Ofcom detonates tactical nuclear weapon underneath Openreach

Ofcom has announced how it sees Openreach operating for the next decade and onwards and it will be as a more independent entity from the BT Group. The changes are pretty radical and seem to fall one step short of Openreach becoming its own PLC on the stock market, but who knows that may eventually happen.

New branding to reflect a new company, i.e. no mention or hints of BT

Staff to be employed by Openreach, i.e. transferred totally from BT Group. Consultations will resolve issues such as pensions and other benefits

More consultation with customers (e.g. TalkTalk and Sky) around large investments, and this will include a 'confidentiality' phase where plans can be discussed without any disclose to BT Group.

Assets under Openreach control to now be owned by Openreach

Its own board, where the majority (including the Chair) will be non-executive members with no affiliation to BT Group. Appointment will be made by BT, but Ofcom must be consulted on appointments.

Openreach to be given its own 'articles of association' and its directors given a duty to promote the success of the company and work in the interests of ALL customers.

This is the model that Ofcom has put onto the table and it is significantly more radical than the changes a decade ago that took the UK broadband market to where it is now. Whether the changes will produce a positive result with much more investment in Fibre to the Premises and better customer service is a massive unknown but there is an opportunity for that to happen and the question is once a new Openreach board has formed and the dust settled whether they find themselves struggling or awash in capital and enough staff to roll-out millions of FTTH/FTTP.

For the embattled SME and consumer, today's news is promise of a better future but with no certainty as to when this will happen and this is unfortunate as much of the campaigning has been around service standards with many of the existing problems down to previous decade old Ofcom decision and staffing levels of Openreach which are being stretched to keep up with the existing VDSL2 roll-outs and meet install/fault targets.

For those who are yet to see superfast broadband rolled out to them and are now part of the 95% due to be covered by the end of 2017, we strongly believe that today's changes will mean no difference, since the most likely result of this new Openreach will be a revision of the split between G.fast technology and FTTP in the commercial roll-out that was already planning to target some 12 million premises. There is actually a very high possibility that if large providers such as Sky and TalkTalk are more interested in steering Openreach investment into their emerging IPTV ranges and competing with Virgin Media that we might see Openreach doing little in rural areas for decades unless there is Government incentive.

Ofcom seems confident that this split is not going to cause disruption and massive costs to the consumer or industry, but we believe it will introduce some uncertainty and negotiations over staff transfers (both in individual terms, pension liabilities and the number of staff) are going to be a sticky problem and we can envisage, just as with previous changes, long term BT Group staff may take this as an opportunity to take early retirement.

The previous revised pole and duct access plans announced in February continue with the aim being to give more people more choice of infrastructure into their home, and FTTH has its new rules coming into force on 31st July. It is conceivable that Openreach may morph into a custodian of the existing VDSL2 and copper networks and the ducting they exist in, and the major customers just exploiting the new duct and pole access rules to roll out their own FTTH networks. Thus allowing TalkTalk to roll-out its much talked about 10 million home network without having to dig up every pavement.

The next couple of months are now the time for TalkTalk, Sky and others to step forward and either embrace the duct access abilities or work with the new Openreach to get them to do a more FTTH heavy roll-out. If these two largest competitors to BT Retail do not step up, then these changes are wasted and all they will achieve is allow BT Retail to further exploit its market share in the retail sphere. So just as with the Brexit changes it is time for those that have campaigned for the changes for years to now step up and get on with making sure that after the champagne bottle has emptied that work starts swiftly to produce the world leading changes they promised.

A number responses are expected today from interested parties and the first is from the Government.

"Nine out of ten homes and businesses now have access to superfast broadband, but our goal is to make sure the UK builds the right infrastructure to maintain our position as a world leading digital nation. We are clear that a more independent Openreach is needed to benefit consumers and the UK’s digital infrastructure. We are concerned that BT’s proposals do not go far enough and think it is right that full structural separation remains an option. Swift and clear action is needed to give certainty to consumers, industry and investors in the UK’s broadband infrastructure, and which delivers rapid improvements in the level of investment and service." A Department for Culture, Media and Sport spokesperson

"Today's proposal to create a legally separate Openreach is a step in the right direction, although falls short of the full change that would have guaranteed the world-class broadband network customers expect and the UK will need. In particular, leaving Openreach's budget in the hands of BT Group raises significant questions as to whether this will really lead to the fibre investment Britain requires." Jeremy Darroch, Group Chief Executive, Sky

"Fundamentally, today’s proposals do not address Ofcom’s key objectives of reducing the country’s dependence on Openreach and encouraging essential investment in fibre. Whilst correctly identifying Openreach as the principal source of the industry’s dysfunction, it is hypocritical of Ofcom to focus on a restructured Openreach as a panacea. Further debate and navel-gazing as to the appropriate structure of BT will continue to create a period of uncertainty at a time when the industry needs clarity, direction and competitive investment. Openreach has a critical role to play, but it is not prudent to entrust them with sole responsibility for our digital future. CityFibre has proven its commitment to delivering future-proof digital infrastructure across the UK through its significant investment in dark fibre assets. Unconstrained by the ongoing regulatory debate, CityFibre has the financial flexibility and independence to rapidly deliver the fibre infrastructure, innovation and challenger ethos essential to meet the UK’s future digital needs." Mark Collins, Director Strategy & Policy at CityFibre

"Anything which brings the UK closer to a full fibre to the premise rollout is a step in the right direction. Industry will be supportive of Ofcom’s focus on outcomes, particularly the focus on increasing fibre connections ‘to the doorstep’. Separating BT Openreach functionally within BT Group, should allow BT Openreach to invest in the infrastructure required to ensure the UK has digital infrastructure which is fit for the future. What is needed now is a rigorous focus on how fibre rollout in the UK can be speeded up. The Government has a clear roll to play in setting out a robust Digital Economy Strategy to give confidence to industry that the UK will not be left behind in this crucial area." Chris Richards, Senior Business Environment Policy Adviser at EEF, the manufacturers’ organisation

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