BT must open up its poles and ducts for use by rival providers, enabling them to build their own competing fibre networks, Ofcom has said. Crucially, the regulator has not called for a structural separation of Openreach, the incumbent’s fixed-line infrastructure business, but said it would reserve the right to do so in future.
BT (LSE:BT) must open up its poles and ducts for use by rival providers, enabling them to build their own competing fibre networks, Ofcom has said. Crucially, the regulator has not called for a structural separation of Openreach, the incumbent’s fixed-line infrastructure business, but said it would reserve the right to do so in future.
The regulator said the measure would promote large-scale rollout of new ultrafast broadband networks, emphasising cable and fibre rather over copper. Much of BT’s fixed-line network comprises fibre to the cabinet (FTTC), with copper lines then connecting to the premise.
Ofcom, which launched a sector review in March 2015, said it had found that Openreach, functionally separated since 2005, “still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems”.
Rivals, most notably Sky (LSE:SKY), TalkTalk (LSE:TALK) and Vodafone (LSE:VOD), have accused BT of using profits from Openreach to finance other areas of the business, most notably its premium TV content.
Their calls for a level playing field increased in volume when the Communications and Markets Authority (CMA) gave the go-ahead to BT’s £12.5bn acquisition of leading mobile operator EE, with no conditions.
In a statement, Vodafone – which may end up being the UK’s smallest mobile operator if the merger of Three and O2 goes ahead – said: “We welcome Ofcom’s move to tighten its regulation and governance of BT Openreach and leave structural separation on the table. However, BT still remains a monopoly provider with a regulated business running at a 28% profit margin. Therefore, we urge Ofcom to ensure BT reinvests the £4bn in excess profits Openreach has generated over the last decade in bringing fibre to millions of premises across the country, and not just make half-promises to spend an unsubstantiated amount on more old copper cable.”
Vodafone CEO Vittorio Colao recently expressed an interest in buying a stake in Openreach, if it were ever to become independent.
Ofcom hints at changes to come
Ofcom said it would prepare “detailed proposals later this year” to implement these changes, including independent governance, performance targets and equal treatment of all service providers.
The new model might require Openreach to become a ring-fenced, “wholly-owned subsidiary” of BT Group, with its own purpose and board members, Ofcom warned. If necessary, it continued, “Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders”.
It said Openreach’s governance “lacks independence from BT Group,” which has “retained control over Openreach’s decision-making and the budget that is spent on the network, and other telecoms companies have not been consulted sufficiently on investment plans that affect them”.
Openreach management should be required to serve all wholesale customers equally, and consult them on its investment plans. There will also be greater transparency over how costs and assets are allocated between Openreach and the rest of BT, Ofcom continued.
According to Ofcom CEO Sharon White, “coverage and quality are improving, but not fast enough to meet the growing expectations of consumers and businesses. So today we’ve announced fundamental reform of the telecoms market – more competition, a new structure for Openreach, tougher performance targets, and a range of measures to boost service quality”.
The regulator said that by 2017, it wanted 95% of premises to receive superfast broadband, and 98% of homes and offices to have access to indoor 4G signals.
