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BT holds on to Openreach: A step in the right direction?

Ofcom has announced the long-awaited conclusion of its Strategic Review of Digital Communications; in particular its review of BT’s relationship with Openreach and whether the infrastructure arm should be spun off from the telecoms giant. While Ofcom has fallen short of forcing BT and Openreach to separate, the watchdog has called for better governance within Openreach and closer collaboration with other telecoms providers to improve service levels.

The question is whether this is the solution the UK telecoms industry has been waiting for.

What’s wrong with Openreach?

With Openreach today, businesses typically have to wait for months for a leased line to be provisioned; this is often blamed on installation delays and the huge costs associated with laying cable to connect the last mile. Once connected, the quality of the service is open to criticism, with commentators claiming it fails to live up to its ‘superfast’ claim.

This has been blamed on underinvestment from BT and will likely result in deadlines being missed for the extended roll-out of superfast broadband. The Government promised to extend superfast broadband to 95 per cent of the UK by the end of 2017, but many regions in the UK, most notably rural locations, still find themselves isolated due to the absence of adequate connectivity.

In addition to the lack of investment, it has been argued that Openreach is operating in an anti-competitive manner. Currently, Openreach lacks independent governance from BT; for example, the companies are run by the same board members. This has resulted in imperfect competition in the telecoms industry, with Ofcom finding evidence that Openreach is incentivised to make decisions in the interest of BT, rather than treating all operations equally. With this in mind, Openreach has come under increased scrutiny from Ofcom; a situation that has been broadly welcomed by consumers alike.

What does Ofcom want to change?

The Ofcom Review concluded that, in order to improve telecoms quality and coverage, BT must firstly open up its network of telegraph poles and ducts. Also, while BT had planned to roll-out superfast broadband using copper-based technologies, Ofcom’s new strategy will promote the roll-out of superfast broadband on cable and fibre lines. This means rival telecoms companies will be able to build their own, advanced fibre networks, which will be connected directly to homes and offices.

Secondly, Openreach’s business model will be completely reformed. Openreach will no longer be allowed to make decisions in the interest of BT. For this to become a reality, BT must loosen its grip on Openreach, allowing it to take control of its own budget, investment, and strategy, in consultation with the wider industry. This may require Openreach to become a ‘wholly-owned’ subsidiary of BT, with its own purpose and board members.

Thirdly, Ofcom intends to improve the quality of services by introducing tougher rules on faults, repairs and installations. It will also be more transparent by providing information on service quality – such as introducing tables on quality of service which details the best and worst operators. Automatic compensation will also be given to consumers and businesses for any loss or reduction of service; broadband, landline and mobile customers will no longer have to seek redress themselves.

Finally, Ofcom is striving to improve broadband and mobile coverage. It will work with the Government to deliver the ‘universal right’ for fast, affordable broadband to every household and business in the UK. For example, it will look into putting in place new requirements for future spectrum licences to improve rural mobile coverage. It will also provide consumers with accurate coverage information so that they can choose the best provider.

What will this mean for the telecoms industry?

With Ofcom concluding that Openreach needs better governance, more transparency, and to give other service providers improved access to ducts and poles, the telecoms market is about to get considerably more competitive. This will be a real boost to the UK’s digital economy as connectivity improves across the country.

However, if the necessary changes are not made to the way Openreach operates, Ofcom could still push for a split from BT, suggesting that Ofcom is still not completely confident that the new structure is going to have the desired effect.

Ultimately, BT’s continued ownership of Openreach still presents a major conflict of interest that has the potential to hinder market competition. Ofcom’s ruling is a big step in the right direction, but some may argue that it would be better for the telecoms industry – and businesses in general – if the underlying telecoms infrastructure was owned and managed by a completely independent body, much like the role National Rail takes with Britain’s railways. Only time will tell, but the main priority is for consumers and businesses – particularly in rural locations – to have access to affordable, reliable mobile and broadband services once and for all.

Askar Sheibani, CEO of Sorrento Networks, part of The Comtek Group

Image Credit: Shutterstock/chrisdorney