Breaking up BT should only be the end of the line

Sky and TalkTalk want Ofcom to force BT to split off the infrastructure division Openreach but the case for such radical action is weak and it might do nothing

Should BT be broken up? Should Openreach, the bit that owns and manages the copper-and-fibre network and sells its services not only to BT Retail but also to rivals, be liberated and run separately?

The temptation to answer yes is strong. Read Sky’s submission to the regulator Ofcom and be shocked by stories of Openreach’s incompetence. The outfit changes the agreed installation date for Sky customers on average about 36,000 times a month, it is claimed. More than 500 appointments each month are missed. Almost one in 10 installations takes longer than 30 days. So it goes on.

TalkTalk, the other corporate lobbyist for a breakup of BT, paints a similar picture and there is no reason to doubt these tales. Ofcom itself says: “Openreach’s performance on behalf of providers has too often been poor.”

If that argument doesn’t suffice, Sky and TalkTalk have others. A liberated Openreach might be easier to regulate if Ofcom had full sight of its costs within a BT behemoth that is about to get bigger with the purchase of EE. An independent business might be more inclined to invest harder and faster in new broadband services, and negotiate more joint ventures. Competition might be enhanced if Openreach were answerable to many masters.

And surely a breakup can’t be hard to execute since Openreach has been functionally separate within BT for a decade. Structural separation sounds easier to perform than, say, placing a ringfence around the retail units of Britain’s big banks.

That’s the case for radical action and it is now formally on Ofcom’s agenda as one of four possible regulatory approaches. Will it happen, though? Probably not – for three reasons.

First, there is no guarantee that Openreach’s service, which has been equally poor for BT Retail, would improve. The correct cure might be stiffer financial penalties.

Second, Openreach’s record for investing in infrastructure is not bad. Broadband coverage in the UK is high, and prices are low, by comparison with the rest of the European Union. An independently owned operation might invest more; on the other hand, it might veer towards under-investment if payback periods are as long as BT claims.

Third, the case for boosting competition is weak. Only Virgin Media’s cable network comes close to national coverage. As Ofcom’s interim reports says, separation would “require ongoing regulation to guard against excess returns by the structurally separate upstream ‘monopolist’”. The regulator might be exchanging one fiendish problem for another.

BT’s share price, standing at a 14-year high, betrays no worries among investors about a breakup, which in any case would have to be ordered by the Competition and Markets Authority. Ofcom may yet surprise us, but analysts at Jefferies have probably got it right: breakup is “a last resort”.

Raking it in

Barclays’ announcement on Wednesday of the deputy chairman Sir Michael Rake’s exit was amateurishly ambiguous as regards timing, as argued here. The Bank of England seems to agree. The regulator, we must assume, was responsible for forcing Thursday’s clarification.

Rake will now depart only when a new chief executive is in post and the new chairman, John McFarlane, standing in as day-to-day boss, has reverted to his normal role. “This is to ensure that the highest standards of corporate governance are maintained,” says Barclays.

Well, yes, but a bank like Barclays really shouldn’t have to be reminded of these things. It was blindingly obvious that the Bank might think that Barclays was too light on senior operatives if McFarlane was performing two roles and Rake was halfway out of the door. Given that a new chief executive might not arrive until next spring, Wednesday’s statement that Rake intended to stay until “at least” the end of the year was far too vague.

The main point of interest now is whether the Bank will allow Rake to become chairman of Worldpay in September, as planned. A thumbs-up is likely but by no means certain. For a short period Rake is planning to be chairman of BT and deputy chairman of Barclays while preparing Worldpay for flotation – plus he has two other non-executive positions.

He’s a talented workaholic, no doubt, but five jobs seems a lot, particularly as Barclays is a place where events happen. One of these days, for instance, the Serious Fraud Office might announce the result of its long-running inquiry into the bank’s arrangements with Qatar in a 2008 fundraising.

No need to row over Rowe

John Dixon will be a loss for Marks & Spencer, assuming the retailer confirms he has quit. As head of M&S Food, he saved the bacon of Marc Bolland, the chief executive, when the clothing side was in the depths of its struggles.

Dixon is head of non-food these days and, according to the official script, that division is improving. The sales line is still sluggish but profit margins are getting fatter thanks to better buying of merchandise.

It seems that Dixon is miffed that the current food boss, Steve Rowe, is the favourite to succeed Bolland. Fallouts can happen. But Bolland hasn’t actually signalled he’s off. If, in fact, he’s staying for another year, it’s very sloppy for M&S to let a succession bust-up explode now.

• This article was amended on Friday 17 July. An earlier version stated that 5,000 Sky installation appointments are missed each month. The correct figure is 500.


Nils Pratley

The GuardianTramp

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