Openreach: must do better

Added by Chris Pateman | Tuesday 26th July 2016

So it's out at last:  Ofcom's wonderful recipe for yielding us all the benefits of an Openreach structurally separated from BT, but with none of the pain and heartache associated with actually going ahead and separating it.  Nice job if you can pull it off.  But a bit of a bugger for everyone (well, apart from BT) if you can't.

It may be worth just remembering where we’re starting from:  Ofcom is hardly a disinterested third-party.  When BT gave the ‘Undertakings’ that brought Openreach into being in the first place, Ofcom were co-signatories to the document.  And Ofcom has spent the last 10 years engaged with BT in the process of trying to make them work.  So there is a kind of unwritten cultural Stockholm Syndrome at the heart of today’s rather unambitious pronouncements.

FCS continues to believe the best result for the industry and the nation would be the complete structural separation of Openreach from the BT Group as an industry mutual organization, responsible and accountable to its customers.

We understand Ofcom’s reluctance to force this radical change on the market.  So in the interests of the industry, we worked with fellow Openreach customer organisations (including Sky, TalkTalk and Vodafone) to propose a 10-point programme.  We considered these proposals the minimum necessary to achieve qualitiative improvements without taking that final sanction. 

Well, it’s good to see Ofcom agree with so many of our points.  And it’s encouraging to see BT’s initial proposals being dismissed in the Ofcom document as luke warm.  But, then, after all, what would you expect – it’s just their derisory opening bid in a protracted negotiation, made in the knowledge that Ofcom has no opportunity to walk away from the table.

So in that context, we’re concerned that Ofcom’s own opening proposals already fall short on a number of key issues.  Not least the position on the make-up of an Openreach Board, and the puzzling refusal to consider full budgetary autonomy – including allowing Openreach to raise funds in the open market and the quid-pro-quo of BT’s own retail and wholesale businesses being able to source infrastructure services from other providers.  It is hard to see how Openreach can be simultaneously independent and tied to a ‘spending envelope’ and associated cost of capital which might bear no relationship to market rates.

Without a significant strengthening between now and October, when the consultation closes, Ofcom’s proposals represent little more than ‘Undertakings 2’, with a bit of perfunctory window-dressing as a nod to the developments which have taken place within the market since 2005.  As with the original Undertakings, it’s very unlikely that final position will be more than tinkered with for the next 10 years. 

That, of course, might suit Ofcom very well.  It will certainly suit BT.  We are far from convinced it will really suit anybody else.