BT Openfudge? Four things you need to know about the Ofcom deal... and what the regulator says about them

 
Oliver Gill
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An agreement between BT and regulators was announced this morning

BT's settlement with regulator Ofcom has been championed as a significant step towards making its Openreach broadband division a separate entity, after months of debate over the subject.

Today's agreement isn't quite a spin-off. Although the two will be legally separated, Openreach, the company responsible for running the majority of the UK's telecoms infrastructure, will be forced to consult with the likes of Sky, TalkTalk and Vodafone on "large-scale investments". And parent BT won't be allowed to meddle.

Read more: BT retains control in Openreach separation

But...

There were two announcements this morning, one from BT and one from Ofcom, which is not unusual. However, there was one element within the Ofcom announcement, called "How the new Openreach will work", which was absent in the BT release.

Mike van Dulken, head of research at Accendo Markets, has written a note this morning entitled "BT Openfudge?"

Where it gets rather interesting is all the focus on "legal separation" rather than genuine independence...

Does its absence from BT’s own release say something about independence? Ofcom saying the deal seeks the “greatest deal of independence” also suggests it doesn’t quite fully deliver in terms of true autonomy.

As with most things, the devil is in the detail.

Read more: TalkTalk brands Openreach board line-up as "meaningless"

1. Reporting lines

Spinning Openreach off to be a standalone company outside of the BT gGoup was never on the cards. The key issue was in relation to reporting lines, who elects the Openreach board and who they ultimately have to answer to.

Openreach's chief exec, currently Clive Selley, will be appointed by the Openreach board, but the Ofcom statement also highlights that "BT Group will be able to veto appointment of the Openreach chief executive". It adds Ofcom must be notified of the veto, but doesn't say the regulator can overrule BT's decision.

And once the Openreach boss is selected:

The Openreach chief executive will then be responsible for other executive appointments, and will report to the Openreach chair – with a secondary accountability to the chief executive of BT, limited to necessary legal, fiduciary or regulatory obligations.

A spokesperson for Ofcom said if there was any suggestion BT was using its veto in a way that would compromise independence, "we would take that matter very seriously, and we will be monitoring it".

Furthermore, Ofcom added there will be some items that Openreach's chief exec will need to report to BT on. Its spokesperson stressed these would be "on strictly defined matters, and never on anything confidential involving its customers". The spokesperson continued:

That too will be strictly monitored and reported on.

2. Budgets

Under the agreement Openreach will be in control of its own budget. But where will it get the money? And who determines how much money it is given? That would be its parent, BT.

A separate strategy and control over budget allocation. Openreach will develop its own strategy and annual operating plans, within an overall budget set by BT Group.

Read more: BT Openreach changes aren't enough for Ofcom

‚ÄčOfcom's spokesperson said: “Openreach must invest sufficiently in its network. If that doesn’t happen, we can place clear investment incentives on BT through our regulation.

The new arrangements ensure that where Openreach invests, it does so in the interests of all its customers, not just BT group.

3. Asset control

"Assets will be controlled by Openreach alone. Openreach will have control of those assets – such as the physical access network – required to deliver on its purpose."

Sounds pretty good for separation...

"The Openreach Board will make decisions on building and maintaining these assets" - but "BT will hand these powers to Openreach... while retaining a title of ownership".

Read more: Can Ofcom force through BT Openreach split?

Ofcom said it had always said it wanted Openreach to be in control of the network but "handing full ownership to Openreach could incur costs. Today’s agreement will ensure full control, without incurring any of those costs".

4. Confidential phase

Because BT is effectively a customer of Openreach (just like TalkTalk and Sky) the good news is that Openreach will keep secret its conversations with BT's competitors.

But Ofcom said there will be a "confidential phase during which customers can discuss ideas without this being disclosed to BT Group".

It does not say how long this phase, but the implication of it being a "phase" suggests BT may be able to get involved and meddle in conversations at a later date.

Ofcom has confirmed said this phase would only end when "both parties are happy to announce their plans".

"BT will not be involved in any confidential discussions that Openreach holds with its competitors," an Ofcom spokesperson said.

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