A battle between the UK’s largest telecommunications businesses intensified yesterday, as Sky and Talk-Talk pounced on a decision by the regulator to launch a wide-ranging probe into the sector.
Both firms ramped up pressure on Ofcom to break up BT from the part of its business – called BT Openreach – that runs the UK’s broadband network.
“It’s clearly the right time to decide whether Openreach should be split out separately from BT,” TalkTalk chief exec Dido Harding told City A.M.
“We are in a position where our single largest supplier is a subsidiary of our single largest competitor. And at the moment their service is dreadful.” Harding argued that Openreach’s performance would deteriorate if left within BT, which recently agreed a £12.5bn deal to acquire EE. “If BT gets larger and larger, Openreach becomes less and less important and more starved of capital,” she said.
She was joined by Sky boss Jeremy Darroch, who said: “Ofcom must now take the opportunity to address Openreach’s conflict of interest as a subsidiary of BT or risk extending the problems that are affecting the industry and its customers today.”
According to Darroch, structural separation of Openreach is “at the heart” of creating a sustainable telecoms industry in the UK.
A BT spokesman responded by taking a shot at the firm’s competitors.
“Sky and TalkTalk have both been laggards when it has come to fibre so the UK would still be in the copper dark ages had Openreach had to rely on them,” he added. “Competition is now so intense there’s a case for further deregulation and a discussion of how investment can be encouraged in such a competitive market.
“There is no case for structural separation, with the UK leading the EU’s five biggest economies for superfast broadband,” he said. The spokesman said the current Openreach model has served the UK well “resulting in high levels of investment, intense retail competition, very high levels of coverage and take up and low prices”.
Ofcom said its review will consider future issues relating to infrastructure and competition and should be concluded by the end of 2015.
It takes place 10 years after the regulator’s first review of the market, which led to the creation of Openreach in order to satisfy a requirement that rival firms would have equal access to BT's local network.
Guy Peddy, analyst at Macquarie Capital, said the investigation could open the industry up to “possible negative newsflow”, especially on issues such as investment. He added that although a balanced outcome between the operators is expected, “the risk for the industry is likely to be to the downside, especially for BT”.