ANALYSIS & OPINION

BT rivals renew call for Openreach separation

An industry coalition representing Britain’s telecoms providers has challenged Ofcom to deliver on its promises to reform BT’s Openreach subsidiary and future-proof Britain’s voice and broadband capabilities.

The coalition represents major consumer brands Sky, TalkTalk and Vodafone, as well as the Independent Network Cooperative Association (INCA) on behalf of ‘alternative network’ providers of next-generation infrastructure and connectivity.

In an open letter to the regulator (here), the group presents Ofcom CEO Sharon White with a 10-point action plan to ensure Openreach is fit to equip the nation for the challenges of tomorrow. 

In February, Ofcom’s Digital Communications Review concluded that reforming Openreach is critical to improving Britain’s telecoms market. Although it said that separation of Openreach from BT Group is “the cleanest and most clear-cut long-term solution”, Ofcom indicated that it would first explore other options (see BT avoids breakup following Ofcom digital review).

Chris Pateman, CEO of the Federation of Communication Services, whose members specialise in serving Britain’s five million business customers, commented: “Frankly, FCS was disappointed Ofcom’s review of digital communications stopped short of recommending the complete structural separation of Openreach from the BT Group.”

Although Ofcom believe improvements can be delivered without the hassle and delays of a full separation, the coalition disagrees. Step one in its plan is “Establishing Openreach as a legally separate company.”

The plan put forward by the coalition draws on best practice as outlined in the UK Corporate Governance Code, the group claims. The proposals have also been informed by proven approaches in other UK sectors including the energy, civil aviation and water markets, as well as elsewhere around the world.

“The measures we have proposed are not controversial or drastic, but reflect arrangements which are commonplace for large listed companies,” Pateman added.

Indeed, structural separation is not unknown in the telecom industry. Telecom New Zealand split into an infrastructure arm, Chorus, and a retail arm, Spark, as part of the government’s plan to deploy a national fibre-to-the-home (FTTH) network. In June last year, O2 Czech Republic became the first operator in Europe to separate voluntarily.

Telecom consultancy firm Diffraction Analysis argues that telecom operators should consider structural separation because it could increase value for shareholders and release more cash for investment in infrastructure.

“Indeed, [structural separation has] been seen to work very well for New Zealand, and the Czech Republic’s O2 is currently undergoing the same process. This is neither new nor rocket science,” wrote Benoit Felten, chief research officer with Diffraction Analysis in a blog post last year.

Ofcom is expected to publish its proposals for the future of Openreach in the summer.

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