Consumers could look forward to cheaper broadband and better service after BT finally agreed a deal to legally separate Openreach, which controls the UK’s broadband network.
For two years the telecoms company had been at loggerheads with the UK media regulator, Ofcom, which wants to strengthen the independence of Openreach to promote competition and boost superfast broadband.
“This is a significant day for phone and broadband users,” said Ofcom chief executive Sharon White. “The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT.”
Conservative MP Grant Shapps, the chair of the parliamentary cross-party British Infrastructure Group, said that the separation agreement should now benefit internet customers.
“There has been significant parliamentary concern about the current setup, which led to 120 MPs backing a report calling for separation,” said Shapps. “Now both BT and Openreach must focus on ensuring that the millions of UK customers receive better broadband.”
Hannah Maundrell, editor in chief of money.co.uk, said: “Households deserve an affordable, reliable broadband connection and a choice of supplier wherever they live. I hope it will eventually mean cheaper and better broadband for everyone.”Now that Openreach will legally separate from BT, Ofcom has agreed to drop its threat to call in European regulators.
The newly separate broadband network operator will directly employ 32,000 staff – almost a third of the telecoms group’s workforce – who will be transferred across from BT, which Ofcom said would allow Openreach “to develop its own distinct organisational culture”. It will be one of the biggest transfers of employees under UK employment regulations.
“We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies,” said White. “We have got powers to impose fines [if it fails to implement changes].”
A major sticking point in the protracted negotiations is what happens to the pensions of BT staff who transfer to become Openreach employees.
To protect those employees the government will have to enact new legislation to extend the crown guarantee that underwrites BT’s £47bn retirement fund to cover Openreach staff.
This will take several months and the separation of Openreach will not begin until that has taken place.
Rivals – which include Sky, TalkTalk and Vodafone – argue that BT has deliberately dragged its heels in opening up the network to their engineers, which has hampered their ability to offer homes superfast broadband access.
Openreach, which began operating in 2006, is responsible for building and maintaining the tens of millions of copper and fibre lines that run from telephone exchanges to homes and businesses across the UK.
“I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure,” said BT chief executive Gavin Patterson. “It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.”
“This is a welcome step that we have long called for on behalf of our customers,” said a spokesman for Sky. “A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs. It’s important that today’s agreement is now implemented by BT in good faith and without delay.”
Under the deal with Ofcom, Openreach will be stripped of BT branding and become a “distinct company with its own staff and management, together with its own strategy and a legal purpose to serve all of its customers equally”.
“BT has agreed to all of the changes needed to address Ofcom’s competition concerns,” said Ofcom. “The new Openreach will have the greatest degree of independence from BT Group without incurring the delays and disruption – to industry, consumers and investment plans – associated with [an alternative] structural separation or the sell-off of Openreach to new shareholders.”
In February, BT announced that telecoms industry veteran Mike McTighe as Openreach’s first chairman, and created its own board which has a majority of independent members.
The operational structure for Openreach will see the division setting its own strategy and controlling the allocation of its own budget, within an overall budget set by BT.
“Openreach will be obliged to consult formally with customers such as Sky, TalkTalk and Vodafone on large-scale investments,” said Ofcom. “In future, there will be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group, as well as further protections for confidential customer information.”
Openreach’s chief executive will be appointed by, and accountable to, Openreach’s board. BT will be able to veto the appointment of future Openreach chief executives, but will have to notify Ofcom first.
The deal with Ofcom marks two victories in a week for Patterson – following the renewal of a £1.2bn deal for exclusive Champions League rights for a further three years – who has endured a torrid few months.
Patterson has been trying to keep BT on track after the financial and reputational damage of an accounting scandal at its Italian operation triggered one of its biggest ever one-day share price falls and wiping £8bn off its shares.
In a carefully timed speech at a conference last week, which included White, Patterson vowed to improve customer service for BT’s millions of residential customers and telecoms companies that rely on its network.
His conciliatory tone, after years of wrangling, and acknowledgment of the criticism he has received over the quality of the Openreach national broadband network was taken by analysts as a precursor to a mutually agreeable deal finally being announced.
“This has been a long and challenging review where we have been balancing a number of competing interests,” said Patterson on Friday. “We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”
