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Probation period

26 July 2016 By Fiona Maharg-Bravo

BT has avoided a breakup for now but will have to earn a lasting reprieve. Britain’s communications regulator, Ofcom, said on July 26 the telecoms group can keep its Openreach infrastructure arm as long as the division becomes a separate legal entity with its own board, assets, and strategy. Failure to give Openreach enough independence will, however, put a split back on the table.

Openreach has been operating at arm’s length from BT for over a decade, and has been strictly regulated by Ofcom during that time. With good reason. The division is responsible for building and maintaining Britain’s main telecoms infrastructure, which means its network is used by the likes of Sky and Talk Talk. Yet BT has its own retail broadband business that competes with them. The regulator has sought to mitigate worries that BT could use its control of the network to undermine competition without the cost and disruption of a full separation.

Under Ofcom’s proposal, Openreach would have its own board, and a majority of directors, including the chair, cannot be affiliated to BT. It would own the assets it operates and employ its own staff. Ofcom also wants the unit to have a distinct brand, a separate strategy and operating plans, and keep discussions about customers’ long-term investment plans confidential. Yet BT will still set the budget.

This is not necessarily a fatal flaw in Ofcom’s ruling. Openreach may not invest any more than BT had previously planned, but there was also no guarantee that a split would have led to more money being spent on the infrastructure. If rivals decide to invest more, BT will now have to make it easier for them to build their own ultra-fast fibre networks using Openreach’s network of telegraph poles and underground tunnels.

Details still need to be worked out and consultations will only end in October. The telecoms group has plenty of other things to worry about right now, such as Sky’s entry into the mobile market and a ballooning pension deficit. Hanging on to a unit that provides a third of its 7.9-billion-pound EBITDA is definitely worth some effort, and concessions if necessary.

 

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