcom. The regulator recommends that Openreach should develop its own strategy and annual operating plans within an overall budget set by BT Group.
Ofcom's CEO Sharon White added: "The new Openreach board will have to take investment decisions as a matter of law and the decisions must work for the whole of the UK. I understand why people see the attraction of selling off Openreach. It seems straightforward, but, for example, pension issues could take years to resolve. These new rules provide all the benefits of separating Openreach and can happen straight away, without delay."
Ofcom will monitor the 'new Openreach' and board level decisions and judge whether they are being taken in the interest of customers. "If this does not deliver independence, faster broadband and better service we reserve the right to revisit a sell-off," added White. "There needs to be more investment in fibre to the doorstep, with engineers arriving on time and doing the job first time."
In February Ofcom made it easier for telecoms providers to invest in competing infrastructure by improving access to Openreach's network of telegraph poles and its ducts. On 31st July new rules came into force giving telecoms providers further rights to access physical infrastructure. These measures are designed to reduce the cost of deploying broadband networks by sharing access to infrastructure across different sectors.
Ofcom also announced a range of measures to ensure that all phone and broadband companies provide an expected quality of service. Since then the regulator has taken more steps to improve services as well as boosting coverage, such as automatic compensation and easier switching. Ofcom has set out stricter minimum requirements for Openreach to repair faults and install new lines more quickly. From next year, the regulator will publish tables on communications providers' quality of service.
Ofcom's new plans followed last month's CMS Select Committee report which criticised Openreach for its poor quality of service and BT's under investment in the UK's digital infrastructure.