The telecoms regulator Ofcom has called for Openreach – which runs the UK’s broadband infrastructure – to be legally split from BT.
Before privatisation in the 80s, British Telecom was the state-owned telecoms provider in the UK. Before that it was run by the post office and known as Post Office Telecommunications.
The Conservative government of the day passed the Telecommunications Act of 1984, which privatised BT with 51% of the shares sold to private investors. The law was intended to create competition in the UK telecoms market and enable BT to expand globally.
Fast forward to today and BT – through its subsidiary Openreach – still operates the UK’s telecommunications network: effectively the cables that bring telephone and internet services to our homes. It then sells capacity to phone and internet providers like Sky, TalkTalk, Virgin Media and its own parent company BT.
Other telecoms companies have long complained that this is a conflict of interest. They also claim that Openreach charges too much, offers poor service when it comes to fixing problems related to their services, and that they can’t adequately serve their own customers as a result.
Openreach has also been accused of underinvesting in broadband infrastructure and favouring their BT services when making investment decisions.
This all matters because telecommunications services, and in particular the internet, has become more and more crucial to people’s everyday lives, as well as the future prosperity of the country.
In July, telecoms regulator Ofcom ordered that Openreach should become “more independent” by becoming a distinct company and by having its own board with executives accountable to the board among other things. A report issued by parliament’s Culture, Media and Sport Committee said that BT was “significantly underinvesting” in Openreach and that BT had exploited its position to make strategic decisions that “favour the Group’s priorities and interests”.
Among other things, BT is apparently concerned about surrendering assets as part of a split, as well as a pension deficit of £14.2 billion that would be created afterwards if it was forced to give up ownership.
Today Ofcom has ordered BT and Openreach to legally separate, after it said BT had failed to address competition concerns that it laid out in July. The regulator has stated that it is preparing to formally notify the European Commission that the two should separate.
Ofcom said that “some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.” However, under this plan BT would still own Openreach.
BT rivals continue to push for a complete split. Ofcom has stated that it’s prepared to work towards a voluntary arrangement with BT that better satisfies the regulator’s concerns. If it fails to do so, the fight will go Brussels where BT will be forced to get involved in a lengthy and costly legal fight – that it may very well lose.
Authored by: Neil Thomas