BT and Openreach ordered by Ofcom to separate in ‘legal split’

The Corbel Blog

Ofcom, the UK telecoms regulator, has ordered BT to ‘legally separate’ from its Openreach network division that manages the UK’s broadband infrastructure. The regulator will prepare an official statement for the European Commission to kickstart the separation process.

Ofcom had expressed competition concerns with BT in July and said it was proceeding with the move “after BT failed to offer voluntary proposals that address our competition concerns”. Openreach manages the UK’s main telecoms and broadband network which is used by various providers including BT, TalkTalk, Sky and Vodafone and TalkTalk. BT’s rivals had complained that Openreach charged too much for making use of the network infrastructure.

The regulator has ordered that Openreach becomes a legally separate-entity with its own independent board. Ofcom has proposed that the majority of directors and the chairman should not be affiliated with BT. Openreach will still be a wholly-owned subsidiary of BT, but Ofcom has warned that if its efforts failed then it may consider ordering a total split of Openreach from BT. Rival companies have been campaigning for a break-up of BT and that Openreach be spun into a completely separate company.

Dido Harding, Talk Talk

Dido Harding, CEO, Talk Talk

Dido Harding, the Chief Executive of TalkTalk, said that Ofcom’s action was “a small step in the right direction”, but that “even this complicated legal separation is one that BT Group has been fiercely resisting”, she said. A representative from Sky, another rival to BT said, “Let’s not forget why we are here – BT Openreach has continued to fail consumers. We will now watch closely as to how Ofcom executes its proposals.”

The Department for Culture, Media and Sport said Openreach “needs to offer genuinely fair and equal access to the country’s telecoms infrastructure to BT’s competitors” and that it supported Ofcom action to achieve this.

BT said in a statement: “We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom’s objectives without disproportionate costs. We are implementing these proposals, and have just appointed Mike McTighe to be the first chairman of Openreach. We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach chief executive and the form of legal incorporation. We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future.”

BT shares dropped 1.5% on the announcement before trading 0.5% higher.

Mike McTighe, announced as the first chairman of Openreach

Mike McTighe, announced as the first chairman of Openreach

It’s currently a busy time for both BT and Openreach, details of next generation broadband services have recently been released, plus the infrastructure division announced its first chairman on Monday. It has been revealed that former Ofcom director Mike McTighe has been appointed by BT to be the first chairman of Openreach. McTighe was on the board of Ofcom between 2007 and 2015.