Can Ofcom Get Openreach Reform From BT Without Messy Divorce?


BLOG: Just like NFL owners have threatened to relocate to Los Angeles to get what they want, Ofcom hopes the threat of taking away Openreach can get concessions from BT

The initial findings of Ofcom’s once-in-a-decade review of the UK communications market fell short of recommending that Openreach be separated from BT.

But the regulator has made it clear that change has to happen if such a scenario is to be avoided – and BT knows it.

The peacocking and veiled threats of withheld investment in the lead up to publication have been replaced by humility and a willingness to compromise with the regulator and rivals after Ofcom laid out the perceived problems with current structure.

BT’s proposals for change have been shot down by Ofcom, which has said the possibility of breakup is still on the table – and the indications are it is prepared to go down the lengthy legal route if necessary.

Openreach future

splayfoil road fibre cabinetOfcom’s report isn’t exactly filled with concrete proposals, but it has engineered a stand-off that could deliver the reform Openreach needs if UK businesses and consumers are to benefit. TalkTalk and Sky have both said they welcome Ofcom’s recognition of BT’s failings but still want a fully independent Openreach.

It’s clear that the main changes from this process will take place in the negotiations that come in the weeks and months to follow – but can true reform happen without separation?

One of the central recommendations of Ofcom’s findings is that BT make its ducts and telegraph poles available to third parties so they can deploy fibre cables alongside BT’s existing infrastructure.

This would appear to appease Sky and TalkTalk so they can put their money where their mouths are and create a rival to Openreach and deliver the fibre to the premise (FTTP) technology they claim the UK needs and that BT is being stingy about. But, in reality, this has been possible since 2009 and does not address a significant issue.

Bargaining chip

Building a fibre network is expensive, as BT is so keen to point out, and any alternative nationwide infrastructure would be unable to compete for BT’s retail wholesale contract because it would stick with Openreach. The inability to work with the UK’s largest broadband provider puts the entire economics of such a project in question.

Separately, but not completely unrelated, was the concern that EE would favour Openreach for its backhaul if the mobile operator was acquired by BT – the £12.5bn deal was completed earlier this year.

cable fibreThe regulator also wants Openreach to be more independent, setting out its own strategy and budgets. But Ofcom has also recognised that Openreach often makes decisions that benefit BT. How can Openreach act independently while still part of the same company?

For now, rivals will be pleased that Ofcom has accepted the status quo cannot continue and businesses and consumers should benefit from better service as BT makes concessions to avoid the prospect of losing Openreach.

For more than two decades, there has been no National Football League (NFL) team in Los Angeles – the second biggest city in the US and a huge media market. The rest of the team’s owners have shown no desire for expansion because they have all been able to threaten to leave their home cities and move to LA if local authorities don’t help fund stadiums.

Now, one, possibly two teams are moving to LA. The owners’ bargaining chip is gone.

Openreach is Ofcom’s Los Angeles. As long as the threat of separation hangs over BT, Ofcom can extract reform without the lengthy, and possibly disruptive legal battle that would ensue.

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