BT keeps hold of Openreach but must 'open up' network, says Ofcom

BT Group may still be forced spin off its Openreach infrastructure arm, regulator Ofcom said, unless it effectively opens up the network to rivals and implements major reforms.

A review carried out by the telecoms regulator found under the current model of BT ownership Openreach lacks independence and "has an incentive to make decisions in the interests of BT".

So, it called for an overhaul of the division's governance to strengthen its independence from BT, making its own decisions on budget, investment and strategy, and be "required to serve all wholesale customers equally".

"Openreach management should be required to serve all wholesale customers equally, and consult them on its investment plans. There will also be greater transparency over how costs and assets are allocated between Openreach and the rest of BT," the regulator said.

Not only will BT have to open up Openreach's telegraph poles and ‘ducts’ that carry telephone lines, it must make it much easier for competitors to access this network.

Ofcom, which has been under pressure from BT's rivals including Sky and TalkTalk to make reforms, also said this was part of a new strategy to promote large-scale roll-out of new ultrafast broadband networks, based on cable and fibre lines, as an alternative to the partly copper-based technologies currently being planned by BT.

The threat of a break-up remained, however, and the regulator said it would prepare detailed proposals for how to implement these changes later this year.

"The new model might require Openreach to become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members. If necessary, Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity, with its own shareholders."

In response, BT chief executive Gavin Patterson said "a great deal of what they are proposing is already in place", including that its ducts and poles have been open to competitors since 2009 "but there has been little very interest to date".

It added: “Our plans would help ensure the UK remains the leading digital nation in the G20 and we are keen to get on with the job. They involve large scale investment however and that requires a high degree of regulatory clarity and certainty, something that is missing at present."

BT added that it would review the paper in detail and was "open to discussions about how the current rules can be amended and updated. A voluntary, binding settlement is in everyone’s interests and we will work hard to ensure one is reached.”

Sky also responded, with relative restraint given that its chief desire was denied, but urged BT must be "held to account" for improving service and enabling delivery of a wider fibre network.

"Ofcom's actions today are not the end of the debate but a staging post towards delivering the network and service that Britain needs. We believe the simplest and most effective way to fix the current broken market structure is for Openreach to be completely independent. We are pleased to see that separation is still on the table," a spokesperson said.

The Centre for Policy Studies, the rightwing think-tank, was disappointed in the regulator's proposals.

"Ideally Ofcom would have referred BT Openreach to the Competition and Markets Authority," said the organisation's Daniel Mahoney. "Instead it has given BT Openreach a last chance to show that its ownership structure is not a barrier to the vibrant competition which is needed to rapidly improve UK broadband infrastructure.”

Analysts at broker Killik said they did not believe Ofcom's suggested changes "will have a significant impact on the investment case for BT".

Investors agreed that the company seems to have got off lightly, with BT shares up 3% to 472.25p just before 0900 GMT on Thursday.