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Ofcom orders BT Openreach split to go ahead following consultation

Media regulator is pushing ahead with plans to split the companies after BT 'failed' to provide a suitable alternative

BT has been told by regulator Ofcom to split off its Openreach business into a separate company, ending months of uncertainty.

Ofcom is preparing a formal notification to the European Commission to start the process.

Initial plans for the split were announced in February, following complaints that BT had the ability to favour its business when making investment decisions regarding Openreach.

These plans were finalised in July and a 10-week consultation period was initiated, in which BT could propose a different course of action. Customers and businesses were also encouraged to get in contact with the regulator in that time.

However, according to Ofcom's announcement today, BT "failed to offer voluntary proposals that address [Ofcom's] competition concerns".

It said: "We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. 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."

The order means that Ofcom will be a legally separate company, but will still sit within the BT Group. It will be required to have its own board, with a majority of non-executive directors, including the chair, with no affiliation to BT. It will also have its own branding, and an obligation to treat all its customers equally.

Ofcom said the split will allow more investment into fibre networks in the UK, but BT's rivals are calling for a complete separation, which would see Ofcom under different ownership to BT.

"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" - Ofcom

Rivals including TalkTalk, Sky and Vodafone have launched the Fix Britain's Internet campaign, formed for the 10-week consultation period. The campaign called for a complete separation, which it believes is the best way to make sure Openreach has enough investment.

TalkTalk's CEO Dido Harding said Openreach has been "letting customers down" for too long, and it welcomes the decision by Ofcom as a "step in the right direction".

"Openreach has been letting consumers down for far too long, unable to meet promises of even minor improvements and becoming a household name for all the wrong reasons," she said. "However, we welcome the fact that the regulator has finally made a decision, and while we do not think legal separation goes far enough to deliver the broadband consumers deserve, it is at least a step in the right direction."

However, Ofcom argues that a complete split could create much greater costs and risks compared with its proposed split.

"Responses to our consultation make clear that structural separation could generate materially greater costs and risks compared with models based on legal separation. This includes the costs of physically separating the two businesses, and effects on the BT pension scheme. Structural separation is the most intrusive form of regulatory intervention available," it said.

Mark Skilton, professor of practice at Warwick Business School, said he believes the split proposed by Ofcom is a step towards faster internet speeds "not driven by one large operator's priorities".

"The BT Group argue they are investing in this critical national infrastructure powering the digital economy for all industries, yet questions over how to build this faster and with more coverage across the nation have been part of a constant battle. The Internet of Things, super-fast broadband, 5G and other types of networks may be better delivered and served with having multiple large-scale companies in a more devolved network," he said.

"This requires a huge investment to build fibre networks, but also a willingness to experiment and develop a full range of services that digitise and enable multiple networks and providers to give not just access but also high performing data and network speeds. Separating the BT and Openreach monopoly will in my view help this move towards a faster network of providers and hence one that is not driven at the speed of one large operator's priorities. The telecoms network has to be the network of the future and this needs big investment from many parties."

John Carter (pictured right), managing director at BT partner DMSL, said he isn't sure how much is actually going to change with the split.

He explained: "I was a bit surprised they announced it to be honest. That was already the decision, that it was going to be broken up. While it is still in BT, it will have a new chairman from the 1 January. It was never really going to break away from BT. At the end of the day I don't think there will be any real benefit. We have got an infrastructure which is completely separate and they have to run it as a business. It's not going to change anything I think. It will be more transparent I think but everybody knew that already."