MPs blast BT in scathing report into broadband provider Openreach – and regulator Ofcom agrees

Department for Culture Media and Sport Committee committee says the telecom company has ‘exploited its position’ and is likely to have ‘sacrificed shareholder value and customer benefit’ as rivals cheer from the sidelines 

James Moore
Tuesday 19 July 2016 14:12
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Ofcom chief Sharon White says the UK’s broadband provision market has to change
Ofcom chief Sharon White says the UK’s broadband provision market has to change

Problem with your broadband? MPs hear you. The honourable members on the Department for Culture Media and Sport Committee say BT is the cause of your unhappiness and they’re very cross with it.

The Committee has issued a scathing report that accuses the owner of Openreach, which provides the infrastructure used by most broadband providers, the cables and the like, of under investing to the tune of potentially hundreds of millions per year”.

Its findings are based on a report commissioned from a panel of independent experts, but are doubtless also fuelled by bulging postbags and surgeries at which aggrieved constituents keep banging on about broadband.

“BT has exploited its position to make strategic decisions that favour the Group's priorities and interests – and is likely to have sacrificed shareholder value and customer benefit as a result,” the committee opines. Ouch.

And there’s more: “The Committee is demanding that BT invest significantly more in Openreach, and allow Openreach much more autonomy over what it invests, when and where.”

It also says Ofcom, the regulator, has successfully kept prices low, but has failed to hold Openreach to an “adequate quality of service”.

The upshot? The committee supports Ofcom’s plans for establishing greater separation between Openreach and BT Group, but makes clear that if BT “fails to offer the reforms and investment assurances necessary to satisfy our concerns, Ofcom should move to enforce full separation.

It’s important to note the timing of the report. Ofcom in February opted for a solution that would give Openreach more independence, particularly as regards investment decisions, while stopping short of breaking up BT. An update on the most important issue facing Ofcom chief executive Sharon White could be expected as soon as next week.

What should worry BT is that the regulator agrees with a lot of what the MPs have to say about BT. So too do the rival broadband providers that use Openreach infrastructure. They all say that they are thoroughly fed up.

Their suggestions for improving the situation have ranged from forcing BT to spin-off Openreach into a separate listed company (Sky) to allowing BT’s competitors to invest in and thus have a say in the direction of an industry owned Openreach (Vodafone). But you get the impression that they’d be happy with anything that alters the status quo.

For its part BT says it is investing more money and that a BTexit (sorry, couldn’t resist) of Openreach would make things worse before they get better. It is that, as much as anything, that may have stalled more radical reform, combined with the fact that BT would launch a potentially lengthy and damaging battle against any attempt to force it to give up one of its crown jewels.

“We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little,” BT growls.

The real Brexit has made this debate more urgent than it was.

A Britain flying solo desperately needs to be at the cutting edge of services such as broadband. It will not develop a new generation of new economy stars – and ARM Holdings’ proposed takeover by Japanese company SoftBank means its only member of the current generation won’t be British for much longer – without it. It will not develop a new generation of old economy stars, for that matter. Broadband has become integral to the service sector but also to farms, and retailers, manufacturers and, well, just about any business sector you’d care to mention.

BT can still rescue this one. But it’s past time for promises and high time for action, rapid action.

The problem facing it is that the idea of forcing it to spin-off Openreach is a genie that is out of the bottle. Like Brexit, like Scottish independence, once ideas like that start to gain traction it is very hard to put them back in again.

“We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area. We are hitting all of Ofcom’s service targets and are determined to exceed them given customer expectations are rising all the time,” says BT.

That might be true, but while MPs’ postbags and their surgeries and their trips to the Chamber of Commerce annual dinner are dominated by moans about broadband, they’re going to continue to keep making a fuss. So will Ofcom. So will BT’s rivals. And the Openreach controversy will continue to dog the company and blacken its name.

BT runs a very real risk that before too long someone will say “enough already”, force a break up and deal with the consequences afterwards. It’s the sort of thing that has happened before as everyone living in this country knows all too well.

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