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Openreach to legally separate from telecoms giant BT

13 Mar 2017

On Friday 10 March 2017, Ofcom announced that BT has agreed to a legal separation of Openreach in a move to address competition concerns.

Openreach, owned by BT, operates BT’s infrastructure and is responsible for bringing broadband and landlines to most of the country. This service is used by BT along with its competitors including Sky, TalkTalk and Vodafone. In fact all major telecommunication providers use this network, with the exception  of Virgin Media. Unsurprisingly, telecommunication companies have raised concerns to the regulator Ofcom that BT had ultimate control over Openreach’s decisions on investment, favouring BT’s own retail business which harmed others.

In response, Ofcom announced as part of its Digital Communications Review in 2016 that it would overhaul the governance of Openreach to increase independence. BT has confirmed that it will implement the necessary changes to Openreach instead of Ofcom imposing these changes by way of regulation, which could have meant excursions to Brussels to seek EU approval to impose legal separation of Openreach against the milieu of Brexit talks.

Openreach is now due to become a distinct entity serving all customers, including BT’s competitors, equally in terms of access and investment. The changes include:

  • Separate articles of association,
  • A largely independent board,
  • Separate strategy and control over budget,
  • Executives that are accountable to the new ‘independent’ board,
  • 32,000 BT employees will transfer to Openreach so it can establish its own organisational culture,
  • Sole control over assets like the physical network; and
  • Providing confidentiality and consultation for customers.

The Budget released on Wednesday made it clear that broadband is a vital part of Britain’s infrastructure which faces crucial changes. Only 2% of Britain receives ultrafast broadband speeds via fibre-optic lines compared with 70% in Japan. To address this deficit, an independent Openreach could open up access to underground cables and telegraph poles to allow other telecommunication companies to invest in their own fibre networks to provide better services for their customers nationwide.

Shortly after the announcement on Friday, BT was seen as the fastest riser on the FTSE 100 bringing an end to a protracted period of uncertainty for BT’s shareholders. Although BT will still own 100% of Openreach, BT’s competitors have reacted to the announcement with a degree of approval and it is seen generally as a step in the right direction.

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