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Yesterday’s trade press was dominated by the news that Ofcom has issued a directive that BT must ‘legally separate’ from its Openreach division. On the face of it, the move is designed to level the market playing field and encourage fairer competition but of course, whether it does remains to be seen. It’s important to appreciate that BT won’t have to split Openreach off entirely – it will still own Openreach, albeit as a legally separate entity. So what will this mean for the industry, resellers and customers?

Openreach will become a distinct company with its own board, says Ofcom, with non-executives and a chairperson not affiliated with BT (the newly appointed former Ofcom board member Mike McTighe). Ofcom also wants Openreach to have control over its branding and budget allocation. Importantly, it will have a duty to treat all of its customers equally.

When all this will come into force is another question. Ofcom has left the door open for BT to make proposals on a voluntary basis that are closer to what it thinks are required to promote competition. If BT doesn’t do this, Ofcom needs to follow process and will be notifying the European Commission of its plans, following a public consultation in early 2017. This means that any changes are not going to happen anytime soon – and if BT mounts a challenge, there might be a further delay.

Big questions for us are if, in a legally separate environment, we’ll see Openreach being more responsive to the demands of other comms players. Will it be responsive only to the big companies, or treat all comms providers equally? That may not be easy, as the big players may put pressure on Openreach to tip the balance (which they claim has been in BT’s favour for too long) back in their favour. But if pressure from the major carriers is too strong, they (Sky, Virgin, TalkTalk etc) may get too favourable a hearing from Openreach which could mean that smaller players are no better off than they were before. Is competition between a handful of dominant carriers competition at all?

Of course, we don’t know exactly how much control BT might still exert over Openreach in a legally separate scenario as it will be a wholly owned subsidiary of BT Group. Will BT Wholesale and BT Retail receive preferential treatment? If nothing really changes, there will be massive outcry from BT’s rivals and the war of words will go on.

And if Openreach does start to favour its competitors, BT will want to make its voice heard as well. The company’s shareholders may be concerned about short term stock volatility, but they will perhaps be more concerned about how this scenario plays out. Not wanting to undermine BT’s stability might be one reason Ofcom has not ordered a complete split between BT and Openreach.

We still think that having an infrastructure provider that is owned by the main comms provider is untenable in the long run, in a free market economy at least. However, we appreciate that other factors could impact the situation. Britain is in the throes of exiting from the EU and politicians may not be minded to put additional competitive stress on what they see as a flagship British company. There is some uncertainty about the economic prospects of the UK as well. This could however, make having a world-class communications infrastructure even more important, both to attracting inward investment and fuelling a modern, flexible, responsive economy. So while this move by Ofcom is a step in the right direction, and one that, we hope, will result in more open and fair competition in the retail comms market. But, as we often say, the devil is going to be in the detail and how BT reacts. We will continue to watch with interest.

Have your say!

Do you think Ofcom has gone far enough or should they be forcing a full demerger of BT and Openreach? Will the ability for the UK’s major carriers to apply pressure to Openreach further diminish the voice of smaller ISPs? Whatever your opinion, share it with us by leaving a comment below.

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