BT rivals warn of ‘fury’ if Brussels overrules Ofcom on Openreach split

BT have been spared an immediate full break-up of its monopoly 
BT have been spared an immediate full break-up of its monopoly  Credit: Nick Ansell/PA

BT faces a showdown with telecoms watchdogs in Brussels after Ofcom triggered formal proceedings to enforce a legal split with with its network unit, Openreach.

A rival operator warned of “fury” in the UK if the EU sought to overrule Ofcom and block the decision as Britain prepares to exit the bloc.

The regulator said BT had failed to come up with voluntary reforms that would make Openreach independent enough to deliver much-needed improvements to Britain’s broadband infrastructure.

BT has been in negotiations with Ofcom since the summer but has failed to reach agreement over how much autonomy its network unit will have over its spending, staff and assets.

Talks have reached deadlock, with BT proposing a chairman for Openreach who would report to the BT board, threatening its independence in the eyes of regulators and rivals Sky, TalkTalk and Vodafone.

Under its current structure, Openreach provides wholesale broadband service on equal terms to BT and its competitors in the retail broadband market.

Broadband router and cable
Broadband router and cable Credit: Rui Vieira/PA

The former state monopoly retains control of Openreach’s finances, however, which has stoked complaints about Openreach’s performance.

BT’s rivals argue that the network unit's profits have been excessive, while households and businesses have endured delays to repairs and under-investment in upgrades. Vodafone claimed that BT’s excess profit from Openreach last year topped £1bn.

Backed by the Government, Ofcom is seeking to deliver a rapid increase in the number of homes and businesses able to access ‘full fibre’ ultrafast broadband. Currently just 2pc of premises are connected, and regulators believe that a more independent Openreach would be more likely to invest.

Ofcom’s decision to seek to enforce so-called legal separation of Openreach means BT must either make more voluntary concessions or risk a political and legal battle.

BT would retain ownership of Openreach under the regulator’s plans. Ofcom stopped short of seeking to make the network a completely separate company because of fears over potential the impact on the BT Pension Scheme, which has more than 300,000 members and a funding deficit of as much as £14.2bn.

Sky, TalkTalk and Vodafone are continuing to push for a split, but Ofcom said its view was still that legal separation “is likely to achieve the greatest improvements for everyone in the shortest amount of time”.

The European Commission is the ultimate regulator of the telecoms industry across the bloc. Ofcom believes it has the power to impose its decision, and approval of the lengthy notification document it is now preparing for officials in Brussels should be a relative formality.

The Telecoms regulator said it had given BT formal notification requiring the "legal separation" of Openreach
The Telecoms regulator said it had given BT formal notification requiring the "legal separation" of Openreach Credit: Tim Goode/PA

Baroness Harding, chief executive of TalkTalk, said: “Can you imagine the fury in this country if the EU tried to overrule Ofcom?”

The regulator emphasised that the door remains ajar to a voluntary deal, but insisted it will not compromise on the crucial issue of independence.

For instance, it wants Openreach to be able to discuss investment plans with BT rivals without fear of Gavin Patterson, the company’s chief executive, gaining valuable competitive intelligence. Under BT’s voluntary reform offer, Openreach’s chief executive Clive Selley would continue report to Mr Patterson.

A BT spokesman said discussions were ongoing.

"We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future,” he said.

An Ofcom spokesman said: “We are disappointed that BT has not yet come forward with proposals that meet our competition concerns.

“Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

Analysts said that if BT decides to fight all the way, it may find more investors begin to call for it to consider selling Openreach. Trevor Green, Aviva’s head of UK equities, recently broke cover among the company’s major shareholders to suggest such a move should not be out of the question.

"If BT goes down the route of fighting its regulator at the European Commission, we expect shareholders may start to call for a complete voluntary separation as an acceptable alternative," said Wilton Fry of RBC.

Since the battle over Openreach began in March last year, BT’s shares have lost more than a fifth of their value.

Under the new proposals, Openreach will become a "distinct company" 
Under the new proposals, Openreach will become a "distinct company"  Credit: Im Yanis
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