BT and Ofcom reach agreement on future governance of Openreach

BT and Ofcom have reached agreement on a long-term regulatory settlement that will see Openreach become a distinct, legally separate company with its own Board, within the BT Group.

The agreement is based upon voluntary commitments submitted by BT that the regulator has said meet its competition concerns.

Once the agreement is implemented:

  • Around 32,000 employees will transfer to the new Openreach Limited following TUPE consultation, and once pension arrangements are in place
  • Openreach Limited will have its own branding, which will not feature the BT logo
  • The Openreach CEO will report to the Openreach Chairman with accountability to the BT Group Chief Executive with regards to certain legal and fiduciary duties that are consistent with BT’s responsibilities as a listed company

Openreach will assume greater independence under its own Board of Directors.

The agreement is intended to be comprehensive and enduring, helping to ensure the UK telecommunications market remains one of the most competitive in the world. Hundreds of telecoms companies already use Openreach and its national network on an equivalent basis, and many others are competing with them. That will continue with enhanced safeguards to ensure all of Openreach’s customers are treated equally.

Gavin Patterson, BT Chief Executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure. It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.

“This has been a long and challenging review where we have been balancing a number of competing interests. We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”

The agreement, when in place, will provide BT and other companies with greater regulatory clarity and certainty which is vital for investment, the company said. This will help the UK retain its position as the leading digital economy in the G20 by share of GDP, with the largest superfast network among major European nations.

The transfer of around 32,000 employees, under TUPE regulations, will be one of the largest such transfers in UK corporate history. It will take place once the agreement has been implemented and pension arrangements are in place for these employees. Under the agreement, Openreach will manage and operate its assets and trading but ownership of those assets and trading will remain with BT.

The agreement builds on changes that BT has already made to the governance of Openreach in recent months. These include the creation of an Openreach Board with a majority of independent members.

This Board will set Openreach’s medium term and annual operating plans and determine which technologies are deployed, within a strategic and financial framework defined by BT. Openreach will be free to explore alternative co-investment models in private with third parties.

The Openreach CEO will report into the Openreach Chairman, with accountability to the BT Group Chief Executive with regards to certain legal and fiduciary duties that are consistent with BT’s responsibilities as a listed company.

 

Concerns

Some industry experts aren’t convinced about the deal however with many concerns aired.

Dave Millett of independent telecoms brokerage Equinox said: “This split does not appear to address the current poor service levels of Openreach – i.e. will customers be able to talk direct to Openreach and get compensation for missed appointments and delays?

“There is no mention of penalties if Openreach miss targets – which they consistently do.

“BT will still provide the money for the investment – will it be enough given the £1.2bn it has just spent on football rights and the £10 billion owed to the pension fund?

“Whilst BT will consult with others, e.g. SKY and Talk Talk, over its investment strategy, they all have residential TV products to sell (which is where they make most of their money, and why consistently businesses are being ignored and not served). Who therefore is speaking up for the businesses that don’t have access to fibre and the fact the UK is bottom of the ‘fibre the premise’ league tables in Europe?

“BT can still veto who is appointed as chief executive? How independent does that make Openreach really? How much influence therefore can/will BT continue to exert? These are all questions that need to be answered.”

The commitments that BT has notified to Ofcom are available at: http://www.btplc.com/UKDigitalFuture/

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