Last Friday BT agreed to a legal separation of Openreach following pressure from and months of negotiation with regulator, Ofcom.
In a move designed to strengthen its independence, the separation agreement will see 32,000 staff transfer to the independent company, which will have separate branding and its own board with the authority to appoint a CEO.
However, although this Openreach board will decide how to spend its money and have sole control over its strategy and assets, BT will still own the company and allocate its budget. The new Openreach CEO will report not only to the Openreach board, but will also be accountable to the CEO of BT.
“The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT,” said Ofcom CEO Sharon White.
Openreach controls the fibre connections, ducts and pipes behind the UK’s broadband infrastructure and sells access to BT’s rival wholesalers, such as TalkTalk and Sky.
As such, Openreach will be obliged to consult with these wholesale customers about large-scale infrastructure investments. The process is to include a confidential phase where discussions will take place without information being passed to BT.
Sky, TalkTalk and Vodafone, which use Openreach’s network to offer broadband to consumers, have long complained of high charges, poor service and failure to invest in the division
The accusations centre on Openreach delivering poor service, favouring BT over other suppliers and being under pressure to deliver cash to fund the acquisition of expensive sports rights.
Ofcom, which had threatened to force BT to legally separate Openreach, said on Friday the company had agreed to all of the changes needed to address its competition concerns.
Ofcom CEO, Sharon White said: “As a result, Ofcom will no longer need to impose these changes through regulation. The reforms have been designed to begin this year.”
Ms White branded it a “significant day” for phone and broadband users and pledged to “carefully monitor” how the revamped Openreach performs.
BT CEO Gavin Patterson said Friday’s agreement serves the long-terms interests of the U.K.
“This has been a long and challenging review where we have been balancing a number of competing interests,” he said. “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 legal separation of Openreach and BT may not satisfy those who feel the parent company should have been forced to sell the broadband division
However, rival companies such as Sky and TalkTalk appear to be accepting this move as a more realistic option.
A statement from Sky welcomed the announcement: “A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs. It’s important that today’s agreement is now implemented by BT in good faith and without delay.”
Dido Harding, chief executive of TalkTalk, said: “We hope this is the start of a new deal for Britain’s broadband customers, who will be keen to see a clear timetable from Openreach setting out when their services will improve.”
Vodafone said it is “an encouraging start”.
BT shares jumped 4.3% to 344.2p in morning trading in London.
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