Ofcom enforces the legal separation between BT and Openreach to create a level playing field
Following some long and gruelling conversations, Ofcom has finally announced that they’ll enforce the legal separation between BT and Openreach. The authority’s action is taking place after tremendous pressure to make the broadband network market more balanced; something that’s currently a huge issue for telecom and broadband providers in the United Kingdom. Prior to this change BT used its ownership of Openreach to gain an unfair advantage over other communication service providers (CSPs).
In order to combat BT’s exploitation, Ofcom offered the telecommunication giant two options; implement a structural split, or implement a legal split. By undergoing a structural split, BT and Openreach would operate as separate companies and employ their own staff. Openreach would also be able to invest as they please due to the fact that they aren’t held back by BT. Although this type of separation would incur financial (and even legal) risks, many campaigned that this should be the option Ofcom should push for.
The legal split wouldn’t cause Openreach to become a company in its own right. This type of separation would guarantee the independence of Openreach’s board; allowing other major CSPs to have a say when making important industry decisions. Unsurprisingly BT chose to give up their exclusivity rights to Openreach instead of implementing the widely-backed structural split.
Open reach - “Our view is that an effective and robust form of legal separation, with Openreach as a wholly owned subsidiary of BT, is likely to achieve the greatest improvement for everyone in the shortest amount of time. Therefore, this is the approach with which we are minded to proceed”.
BT and Openreach split: a step in the right direction?
CSPs criticise Ofcom for a having lack of authority
Up to now there’s been mixed feelings about Ofcom’s enforcement. Many have condemned Ofcom for allowing BT to choose between a structural and legal split; they believe the regulator should have simply enforced the structural separation instead.
Helen Lamprell, Director of External Affairs for Vodafone said, “It beggars belief that BT felt it could increase its excess profits at this time, and further underlines the need for an independent Openreach. We believe Openreach needs to be a standalone business, headed by a truly independent board of directors and bound by statutory duties to treat customers equally and give an accurate view of Openreach’s underlying assets, costs and profit”.
Other CSPs including Sky and TalkTalk also agreed with Vodafone’s point on the matter. One Sky spokesperson targeted BT’s lack of interest in pleasing their customers to reiterate the need for a standalone Openreach:
“Let’s not forget why we are here; BT Openreach has continued to fail customers. This is why we’ve always said we want a solution that’s clear, executable and in the best interests of consumers and industry. We will now watch closely as to how Ofcom executes these proposals.”.
The bright side of a BT Openreach legal split
Not everyone is disappointed when it comes to the legal division of BT and Openreach. Although a structural separation could have been more beneficial for all parties, some believe it’s a step in the right direction.
Richard Neudegg, Head of Regulation at USwitch said, “This is one step closer towards finding a version of Openreach that maximises investment in new digital infrastructure while still allowing effective competition. Many agree that is what’s needed, but disagree on how to do it. Ofcom is clearly seeking to strike a balance.”
This followed his statement about Sky and Talk Talk’s disappointment that the structural split isn’t being looked at in more detail.
The UK Government finally backs a Fibre infrastructure
The announcement of the partition has raised eyebrows as it follows the increasing force behind the Government’s initiative to increase internet speeds with full-blown fibre services. We assume their new-found interest is due to FTTP (Fibre-to-the-Premises) becoming more affordable and easier to deploy.BT has also expressed their support for FTTP. That being said, their recent commitments may have been made off the back of Ofcom’s warnings for a BT Openreach separation.
According to Peter Cochrane (former CTO of BT), “Doing so [committing to Fibre] will allow BT to sell off 80% of its building estate, which would no longer be needed, and to recover vast sums in redundant copper cables. A fibre network will require drastically fewer people to maintain, and will ultimately generate significant shareholder returns. Board attention should turn to the FTTP business case without delay.”
He added, “It is a sad state of affairs it has taken so long and such regulatory pressure. Billions have been wasted in the interim on marginal upgrades to the copper infrastructure that was never going to be fit for purpose.”
Is FTTP the answer?
Although most of us are eagerly waiting to reap the benefits of a Fibre solution at home, problems could arise if Ofcom’s concentration remains solely on FTTP. Neil Fraser (UK manager at ViaSat) believes that the problems with the current infrastructure will still remain. If this is the case we can expect users to be once-again let down.
Fraser said, “Any new fibre strategy, like those before it, will have the same issues later down the line, including the cost of reaching those forgotten premises that aren’t already within easy reach. At the most basic level, the current technology backbone of the UK’s broadband network cannot provide the reliability or quality of service that modern users demand to every single part of the country at an acceptable cost,”.
The current implementation of Fibre in the UK’s rural areas is already causing issues. This problem needs to be resolved before we can think about a nation-wide roll-out of FTTP. We’ll just have to wait and see what effect the BT Openreach division has on superfast Fibre deployment in the UK.
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