Ofcom to order legal separation of Openreach from BT

29 Nov 2016

British telecoms regulator Ofcom has announced that it is proceeding with a formal notification to require the legal separation of Openreach from BT, after the latter ‘failed to offer voluntary proposals that address [Ofcom’s] competition concerns’. In an update outlining its current plans, Ofcom said it was ‘disappointed that BT has not yet come forward with proposals that meet [its] competition concerns’, adding that while some progress had been made, it did not feel this was enough. As such, the watchdog has argued that action is required, to which end it has confirmed it that it is preparing to notify the European Commission (EC) of its intention to implement plans to require the legal separation of Openreach with a view to making it more independent.

Ofcom’s proposal will require Openreach to become a distinct company with its own Board, comprising a majority of non-executive directors, including the Chair, who are not affiliated with BT. Such a setup will guarantee Openreach greater independence to make decisions on strategic investments, while ensuring it has ‘a duty to treat all of its customers equally’. The model for separation, the regulator noted, had been one of the most commented on issues in a consultation on the matter – responses to which were published today (29 November) – and Ofcom said it had considered carefully calls for the structural separation of Openreach, which would split it and BT into two entirely separate companies under different ownership. However, arguing that structural separation would be ‘the most intrusive form of regulatory intervention available’, Ofcom pointed to responses to the consultation which had suggested that such a course of action ‘could generate materially greater costs and risks compared to models based on legal separation’.

In terms of its next steps, while Ofcom has said it remains open to further voluntary proposals from BT that might address the outstanding competition concerns, it has confirmed it is preparing a notification to the EC to require the changes to increase Openreach’s independence. The British regulator noted that it has already discussed the matter with the EC, while adding that it expects to consult publicly on a submission to the Commission in the early part of 2017. Following this, it then intends to proceed quickly to submit a detailed plan to the EC and, subject to its decision, implement the reforms of Openreach.

United Kingdom, BT Group (incl. Openreach), Ofcom, Openreach