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BT ordered to separate Openreach business over 'competition concerns'

Published 29/11/2016

BT's Openreach division develops and maintains the main network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.
BT's Openreach division develops and maintains the main network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.

The telecoms watchdog is to order BT to legally separate its Openreach network arm after it said plans to appease competition concerns fell short.

Ofcom said it was "disappointed" with BT's proposals since the regulator outlined plans in July to make Openreach a "distinct company" within the BT group.

It will now take trigger formal proceedings with the European Commission to force a legal separation of Openreach , which develops and maintains the UK's main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.

But Ofcom has stopped short of forcing a full break-up and sale of Openreach and added it remains "open" to further proposals from BT for a voluntary separation of the division.

Ofcom said a more independent Openreach, which "works in the interest of all providers, not just BT" was vital to improving broad and telephone services across the UK.

Ofcom said: "We are disappointed that BT has not yet come forward with proposals that meet our competition concerns.

"Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users."

Rival firms have welcomed Ofcom's action to address shortfalls at Openreach, but are worried the plans do not go far enough.

There have been mounting calls for a break-up of BT and Openreach amid criticism over poor customer service and a lack of investment.

BT said it was putting in place measures it put forward in July to address Ofcom's concerns and still hopes to reach a "voluntary settlement".

On Monday night, BT appointed the first independent chairman of its Openreach arm - hiring Mike McTighe, who was on the board of Ofcom between 2007 and 2015.

But Ofcom is concerned that under BT's plans, the chief executive of Openreach would still report to BT boss Gavin Patterson rather than Mr McTighe.

It wants Openreach to have its own staff, ownership of assets that it already controls, its own strategy, control over budget allocation, greater consultation with customers on large-scale investments, as well as independent branding.

Once legal separation is in place, Ofcom will regularly monitor Openreach and could still force a sell-off if it believes it is not being run as a truly distinct company.

BT said: "We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach chief executive and the form of legal incorporation.

"We will continue to work with Ofcom to reach a voluntary settlement."

TalkTalk chief executive Dido Harding said Ofcom's plans for legal separation were a "step in the right direction".

" We will continue to push Ofcom to ensure the plans deliver real, meaningful improvements quickly, and if major changes cannot be delivered, then they should move to structurally separate Openreach once and for all," she added.

Sky and Vodafone both said they would be analysing the detail of Ofcom's proposals - and BT's response - closely.

Consumer group Which? called for Ofcom to take swift action and end the misery of millions of customers " who have been let down for too long".

But one of BT's shareholders - Royal London Asset Management (RLAM) - warned the costs of hiving off Openreach could lead to higher bills.

Martin Cholwill, senior fund manager at RLAM, said: " Higher costs could eventually give rise to higher bills for consumers and greater complexity may impact service levels. Overall, intervention may not produce the outcomes that Ofcom hopes."

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