UK regulator Ofcom has proposed further reform of BT's wholesale arm Openreach, in order to make the company "legally separate" from BT. BT created Opeanreach in 2005 to group its wholesale network activities, but it retains significant influence over the company. In the latest update of plans for reforming communications regulation in order to accelerate broadband penetration, Ofcom said Openreach needs to be restructured so it works in the interests of all its customers, and not just BT's retail operations.
This means Its own articles of association and board, with a majority of non-executive directors who don't represent BT but would still be appointed by the operator in consultation with Ofcom. The board would then name Openreach's CEO, and the company's management would be accountable to the board, not BT. All staff would also be employed by Openreach and not BT, and Openreach would own its own physical network and assets and control its own strategy and annual operating plans.
In addition, Openreach would be obliged to consult formally with customers such as Sky and TalkTalk on large-scale investments. There should be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group, Ofcom said. Sky and TalkTalk said Ofcom's proposals were a "step in the right direction" but were cautious about whether it went far enough.
Ofcom said the proposed 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's plans are open for public consultation until 04 October before it takes a final decision on implementation by BT.
BT made its own voluntary proposal to increase independent governance at Openreach, but Ofcom said this did not go far enough. The main changes proposed by BT are the creation of an Openreach board with an independent chair and a majority of independent members; the greater delegation of strategic, operational and budgetary responsibilities; and an enhanced consultation process with industry on future investment plans.
BT said its proposal addresses the concerns raised in a recent parliamentary committee report and also meet all of the objectives Ofcom outlined for the strengthened independence of Openreach in February. It has also requested that Ofcom change its agreed undertakings on functional separation to allow BT to go ahead with the proposed changes. However, Ofcom said that BT's proposal does not fully address its concerns, for example to make Openreach a legally separate company, and for Openreach to have confidential discussions with its customers without oversight by BT.
Ofcom said it was also making progress on other elements of its review of sector regulations. It has started talks with operators on providing automatic compensation to customers when their service falls short and will soon publish plans on making it easier for customers to change fixed-line and pay-TV provider. Later this year, it will set out stricter minimum requirements for Openreach to repair faults and install new lines more quickly.
On 31 July, new rules will come into force that will give telecom providers further rights to access physical infrastructure. These measures are designed to reduce the cost of deploying broadband networks, by sharing access to infrastructure across different sectors. Openreach also presented last week its first design for a new online database showing the physical location and characteristics of its ducts and poles, in order to help other operators gain access. Ofcom said it will set out further detail on improved duct and pole access in the autumn.
