Ofcom announces reform plans for Openreach – or it risks being split from BT

Caitlin Morrison
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Openreach is the networks division of BT

TalkTalk boss Dido Harding has called for Ofcom to fully separate BT's broadband networks division from the rest of the group, warning that BT may "game the system" if it is allowed to continue controlling the business.

The media and telecoms watchdog today recommended a set of reforms for Openreach which will make it more independent within BT Group – and said that if it fails to make changes, the broadband business will be split from BT.

However, while Harding acknowledged that the creation of a legally separate Openreach would be a "step in the right direction", she said: "We must not forget the history of the organisation. The intention ten years ago was to create a functionally separate division that served all customers equally, but that is far from what happened.

"The lack of clear rules and responsibilities meant that BT was (according to Ofcom) able to make £4bn in excess returns in a decade, and I fear that we’re repeating the mistakes of the past."

Harding, who has long been calling for Openreach and BT to be split up, continued: “Legal separation still means that a highly complex web of regulation, and BT has proven itself expert at gaming this system. There is nothing to suggest they will not continue to do so in the new system.

"Structural separation is cleaner, with less red tape – and removes BT’s ability to exploit loopholes in the regulation. In taking one cautious step forward, I fear Ofcom may in practice have taken five steps back."

She added: "However we should remember this is just a consultation. Now is the time for the country to make their voices heard, and we are going to help them do that over the course of the next few months.”

Read more: Economic think tank calls for Openreach to be carved out from BT

The regulator said this morning that Openreach, the broadband networks division of BT, should be a legally separate company within BT Group, with its own articles of association.

Ofcom wants Openreach to have its own board with a majority of non-exec directors who "should not be affiliated to BT Group in any way", although they would be both appointed and removed by BT in consultation with Ofcom.

"This model would provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption – to industry and consumers – associated with separating the companies entirely," Ofcom said.

"It is designed to ensure that Openreach acts more independently from BT Group, and takes decisions for the good of the wider telecoms industry and its customers. If it cannot achieve this, Ofcom will reconsider whether BT and Openreach should be split into two entirely separate companies, under different ownership."

Shares in BT were up 4.1 per cent this afternoon.

26 July 2016 @ 2:30pmBT Group (BT.A)

Read more: BT needs to be open about Openreach aims

Sharon White, Ofcom's chief exec, said: “We’re pressing ahead with the biggest shake-up of telecoms in a decade, to make sure the market is delivering the best possible services for people and business across the UK.”

Ofcom's call for a more independent Openreach follows BT's offer of an independent board for the business.

Richard Neudegg, head of regulation at uSwitch.com, said the regulator had given BT a chance to make improvements and avoid potentially losing Openreach forever.

"Quite frankly, consumers – too many of whom are familiar with delays incurred by Openreach even when BT isn’t their retail provider – don’t care how it’s done," he added. "They just want and deserve a better service."

The company came under fire last week when two of its partners suffered power cuts, leading to internet service problems for BT customers across the UK.

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