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BT vows significant changes to Openreach after Ofcom 'distinct company' proposal

Published 26/07/2016

BT's Openreach broadband operation should become a 'distinct company', Ofcom has proposed
BT's Openreach broadband operation should become a 'distinct company', Ofcom has proposed

BT has welcomed Ofcom proposals to make its Openreach division a "distinct company" within the BT group rather than face a full sell-off.

BT shares rose 3% after Ofcom proposed major reform of the division of BT which develops and maintains the UK's main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.

The telecoms giant has faced calls for Openreach to be split off from the rest of the group.

BT chief executive Gavin Patterson said the company was introducing "significant changes" to meet the concerns of Ofcom and the industry, adding: "These changes will make Openreach more independent and transparent than it is today, something both Ofcom and industry have requested.

"Openreach is committed to delivering better service, broader coverage and faster speeds and these changes will enable it to do just that.

"Our proposals can form the basis for a fair and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its review to a speedier conclusion."

He said the "more extreme solutions proposed by others" would be complex, disproportionately costly and time consuming to implement and "would also undermine Openreach's ability to invest and create years of uncertainty".

The proposals include making Openreach a distinct company with its own board, including a majority of non-executive directors not affiliated to BT Group.

It also proposes greater consultation with customers on large-scale investments, its own staff working for Openreach, ownership of assets that it already controls, its own strategy and control over budget allocation, and independent branding.

Ofcom chief executive Sharon White said: "We're pressing ahead with the biggest shake-up of telecoms in a decade, to make sure the market is delivering the best possible services for people and business across the UK."

The current structure of BT was introduced by Ofcom in 2005.

But the watchdog said that although it has delivered benefits such as stronger competition, it means BT retains influence over significant Openreach decisions and has an incentive to make these decisions in the interests of its own retail businesses, rather than competitors.

Ofcom, which is seeking views on the plans by October 4, said the new model "would provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption - to industry and consumers - associated with separating the companies entirely".

The proposals come a week after MPs said that if BT does not ramp up investment in Openreach and address poor service, Ofcom should force it to split off the division.

Rival companies such as Sky, Vodafone and TalkTalk have long called for a split between BT and Openreach.

They pay to use the network and have previously complained over poor service and urged the group to replace its ageing network of copper wire.

TalkTalk chief executive Dido Harding said the move was "a step in the right direction" but warned that it could favour BT by allowing it to continue "gaming the system" of complex regulations - a claim denied by Mr Patterson.

Ms Harding told the BBC Radio 4 Today programme: "It is a step in the right direction; the danger is though that sometimes when you take one step in the right direction, you actually create a regime that's so complicated that it's actually five steps in the wrong direction.

"And, until everyone's had a chance to scrutinise this in a lot of detail, it's not obvious."

Sky group chief executive Jeremy Darroch also described the move as a step in the right direction, "although (it) falls short of the full change that would have guaranteed the world-class broadband network customers expect and the UK will need".

Ofcom said BT's current proposals for Openreach "do not go far enough".

A spokesman said: "There are important areas where BT's proposals do not fully address Ofcom's concerns. For example, Openreach needs to be a legally separate company, able to have confidential discussions with its customers, without oversight by BT.

"So, while we welcome BT's acknowledgement that Openreach needs to change, their plans do not go far enough."

Andy Kerr, deputy general secretary of the Communication Workers Union, said: "Ofcom's recommendations on Openreach recognise the practical benefits of retaining the division under BT Group ownership.

"However we are concerned that the legal separation option being proposed will bring significant costs and uncertainties for the pensions of all BT Group employees.

"We believe that the proposals as they stand will incur significant costs, which Ofcom themselves have said they want to avoid and which will detract investment away from the delivery of broadband.

"We are yet to be convinced that the proposals being made sufficiently protect the jobs, term and conditions of our members in both Openreach and across BT Group."

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