Opening up Openreach: Ofcom Digital Communication Strategic Review

Following the recent Ofcom review, more is to be done with the networks and infrastructure of BT Openreach to ‘open them up’. The review was completed as part of a wider Ofcom Digital Communication Strategy review and whilst it has been welcomed by BT, it hasn’t met many of their competitors’ expectations.

 

BT’s competitors, which include Sky, TalkTalk and Vodafone, have campaigned for Openreach to be split off from BT as a separate entity. However, Ofcom’s review concluded there was no direct need for complete separation. By introducing incentives and penalties, BT will be forced to open up its network to competitors further and Openreach will become more independent of BT Group.

Key conclusions from the report

The Ofcom report outlined a number of changes to open up Openreach and the key highlights are:

  • A new governance structure will be put in place, with Openreach taking its own decisions on budget, investment and strategy
  • Openreach must open up its network of telegraph poles and underground tunnels (ducts) to rivals, so competitors can connect fibre to homes and offices
  • Rival providers will be able to build their own fibre networks, connected directly to homes and offices
  • Tougher rules on faults, repairs and installations will be introduced; along with automatic compensation for consumers when things go wrong

Reserving the right to spin-off

Ofcom has reserved the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders, in the future. Which no doubt provides Ofcom with more muscle to push the changes through in their February 2016 report.

If there was a decision to spin-off Openreach in the future, analysts predict that it would create a very profitable FTSE 100 company in its own right.

‘Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation to bring matters to a clear and speedy conclusion’ - Gavin Patterson, BT

Market reaction

Overall BT has welcomed the Ofcom report conclusions, but a number competitors are disappointed as they perceive it did not go far enough. The BT Chief Exec, Gavin Patterson, stated that: ‘Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation to bring matters to a clear and speedy conclusion’. However, Dan Howdle, telecoms spokesman at broadband and phone advice site Cable.co.uk[1], stated ‘Ofcom's recommendations for Openreach would be a blow to competitors such as Sky, TalkTalk and others who had long campaigned for a split’.

So what does it mean?

As a consumer these changes should mean faults are fixed faster, installations are completed quicker and you get compensation automatically when things go wrong. Also, it should, in theory, mean there is more competition in the market leading to better services and prices. However, the exact way in which competition will intensify is yet to be seen. If it is reliant on competitors building out their own networks using Openreach infrastructure, it could take some time for the benefits to be realised by consumers. While in parallel Openreach works to build up their network to deliver superfast broadband coverage to 95% of the UK by December 2017.

BT’s competitors should also benefit as they get a better service, as Openreach invest more in their shared networks and complete installations and repairs faster. It will also be interesting to see how many of the competitors, like TalkTalk, Vodafone and Sky, make use of Openreach’s telegraph poles and tunnels to build their own network. This has the potential to completely change the market, but will require significant investment, effort and time.

What next?

Ofcom will now prepare detailed proposals on how to implement these changes, which they will publish later this year. So watch this space to see the detail on how this will impact competition, how Openreach’s telegraph poles and tunnels will be opened up to competitors and how this will deliver a better service for the consumer.

[1] https://www.cable.co.uk/

 

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