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BT and Openreach broadband service could be split over Ofcom competition fears

Published 16/07/2015

Ofcom is considering whether to split Openreach from BT
Ofcom is considering whether to split Openreach from BT

BT may be forced to break up its internet broadband business under competition proposals being considered by the communications watchdog.

The telecoms giant is currently required to provide access on equal terms to its competitors though the Openreach fibre broadband network.

Regulator Ofcom said it is reviewing whether splitting Openreach from BT may be the best way to improve competition in the sector.

It follows complaints that the network's performance on behalf of other providers has often been poor, leading to new rules on faster line installations and repairs.

Other possibilities under consideration include retaining the current model, applying new rules forcing BT to strengthen it, or deregulating and allowing different networks to provide phone and broadband services without using BT's network at all.

Virgin Media and some smaller operators currently own their own networks, but Ofcom said this model of "end-to-end" competition could lead to duplication of networks and weak competition.

An Ofcom spokesman said: "Ofcom believes UK consumers are likely to get better services at lower prices if there is a sufficient number of effective competitors.

"Ofcom therefore starts from a pro-competition position and believes that end-to-end competition should be maintained where it is effective and sustainable.

"The review is considering the implications for the UK of international trends towards consolidation.

"It will also examine converging media services - offered over different platforms, or as a 'bundle' by the same operator.

"For example, telecoms services are increasingly sold to consumers in the form of bundles, sometimes with broadcasting content; this can offer consumer benefits, but may also present risks to competition."

The watchdog said its review will lead to a statement at the turn of the year on the priorities and action which will shape its approach for the next decade.

Mai Fyfield, Sky's chief strategy officer, said: "It is welcome news that Ofcom is putting the future of Openreach at the centre of its review.

"For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need.

"We believe Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry. In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st century."

A BT spokesman said: "We welcome this review and are confident it will find the UK broadband market to be both vibrant and healthy.

"There has been huge progress this past 10 years with an explosion in competition and broadband usage.

"Consumers are getting more for less and the UK has outpaced its European peers in terms of super-fast broadband.

"As Ofcom say today, 'This approach has delivered real choice, quality and value for phone and broadband customers over many years'.

"Much of that progress is down to BT investing billions of pounds in fibre at the height of the recession.

"That investment wouldn't have occurred had BT been split in two a decade ago and our ambitious plans for ultra-fast broadband also depend on BT remaining intact.

"Ofcom have overseen a regime that has balanced investment with competition and we hope they will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages."

Dido Harding, chief executive of rival TalkTalk, said: "We are pleased that Ofcom is looking at all the options for the future of the telecoms market as part of its strategic market review.

"This is a once in a decade opportunity to make bold, radical decisions, such as the separation of Openreach.

"It is vital that Ofcom places customers at the heart of their decision-making process so that we end up with a competitive market that delivers the modern digital services and infrastructure Britain desperately needs."

Analysts at Jefferies said mention of "structural separation" of Openreach may concern some investors.

But they added: "However, this was inevitably going to be on Ofcom's agenda and the positive in today's document is that Ofcom appears to view structural separation as a last resort."

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