Openreach could go its own way, Ofcom tells BT

BT could be forced to break itself up and spin off the business that sells wholesale network services to its competitors, the telecoms regulator has announced.

Ofcom said that separating Openreach from BT could improve competition and bring benefits for consumers. It cautioned, however, that this would be a challenging process and might not deliver some of the improvements sought by rivals.

Sky and TalkTalk, in particular, are campaigning for a break-up of BT on the grounds that its dominance of the broadband market is unfair and that Openreach delivers an inferior service.

A separate Openreach could be valued at more than £20bn, making it an immediate FTSE 100 member if it were quoted but also a highly attractive play for global infrastructure funds.

Ofcom is calling for responses to the initial phase of its digital review and is due to come to a final decision early in the new year. It cannot force BT to hive off Openreach but could refer it to the Competition and Markets Authority with a recommendation for a break-up.

BT’s chief executive, Gavin Patterson, has already made it clear that the telecoms giant would challenge any such move through the courts – a process that could take years and mean investment in a new fibre network is suspended.

Pointing out that 8 per cent of the UK still doesn’t receive fast enough broadband, Ofcom warned: “The incentive for BT to discriminate against competing providers can be limited by regulation, but not removed entirely.”

But Sky and TalkTalk both made it clear that they welcomed the signal from the new Ofcom chief executive Sharon White that a separation of Openreach is a genuine option. Dido Harding, the chief executive of TalkTalk, said: “This is a good start from Ofcom. It is framing the right questions and looking at some radical structural solutions. In particular, they have called out the poor service from Openreach.”

BT believes that improvements, both for its rivals and consumers, can be achieved by updated regulation rather than separating Openreach.