BT and TalkTalk compensation row threatens Openreach plans for faster broadband

Oliver Gill
Follow Oliver
BT agreed terms with regulators over the separation of its Openreach subsidiary earlier this year

A row brewing between TalkTalk and BT is threatening to undermine a key consultation to boost the UK’s broadband infrastructure.

In March, telecoms regulator Ofcom imposed its largest ever fine on BT for broadband installation failings between 2013 and 2014. BT also agreed to pay out £300m in compensation to communication providers (CP) affected such as TalkTalk, Vodafone and Sky.

TalkTalk, whose performance has been under pressure, hoped its slice of compensation could top £60-70m, given its market share of around 20 per cent. But City A.M. understands the FTSE 250 firm has only been offered a figure in the “mid-teens” of millions by BT’s infrastructure arm Openreach.

Read more: BT boss: We can "hire and fire" Openreach board

Rival Vodafone has opened negotiations with Openreach, while Sky is yet to receive an offer from the BT subsidiary.

Earlier this month Openreach launched a consultation asking the CPs for input on how best to deliver universal broadband coverage to the UK.

Industry watchers see it as a test of Openreach’s independence from its parent as it may involve CPs submitting confidential information to BT’s infrastructure arm. BT agreed terms with Ofcom for a legal separation of Openreach in March.

The key sticking point is understood to be the methodology for calculating compensation. Sources familiar with the situation said the settlements would not be paid based on the market share of CPs. Instead, it would be based on the number of lines ordered by CPs the number of times so-called "Deemed Consent" was applied to those orders, and the rental cost of the lines.

Read more: TalkTalk's Dunstone: I'm personally feeling the pain of dividend cut

A spokesperson for Openreach reiterated its apology to CPs, adding: "We will compensate all of the affected Communications Providers outside of BT in full, within twelve months.

“Our settlement offer reflects Ofcom’s findings and methodology, and we are contacting those affected this month."

An Ofcom spokesperson said: “We expect all parties to engage constructively in the compensation process.”

Chairman and TalkTalk’s largest shareholder Sir Charles Dunstone said what BT had offered as its share of the £300m was “significantly less” than the firm was expecting. He said:

We can’t reconcile the £300m that they say it is going to cost them… Everything that we can see doesn't seem to add up to a share of £300m.

Sky, Vodafone and TalkTalk are three of Openreach’s largest customers, alongside BT itself. There is a tail of smaller CPs stretching into the hundreds. Openreach has agreed terms with two of these CPs to date.

Read more: BT reveals to Gary Lineker it may "tilt" EU operations towards Asia or US

Related articles