BT hangs on to Openreach but Ofcom says it must be opened up

Rivals will be allowed to lay their own cables as threat of full split is lifted in regulatory review

‘Coverage and quality are improving,’ said Ofcom’s Sharon White, ‘but not fast enough’ (Ofcom)

BT won a decisive victory over those calling for its wholesale Openreach business to be spun off, as the industry regulator Ofcom said the telecoms giant could keep it in return for making it more accessible to rivals.

Sky, TalkTalk, Vodafone and others had been pushing for years to persuade Ofcom to split Openreach from BT. But on Thursday, in its first big review of the sector for a decade, the regulator said the status quo could remain with a few tweaks.

Openreach controls the cables and telegraph poles that bring broadband to homes across the country. They are leased to providers such as Sky and TalkTalk because they are owned in essence by BT, meaning that the former state owned business is responsible for their upkeep.

Rivals have also complained that this means BT customers get preferential treatment, making competition unfair, and can control the price at which they lease the lines.

Their demands were partially met by Ofcom’s new boss, Sharon White, who said they could gain access to the Openreach infrastructure to lay their own cables, if they wished. She added that there was clear evidence that Openreach “still has an incentive to make decisions in the interests of BT, rather than its competitors”, and the business would be more open on how costs and assets are allocated between it and BT.

She explained: “People need affordable, reliable phone and broadband services. Coverage and quality are improving but not fast enough. So we’ve announced fundamental reform of the market with more competition, a new structure for Openreach, tougher performance targets and a range of measures to boost quality of service.” Ms White also said she wanted to bring in automatic compensation for consumers who suffer any loss of, or reduction in, service.

She said: “We already have automatic compensation for electricity, water and gas, and consumers deserve it for telecoms. We will have new rules for quality of service in April and I want compensation to come in as soon as possible.”

After the announcement, shares in BT closed up 21.4p or 4.7 per cent at 479.8p, while TalkTalk shares were down 1.1p or 0.5 per cent at 216.7p. Vodafone and Sky both rose in line with the FTSE gains.

BT claimed a cautious victory, seemingly recognising that Openreach could slip from its grasp if the new rules are not adhered to.

Chief executive Gavin Patterson said: “I would call it a step on the road to clarity… But there is still an awful lot to be sorted out.

“There is an awful lot we can do without adding huge cost, which a full spin-off would have meant. The fact is that ultimately the wholesale cost of ultrafast broadband in the UK is very competitive.”

BT has claimed Openreach would cost too much to split and lead to broadband becoming prohibitively expensive, while slowing down the rollout of faster speeds across the country. But commentators have pointed out that similar systems work in other countries and other sectors. For example, National Grid controls the power lines across the UK and various electric companies lease them before providing services to households.

SOURCES: ANALYSYS MASON, CONNECTED NATIONS

A Sky spokesman said: “We welcome Ofcom’s recognition that the... Openreach model is not working and fundamental change is required. BT must now be held to account for improving service and enabling delivery of fibre to Britain’s homes and businesses.” TalkTalk boss Dido Harding said: “Ofcom has done well in identifying many of the worst problems, including recognising, finally, that BT’s control of Openreach creates a fundamental conflict of interest which hurts customers.

“But having accepted all this, Ofcom has produced 100 pages of consultation with little concrete action. The risk is that we end up with 10 more years of debate and delays.”

Conversely, rival broadband provider Virgin Media, which has its own separate cable network supplying around 16 million homes, said it was right that Openreach remain part of BT. Virgin Media chief executive Tom Mockridge said: “The best way to provide competition against BT and its inherited advantages is to support infrastructure investors like Virgin Media.”