Sunday, March 19, 2017

BT to Separate From Openreach

Last week Ofcom (the telecoms regulator) announced that BT has agreed to legally separate from Openreach, which owns and operates the UK's broadband infrastructure.

Why The Split?

Through Openreach, BT owns (and is responsible for providing) the vast majority of the UK’s telecoms network infrastructure, not just for itself, but also for any competitors such as TalkTalk, Sky, and Vodafone (and BT's own retail arm). This has led to competition problems, and rivals have argued that, since BT has a third of the country's broadband market, a company from its own group should not be providing the infrastructure

There is has also been an argument in recent years that greater investment is needed in the network, and that action needs to be taken to improve broadband and phone services across the UK.

Also, in July 2016, Ofcom recommended that Openreach should be run as a separate company from BT, and in November 2016 Ofcom ruled that it would force a separation via the European Commission. BT has also faced pressure from the Department for Culture, Media and Sport to separate the two businesses.

Jumped, Rather Than Pushed

The agreement by BT to separate itself from Openreach means that potentially costly and damaging legal battles and imposed regulations can now be avoided.

What Happens Now?

The deal to separate the two companies, which took two years to complete, will actually mean that Openreach will have its own board, and will make its own investment decisions, but the BT board will still set the annual budget.

General Approval

The announcement by Ofcom has been met with general noises of approval by rivals Sky, TalkTalk and Vodafone (all users of the Openreach network) who had long argued that the link between BT and Openreach had been bad for competition and had impacted upon the levels of service that competitor companies had been able to offer their customers.

What Does This Mean For Your Business?

On the face of it, the potential for business broadband services to improve for all of us is, of course, a good thing. Telecoms commentators have, however, pointed out that expecting a sudden investment of billions more in fast fibre broadband connections just because there is a new, independent Board is unrealistic. There is also the small matter of how BT's shareholders will feel about seeing an important part of the business going, although, shortly after the announcement of the impending separation, shares in BT jumped 4.3% to 344.2p in the morning trading.

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