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By | Simon Rockman 16th July 2015 12:23

BT circles wagons round Openreach as Ofcom mulls forced split-up

Bloodthirsty rivals cheer at thought of bloody amputation

BT has launched an offensive against moves to have its Openreach division completely hived off, with its view being that maintaining a near monopoly is the best thing for the country.

Ofcom’s 2005 strategic review resulted in Openreach being repositioned to become a separate part of BT, but rivals have long been pushing for complete separation.

They are hoping that the 2015 strategic review will lead to a complete cut-off of the infrastructure division.

It’s not a done deal yet, though. Ofcom said it would look at the separation as part of its strategic review and has now launched a second phase of the review and a consultation, although it’s pretty clear what respondents will say.

“We are pleased that Ofcom is looking at all the options for the future of the telecoms market as part of its strategic market review," said a TalkTalk spokesperson. "This is a once in a decade opportunity to make bold, radical decisions, such as the separation of Openreach.”

The consultation is based on a discussion document (PDF, 185 pages), and will set out the regulation for telecoms over the next decade.

Ofcom explained that the purpose of the review is to look at four areas:

  • investment and innovation in the market, which can help make services widely available
  • competition, to deliver quality services and affordable prices
  • empowering consumers and businesses, particularly making sure they have the information and means to choose and switch between providers
  • keeping regulation targeted at areas of concern, and deregulating where possible to allow markets to function well

The regulator is clearly worried about the impact of BT buying EE and Three swallowing O2.

The recent wave of mobile mergers internationally has prompted some commentators to suggest that investment would increase if levels of competition were lower.

We do not believe this is supported by the evidence. Econometric analysis from a range of sources, including some we have commissioned, suggests that there is a complex relationship between competition and investment.

In practice, it appears that market structure and competitive intensity combine with many other factors in influencing levels of investment.

Sharon White, Ofcom chief executive, said: “Our priorities are clear. We want to promote competition, investment and innovation, so that everyone benefits from even better coverage, choice, price and quality of service in years to come.”

Which rather flies in the face of moves to hike the amount mobile networks pay for using spectrum, which Ofcom paints as recognising the market value, and other plans to hold back 60MHz from the next auction.

Overall, the discussion document claims that the UK is doing rather well. BT agrees, telling The Register: “There has been huge progress these past ten years with an explosion in competition and broadband usage."

"Consumers are getting more for less and the UK has outpaced its European peers in terms of superfast broadband. Much of that progress is down to BT investing billions of pounds in fibre at the height of the recession," it added.

"That investment wouldn't have occurred had BT been split in two a decade ago, and our ambitious plans for ultrafast broadband also depend on BT remaining intact," it concluded.

Digital dark ages

BT also thinks Ofcom has done a pretty good job: “Ofcom have overseen a regime that has balanced investment with competition and we hope it will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages.”

By “dark ages”, BT means those companies which are calling for the separation of Openreach and BT, and goes on to make a point about charging: “The one area where consumers are getting a raw deal is pay-TV."

"There is no reason why UK consumers should pay half a billion pounds more a year than the European average," said BT, and although "Ofcom has said it will consider whether to make it easier for customers to switch in this area, this isn’t enough. Much tougher action is needed to address the fundamental flaws in this market.”

Funnily enough, the major player in pay-TV thinks BT is doing a bad job. Mai Fyfield, Sky’s chief strategy officer, said:

For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need.

We believe Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry.

In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st Century.

Deep down, the rivals don’t believe that Openreach treats them in the same way as it does BT, hinting that the quality of service for backhaul, times for installation and for repairs tend to favour the Openreach owner.

These are claims which are hard to substantiate. BT CEO Gavin Patterson told the BBC's Today programme that Openreach’s speed of broadband installation for BT and TalkTalk customers was identical.

When contacted by El Reg, a Vodafone spokesman said: "Ofcom has identified serious shortcomings in the performance and capabilities of BT Openreach, which are having a significant negative impact on the UK’s transition to next generation digital communications."

"Radical options should be considered if the UK is going to get the fibre optic broadband infrastructure it needs, which won’t be delivered by allowing BT to keep its monopolistic hold over the means to deliver it," it added.

"We continue to believe that structural separation of BT Openreach is the optimal remedy to ensure all providers reliant on access to BT infrastructure can offer the high quality and innovative services that their consumers and business customers require," it concluded.

The mood is such that it seems hard to believe that Ofcom will ultimately opt for anything but a complete separation, but the regulator is looking for responses. You have until 8 October to let the organisation know your thoughts. ®

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