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BT ordered to spin off Openreach over competition concerns BT ordered to separate from Openreach over competition concerns
(35 minutes later)
BT must formally separate from its Openreach network division after failing to address competition concerns, the telecoms watchdog has announced. BT is to be ordered to legally separate its Openreach network arm after failing to address competition concerns voluntarily.
Ofcom said it will launch a formal notification to the European commission over plans to force BT to spin off its Openreach arm, which develops and maintains the UK’s main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer. Telecoms watchdog Ofcom said it was “disappointed” with BT’s proposals since it outlined plans in July to make Openreach a “distinct company” within the BT group.
But the regulator said during this process it still remained “open” to further proposals from BT to meet its “strong competition concerns”. The regulator will now prepare a formal notification to the European commission to start the process of forcing 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.
It said: “We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. But it 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.”“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.”
Ofcom said its proposals – which were first put forward in July – would not see BT forced to sell off Openreach, but instead legally break off the division into a separate company with its own board. BT has faced mounting calls from rivals for a full break-up and sale of Openreach after being criticised for poor customer service and a lack of investment.
On Monday night, BT appointed the first independent chairman of its Openreach arm – hiring Mike McTighe, who was on the board of Ofcom from 2007 to 2015. 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”.
But Ofcom wants Openreach to have a board made up of a majority of directors who are independent of BT. 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.
BT has faced mounting calls for a full split from Openreach after the division was criticised for poor customer service and a lack of investment. But Ofcom wants Openreach to have a board made up of a majority of non-executive directors who are independent of BT.
Ofcom said: “A more independent Openreach would be well placed to invest in ‘full fibre’ broadband for everyone. Our proposal requires Openreach to become a distinct company with its own board. Ofcom is also concerned that under BT’s plans, the chief executive of Openreach would still report to BT boss Gavin Patterson.
“This would comprise a majority of non-executive directors, including the chair, who are not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.” It also wants Openreach to have greater consultation with customers on large-scale investments, its own staff, ownership of assets that it already controls, its own strategy and control over budget allocation, as well as independent branding.
Ofcom is also concerned that under BT’s plans, the chief executive of Openreach would still report to the BT boss, Gavin Patterson. The regulator wants Openreach management instead to report to the chairman of its own board. 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.
It also wants Openreach to have greater consultation with customers on large-scale investments, its own staff working, ownership of assets that it already controls, its own strategy and control over budget allocation, as well as independent branding.
Once legal separation is in place, Ofcom will regularly monitor Openreach and could still force a selloff if it believes it is not being run as a truly distinct company. BT has hoped to avoid legal separation, saying it is a step too far.
It has instead vowed to make “significant governance changes” to Openreach, including forming a new board and greater budget independence.
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.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 that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future”. “We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future.”
Rival companies such as Sky, Vodafone and TalkTalk have long urged the regulator to force a full 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. Rival firms have welcomed action to address shortfalls at Openreach, but said the plans do not go far enough.
The current structure of BT was introduced by Ofcom in 2005, but the watchdog has said it meant BT retained influence over significant Openreach decisions and has an incentive to make these decisions in the interests of its own retail businesses, rather than competitors. TalkTalk chief executive Dido Harding said: “While we do not think legal separation goes far enough to deliver the broadband consumers deserve, it is at least a step in the right direction.”
She added: “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.”
A spokesman for Sky said: “We have always said that we want a solution that is clear and executable and in the best interests of consumers and industry.
“We will now watch closely as to how Ofcom executes its proposals.”
A spokesman for the Department for Culture, Media and Sport said: “We’ve been clear that we need a more independent Openreach.
“It needs to offer genuinely fair and equal access to the country’s telecoms infrastructure to BT’s competitors. This is the best way to ensure consumers get the service they need, and the country gets the digital infrastructure it needs.”
Labour also gave its support to Ofcom’s plans, but called for better standards across the entire telecoms sector.
Tom Watson, deputy leader of the Labour party and shadow culture, media and sport secretary, said: “It is right that Ofcom are ordering BT to strengthen Openreach’s independence from BT, introducing more ambitious service standards for Openreach and injecting a greater degree of competition into the market.
“It is clear there must be better standards of service across the telecommunications industry as a whole. The Government cannot afford to waste any more time and must now get on with delivering the broadband infrastructure that UK homes and businesses so badly need.”