Should Ofcom force Openreach to split from BT?

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?

• The Register: Shadow minister for Fun calls for Openreach separation

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.

• BBC.co.uk: Ofcom seeks views on splitting BT and Openreach

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!

• The Telegraph: BT chief warns of legal quagmire over proposal to split company
• ITV.com: BT beat Sky Sports to win rights to next Ashes series in Australia

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.

• Telecomstechnews.com: BT fights to keep Openreach, with support from Virgin Media

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”.

• The Guardian: Vodafone says it would invest if BT's broadband arm becomes separate firm

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".

• The Register: Sky bangs on Ofcom's door – demands BT competition probe

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!

• ISPReview.co.uk: Oops BT Tries to Charge ISP GBP25K for Fixing a Broadband Line

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. Related articles

• Entanet Opinion: Should BT be forced to open up access to its dark fibre?
• Entanet Opinion: Will the threat of Fujitsu’s new network finally force BT into fairer duct access?

Further information OFCOM: Strategic Review of Digital Communications: Discussion document [cookiecontrol1] [subscribe2]