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Ofcom is reportedly considering the option of splitting Openreach from BT as part of its 10 year strategic review, a suggestion that has received a lot of support across the industry and beyond, most recently from Labour MP Chris Bryant. We certainly think it’s time that accountability was central to Openreach’s role, but is a complete split from BT the answer?

Anyone working within the Internet industry knows only too well the frustrations that are often felt from dealing with Openreach – the company with an effective monopoly on delivering the last mile to customers and the associated fault fixes (save for Hull, Virgin Media and smaller alt-nets) on the UK’s broadband network which is primarily owned by the incumbent- BT. However, would separating Openreach from BT completely really solve the service problems?

BT’s argument

Interestingly, the last time Ofcom conducted a 10 year strategic review it forced BT to create Openreach in order to “provide access to its telephone and broadband network to competing providers on equal terms.” This time around and the regulator is considering a complete split, something that BT is clearly not happy about, insisting that service levels have improved with 2,500 engineers added last year and plans to add a further 700. It also argues that it has adequately reached or exceeded all 60 service targets set by Ofcom, while  also stating that investment in the superfast network upgrade has only been possible thanks to the company’s connection to BT and its healthy balance sheet.

When confronted with the possibility of a split, BT’s Chief Executive Gavin Patterson threatened that the regulator would be met with years of litigation stating: “This is a commercial enterprise and if there’s uncertainty we will defend the rights of our shareholders, undoubtedly. It puts that investment very much at risk. At the end of it, and if we’re meant to be looking at the next ten years, what do you want to look back on? Do you want to look back at 10 years of litigation and arguments?”

He also threatened to stop further network investment and has reportedly delayed plans for a multi billion-pound upgrade to “ultrafast” broadband until they get a decision on the future of the company.

The issue of a £7 billion black hole in BT pension funds has also been raised, with Patterson threatening the deficit would potentially need to be filled by taxpayers’ money if Openreach, as an independent company, was unable to make the top-up payments. He appears to be throwing everything he’s got at defending the BT/Openreach relationship but  this will be a bitter pill for taxpayers to swallow, especially when we consider the amount the company spends on sporting broadcast rights to further its rivalry with Sky – a further £80 million for coverage of the Ashes alone reported just this week!

In an instance of strange bedfellows, BT’s arch-rival Virgin Media – who recently announced their own expansion of their cable network – signed a joint letter with BT opposing further regulation, favouring instead “a stable and proportionate regulatory environment” – the status quo.

On the other hand…

BT’s other competitors have welcomed the review with open arms, claiming Openreach provides a poor level of service and that the money it generates gives BT an unfair competitive advantage.

TalkTalk, Vodafone and Sky have all complained that they compete on unfair terms with the former monopoly. Vodafone’s Chief Executive, Vittorio Colao dangled the carrot of investment into UK infrastructure if there was a split, saying they would “be prepared to put equity in a vehicle that could deliver fibre to us and also other companies, whether it is an independent Openreach or a similar vehicle”.

Sky has been particularly vocal on the subject, taking it even further and requesting a competition inquiry too. Mai Fyfield, Sky’s Chief Strategy Officer argued: “consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need”.

It’s unclear yet which way Ofcom will rule on this issue. On the one hand they have suggested the split as part of the strategic review, with an aim to improve service levels, and so far overwhelming industry comment has been in support of a split. However, that goes against Ofcom’s promised ‘soft approach’ to regulation and market interference.

What is clear to us is that, whilst Openreach is bound to provide equivalent access to all CPs, unfortunately the level of service received from Openreach appears to be equally poor across all providers – barely a week goes by without the industry press covering an Openreach related complaint or issue. Just a few weeks ago ISPReview.co.uk reported on an ISP being incorrectly charged over £25,000 for a single fault repair!

Whilst Openreach is supposed to deliver equivalence across all customers there have been numerous allegations of bias towards other BT companies. For example the recent FTTC rollout principally to residential areas clearly favoured BT Retail. We think the current ‘hybrid’ situation clearly doesn’t work effectively as either a complete split or having a combination of BT Wholesale and Openreach.

However, what we really need is effective economic sanctions to improve provision and repair times for all customers. As an industry, we need Openreach to be held to account for the poor service experienced by the multitude of CPs forced to use its services. We need improved install and fix times, with meaningful SLG payments for delays and clear and effective escalation paths that actually provide a suitable resolution at the end. Perhaps sanctions of this type would help to focus Openreach on delivering a higher level of consistent service than the industry currently experiences. At present, thanks to the notion of ‘equivalence’ providers are unable to put pressure on Openreach with regards to individual cases as that would not provide an ‘equivalent’ service; so the result is a service driven down to the lowest common denominator, which simply isn’t acceptable.

Whilst we understand BT’s defence of its Openreach relationship we think its arguments over investment and pension deficits are questionable. As we said, if the company can continue to plough millions of pounds into sporting rights, surely it can cover its own pension deficit. Similarly, BT may argue that it has invested large amounts into the superfast broadband rollout which may not have happened without the current Openreach relationship, but let’s not forget a large proportion of state funding was also received for this. The BT/Openreach relationship needs investigating as the current levels of service are simply not acceptable and a more effective solution needs to be found for the good of the whole industry.

Have your say!

Do you think separating BT from Openreach would help to improve service levels? Do you think Openreach needs tougher penalties for poor service? Let us know your thoughts by leaving us a comment below.

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Further information

OFCOM: Strategic Review of Digital Communications: Discussion document

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6 Responses to “Should Ofcom force Openreach to split from BT?”

  1. “He also threatened to stop further network investment and has reportedly delayed plans for a multi billion-pound upgrade to “ultrafast” broadband” thereby proving exactly why he shouldn’t be allowed to be in charge of Openreach.

    Forcing end-users to play a game of chinese whispers via ISP call centre staff in order to get faults fixed isn’t in anyone’s interest.

    Openreach needs to be both open and reachable, and while it’s parent company is incentivised to put off the roll out of FTTP indefinitely, and it’s regulator allows it to avoid dealing with end users, it’s neither.

  2. Split! Split! Split! Split!
    The current level of service is shocking. We expect that of BT but if we choose a decent provider it is still fouled up by BT’s control of OpenReach.

  3. Separation brings the opportunity for greater investment and innovation, whilst aligning the priorities of the operator more closely with the needs of SPs. At present these are distorted by the needs of BT Group and its shareholders. However, it is not without risk, and finding the correct company structure and regulatory framework for a ‘new Openreach’ won’t be easy. The current situation is so far from acceptable, that we have to regard the functional separation expirement as a failure, learn the lessons of the past 10 years and start afresh.

  4. I am a small independent ISP and telecoms operator. I use openreach every day to supply customers line plant to connect wholesalers broadband and pstn traffic services to. What I have never understood is how it can be seen to be a level playing field to offer full transparency and real competition when the company I have to compete with is my only source of supply! I can install a talk talk superfast fibre optic broadband for a customer and another from zen or eclipse or daisy telecom to provide resilience and when one fails the other does as well. This is because the only operator supplying fttc superfast broadband tails (connections) is openreach.

    Please tell me how can any of that be right and how can it be garnering a truly competitive market place?

    BT and Openreach and in particular Gavin Patterson, Chief executive Officer, is holding a gun to ofcom’s head and the rest of the industry and the whole countries future and more importantly stifling growth of other technologies that potentially might damage BT’s strangle hold on the telecoms market place it monopolises.

    in my own view, nothing will change because our regulators don’t have big enough cahones (look it up!) to sort this situation out!

    It’s not Gavin pattersons fault, but if he wants to keep suppliers to his business onside, he needs to do more listening to what all his customers want, trade or retail alike and stop dictating what he will do if he does not get his own way. Breaking up BT will be damaging ant time consuming but unless you remove the protective cocoon BT group appears to have a good grip on and deregulate fully allowing free competition to enter this market, nothing will change and Britain will be left in the wilderness.

    This is about what’s good for Britain of the future and not just fat cat shareholders sitting in government offices with shares in BT Group afraid to vote for change in case their shares end up devalued or worse!

    So prove me wrong guys and do the right thing!

  5. Openretch’s legal dept will have a field day. It is a complete waste of resources, they will fight tooth and nail to protect their asset until it is proved to be useless. That day will soon come.
    What we really need in this country is to focus on stimulating competition instead of baling out a lazy monopoly every year. This is the second time we’ve had to do it. It is totally incompetent and we must stop throwing good money after bad. If a bunch of farmers can lay fibre in the final 3% of the country and an incumbent who already has access, plant, wayleaves, employees, vehicles, office staff, shareholders, ducts and poles can’t, then that surely tells you something. Doesn’t it?
    All openretch want to do is keep the poor golden goose breathing for a few more years, they have already stolen the golden eggs and spent them on content, fat cat bonuses and shareholders. There is no next generation for them, the assets are stripped, the copper phone lines are about to peg out, no innovation (don’t mention gFarce its a joke) and very little maintenance in the final mile.
    Their days are numbered, concentrate on alternative suppliers to force them to up their game. i.e. lead, follow, or get the hell out of the way.

  6. I have heard of so many cases of people whose Internet fails, develpos connection problems or is poorly serviced once they change from BT as their ISP. I suspect that BT Openreach even deliberately downgrade connections for customers as ‘punishment’ for leaving. BT and Openreach should become separate entities and open their reach to all.
    I have been virtually disconnected since moving from BT as each case initated by my current ‘provider’ gets closed once it reaches BT Openreach. Neither company wants to address our connectivity problem. The ISP don’t want to pay Openreach and Open reach don’t want to support another ISP with competitive prices. Tonight is the fastest connectin I have had in 2 onths of trying to sort this out (1.4MPS) – it is usually 0.12 or so…
    FREEDOM!

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