The telecoms regulator has kicked off the first major review of the way the nation’s telephone lines and broadband pipes are governed in a decade with BT’s rivals lining up to call for a break-up of the business.
The last comprehensive review of the sector in 2005 led to the creation of Openreach, the engineering arm of BT, which was structurally separated from the retail side of the former monopoly’s business to ensure other companies like TalkTalk and Sky could compete. Openreach is still part of BT but is obliged to treat its parent company’s consumer arm on equivalent terms to those of its rivals, which rely on access to the national network to offer their own services.
Ten years on and BT could face the prospect of Openreach being fully separated from its consumer arm with Ofcom’s shake-up of the regulatory framework. The review comes amid a round of consolidation in the sector with BT buying EE, a deal that combines the country’s largest broadband and mobile companies, and Three taking over its larger rival O2 which will reduce the number of mobile phone networks to three from four.
The review also coincides with the start of the reign of Sharon White who has moved from her role in the Treasury to take the chief executive chair at Ofcom.
TalkTalk and Sky immediately called for the break up of BT. Jeremy Darroch, chief executive of Sky, said there were “serious questions about whether the existing structure” of the industry could continue to deliver consumer choice and innovation. “Ofcom must now take the opportunity to address Openreach’s conflict of interest as a subsidiary of BT or risk extending the problems that are affecting the industry and its customers today,” he said.
Advertisement
Baroness Harding of Winscombe, the chief executive of TalkTalk and a Conservative peer, said it was “crucial” to seize on the opportunity to split out Openreach which would be fully incentivised to improve customer service as an independent company. “It would end BT’s ability to erode competition, stimulating innovation, consumer choice and lower prices,” she said.
“It is increasingly clear that the current market structure is not fit for purpose. BT’s proposed merger with EE threatens to make a bad situation worse,” Lady Harding added, pointing to BT’s market share of 40 per cent in retail and 70 per cent in wholesale.
There is however no certainty that Ofcom will yield to TalkTalk and Sky’s demands and BT itself welcomed the chance to participate in a review to overhaul what it believes is an overly complicated regulatory framework. “Its (Ofcom’s) rules do now need to be simplified and modified given the market has changed out of all recognition. The UK needs an updated regime which will promote yet further investment whilst ensuring all companies can compete on an equal footing,” a spokesman said.
Barry Zeitoune, analyst at Berenberg, published an open letter to Ms White in an attempt to highlight “ill-informed and counter-productive policy recommendations”, notably the forced separation of Openreach. He dismissed “baseless assertions that Openreach is a funding source for the Premier League” which pose a major threat to the formation of policy. “The way some commentators have referred to policy reminds me of a hypochondriac trying to diagnose the illness. The risk of needless surgery not only adds a layer of cost, it could kill the patient,” the analyst said.
BT shares opened 5p lower at 441.5p with Sky rising 7p to 991.5p and TalkTalk up 0.75p at 330p.