BT has given in to Ofcom's demands and agreed to legally separate its wholesale networks arm Openreach. As a result of the voluntary efforts, Ofcom said it will not need to impose the regulatory changes on the company.
Ofcom first proposed last July the separation of Openreach, saying it was needed to ensure BT's wholesale customers receive the same of level of service as the company's own retail operations. By improving the level of wholesale service, a separate Openreach is also expected to boost broadband speeds and coverage in the UK.
BT initially resisted the spin-off, instead proposing an independent board for Openreach within the group. The company now says the deal is in everyone's long-term interests and brings to an end a period of uncertainty for the group.
Around 32,000 employees will transfer to the new Openreach Limited, following consultations with unions and legislation to ensure the UK government's guarantee for pensions. Openreach Limited will have its own branding, which will not feature the BT logo.
The Openreach CEO will report to the Openreach Chairman, while still being accountable to the BT CEO on certain legal and fiduciary duties that fall under BT’s responsibilities as a listed company. The independent board set up by BT in recent weeks will run the company. All physical networks assets will belong to the company.
Ofcom said BT has agreed to all of the changes needed to address the regulator’s competition concerns. In addition to monitoring, BT will report to Ofcom in future on its interactions with Openreach to ensure the two maintain the separation. Ofcom also plans to end BT's previous undertakings from 2005 on Openreach once the new agreement is in place. More details on BT's commitments and monitoring will be released by Ofcom soon.
The news was welcomed by one of BT's biggest rivals, Sky. The company said: "A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs." It called for BT to implement the agreement in "good faith and without delay." TalkTalk also welcomed the agreement, and called for "robust Ofcom monitoring and enforcement to ensure it delivers the improvements the regulator expects".
