Fresh calls for Ofcom to force BT to spin off Openreach
Sky, TalkTalk, Vodafone, the Independent Networks Cooperative Association (INCA) and the Federation of Communication Services (FCS) have written a letter to Ofcom CEO Sharon White, offering a “10-point plan” to increase competition in the market by separating BT and Openreach. The letter also calls for the appointment of independent bodies to oversee Openreach, and no sharing of ducts and infrastructure. Chris Pateman, CEO of the Federation of Communication Services, said: “We are throwing down a challenge… to Ofcom, Openreach and the industry to work together to shape the future for the good of all market players and all customers”.

Monday, May 16th, 2016 (8:02 am) - Score 1,477

A new “all-industry coalition“, which represents alternative network providers and major UK players like Sky Broadband, TalkTalk and Vodafone, has today put pressure on Ofcom to deliver on its Strategic Review by publishing a plan that sets out how they think the regulator should deliver a better and more independent Openreach.

Openreach, which is responsible for maintaining and upgrading BT’s national UK telecoms and broadband network, is intended to be “functionally separate” from BT so as to treat competitors fairly. But Ofcom’s review found that the organisation “still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems.”

The strategic review thus pledged to deliver a number of key changes, such as requiring Openreach to give rivals better access to its cable ducts and poles (full details), a much more independent governance structure, tougher minimum service requirements and better information sharing. Ofcom has separately also proposed to give rivals more access to harness BT’s Dark Fibre network (here).

Since then Ofcom and BT have been locked in a battle over how best to implement these changes, with the telecoms giant being particularly concerned about the changes to Openreach’s governance structure. The regulator is also known to be keeping the tedious option of splitting Openreach from BT’s control on the table as a bargaining chip, while BT has countered by offering to expand ultrafast FTTP broadband connectivity (here) and to support the proposed 10Mbps Universal Service Obligation (USO).

Naturally the new “all-industry coalition” hopes to influence this debate and that’s where it’s new 10 point plan comes in.

Chris Pateman, CEO of the Federation of Communication Services, said: “Frankly, FCS was disappointed Ofcom’s review of digital communications stopped short of recommending the complete structural separation of Openreach from the BT Group. Ofcom believe improvements can be delivered without the hassle and delays of a full separation: our 10 point plan represents the industry’s proposals on how this can be accomplished. Importantly, as our plan makes clear, we believe this can be accomplished swiftly and cost-effectively, using well-proven corporate governance principles. And it can be benchmarked against experience from other regulated utilities, both in the UK and overseas. We are throwing down a challenge, underpinned by sound research and experience. A challenge to Ofcom, Openreach and the industry to work together to shape the future for the good of all market players and all customers.”

Andrew Griffith, Sky Group COO and CFO, said: “To help OFCOM deliver its goal of a more independent Openreach we’ve put forward a practical set of proposals based on tried and tested regulation of other utilities and established company law. These proposals can be implemented quickly and will deliver a much needed step-change in the performance of Openreach for millions of consumers and businesses across the UK.”

However the coalition itself doesn’t actually represent the whole industry because there are some big names missing from the list of signatories, not least of them being Zayo, KC and Virgin Media, all of which have previously expressed reservations about the regulator’s Dark Fibre policy (here and here) and have their own sizeable corners of the infrastructure market to protect from regulatory pressures.

The Open Letter in Full Dear [Sharon White – CEO of Ofcom], We are an industry coalition comprising Sky, TalkTalk, Vodafone, the Independent Networks Cooperative Association (INCA) and the Federation of Communication Services (FCS). Together we represent the interests of the majority of consumers and businesses that rely on Openreach, serving millions of broadband customers and spending billions each year on the national network. We represent the builders and operators of the UK’s next generation digital networks, as well as companies which deliver communications solutions to hundreds and thousands of organisations both big and small. In February, Ofcom’s Digital Communications Review concluded that reforming Openreach is critical to improving Britain’s telecoms market. Although it stated 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 that might deliver the necessary changes with less disruption. Ofcom is therefore considering how to create a more independent and customer-centric Openreach within BT Group. We are pleased that Ofcom is committed to an open, transparent and inclusive approach to this reform process, rather than a closed door negotiation with BT. We are therefore writing to set out our vision of how Ofcom can deliver its objectives. We agree with Ofcom’s conclusion that the status quo cannot be allowed to continue over the next ten years given the critical importance of the UK’s digital communications infrastructure. The national network has to be able to deliver the world class connectivity that Britain needs, enabling a dynamic market where all industry players can invest and compete on a level playing field. We also agree with the UK Government when it stated that “the current relationship between BT and Openreach will not deliver the country’s needs for more competition, better innovation and better service”, and note that it urged Ofcom to take “whatever action is needed” to achieve this. In light of this, we are publishing this coalition’s ’10 Point Plan for a Better Openreach’, a programme which, if implemented in full, should deliver on Ofcom’s vision. This plan contains a series of proposals aimed at reforming Openreach. It reflects best practice as outlined in the UK Corporate Governance Code and the proposals have also been drawn from a number of proven approaches in other UK sectors including the energy, civil aviation and water markets,as well as elsewhere around the world. Our proposals are grouped into three broad areas: Reforming Openreach’s governance so it can act independently Giving Openreach clear purpose and accountability by: 1. Establishing Openreach as a legally separate company 2. Creating an independent Openreach Board 3. Creating an independent body to oversee the transition and act as an adjudicator Giving Openreach the tools it needs to succeed Creating a confident and ambitious Openreach that has the autonomy to plan for the future by: 4. Giving Openreach full control and ownership of its assets 5. Ensuring Openreach has its own standalone corporate identity and brand 6. Allowing Openreach to be financially independent and make its own investment decisions Creating an Openreach that delivers for all Making sure that Openreach serves the whole market fairly to improve choice, value and quality for its customers by: 7. Providing all Openreach services on the same basis, no matter the customer 8. Ensuring that Openreach consults with all of its customers about its future strategy and proposed investments 9. Introducing competition to Openreach by making BT Consumer’s procurement truly contestable 10. Ensuring that Openreach does not inhibit investment by independent network operators If implemented in full, these reforms should deliver the step-change in effectiveness that customers need and remove barriers to a competitive market. The measures we have proposed are not controversial or drastic, but reflect arrangements which are commonplace for large listed companies. Our proposals are straightforward, simple, and can be achieved quickly and cost effectively. We are committed to helping Ofcom achieve its goal of a more independent and responsive Openreach to the benefit of consumers. Reform is crucial to delivering the improved digital connectivity Britain needs. We believe that our plan is a vital step in achieving that vision. Yours sincerely, Jeremy Darroch, Group CEO, Sky Dido Harding, CEO, TalkTalk Jeroen Hoencamp, CEO, Vodafone UK Malcolm Corbett, CEO, Independent Networks Cooperative Association Chris Pateman, CEO, Federation of Communication Services

Many aspects of the above recommendations may yet come to pass once Ofcom has reached a final agreement, assuming BT is willing to do so voluntarily and that’s still a matter for debate. However when taken together the 10-point plan does read a lot like the complete separation of Openreach from BT’s control, albeit somewhat by the regulatory backdoor of policy making.

Ofcom would perhaps prefer not to go that far and thus avoid any complicated legal challenges, delays or tangling with Europe’s competition policy (the EU isn’t completely sold on the idea of separating incumbents from their networks), but they haven’t closed the door on such an approach either. We do expect to see a much more independent Openreach in the near future, but it may not be quite as separate as the above coalition would hope.

We’ve shot off a message to BT and hope to report back with their comment shortly. In the meantime you read a breakdown of the 10 proposals.

UPDATE 8:34am

A BT Spokesperson told ISPreview.co.uk, “We at BT are in talks with Ofcom, discussing constructive ideas to further enhance the independence of Openreach from the rest of BT Group. Key suggestions made by other companies today seem incompatible with the legal responsibility that the Board of any listed company has when it comes to stewarding shareholders’ money responsibly.“