Ofcom has sent formal notification to BT requiring the separation of their broadband and fixed line infrastructure arm, Openreach. Reforms suggested by the regulator in July included the ‘legal separation’ of BT and Openreach.
A consultation period followed in which third parties submitted their own evidence and recommendations. However according to Ofcom, BT failed to offer voluntary proposals that address competition concerns raised, thus leading to today’s split.
This requires Openreach to function as a separate entity with its own non-BT affiliated board, corporate structure and objectives – separate from those of British Telecom.
Ofcom’s concerns stem from accusations by BT rivals such as Sky and TalkTalk that Openreach was providing their parent company’s consumer and business broadband services with favourable rates, thus damaging competition in the UK fixed-line space. A joint campaign by Three, FCS, Vodafone, Sky & TalkTalk called ‘Fix Britain’s Internet’ received over 100,000 petition signatories calling for the break up of BT and Openreach.
Responding to Ofcom’s announcement, BT said in a statement, ‘We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom's objectives without disproportionate costs.
‘We are implementing these proposals, and have just appointed Mike McTighe to be the first chairman of Openreach. 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.’
BT reacted instantly, announcing Mike McTighe as the first chairman of Openreach. He will begin the role in January 2017 by helping to appoint further independent board members.
Mike McTighe has an extensive history in telecoms, having spent eight years on the Board of Ofcom and also held senior positins at Motorola, Phillips, Cable & Wireless and Carrier1. Commenting on his appointment McTighe said, ‘A great deal has been achieved over the past decade but it is clear that Openreach needs to up its game on service and regain the trust of the people we serve in the industry and across the UK.’
Ofcom’s statement on the separation included this description, ‘Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly-owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time. Therefore, this is the approach with which we are minded to proceed.’