BT battles to keep Openreach amid growing regulatory pressure

As the clamour for BT to be forced to spin off its wholesale broadband division – Openreach – in the light of its proposed move back into the mobile network business, BT has found an unlikely ally in Virgin Media. According to an FT report the two sent a joint letter to Ofcom, inevitably arguing that opening up the UK broadband market will be bad for consumers.

It is an unavoidable fact of the lobbying game that self-interest has to be disguised as altruism, but that doesn’t mean they haven’t got a point. There is the obvious objection that forcing them to open up their networks will reduce the incentive for them to invest in them and they also said: “allowing multiple operators to tamper with the physical network will cause service faults for customers”.

These two broadband rivals have been brought together by Ofcom’s vow to consult on the broadband market in the coming months and the call by other rivals such as Talk Talk, Sky, CityFibre and Vodafone for BT’s broadband division, which includes Openreach, to be separated from the rest of the company to prevent conflicts of interest.

Vodafone, which bought into the broadband market with its 2012 acquisition of Cable & Wireless, even reportedly went as far as compiling a dossier on BT’s margins designed to demonstrate an unfair advantage. In a recent exclusive interview with Telecoms.com Vodafone’s UK enterprise director Phil Mottram stressed how important the fixed line business now is to his company.

“We absolutely think structural separation of BT is something that should be part of the digital communications review,” Vodafone UK regulatory affairs head Matthew Braovac told the Guardian. “We support it, we think it should happen. We think it is a good way of cutting through an otherwise intractable set of regulatory problems.”

Director of telecoms consulting firm Coleago, Chris Cowan, offered the following analysis on the situation. “With Ofcom announcing last week that they will be launching a probe into the communications market, Sky and TalkTalk have used the review as an opportunity to reiterate their call for the full separation of BT Openreach,” he said. “Vodafone then also leant its voice to this growing coalition of telecommunication firms calling for BT to be separated from its broadband network, saying that its taxpayer funded network has afforded it a GBP5.5bn advantage over competitors.

“At the heart of the concerns is the question of how to enable effective competition in the emerging world of converged high speed data communications; meaning equal access to BT’s fibre network.  No one wants to spend the capex required to build out a nationwide high speed network so BT’s competitors are pressing for a rerun of the LLU regulations that made alternate access a good business to be in.

“With the game moving onto higher speed access this means access to BT’s fibre, however ‘unbundling’ the ‘fibre loop’ is technically a different problem from unbundling the copper loop.  One option is to give alternate operators passive infrastructure access (intercepting the BT network in cabinets, ducts, poles or similar), however this is a complex and inevitably expensive and messy solution in comparison with LLU.

“With next generation networks centring around higher and higher speed data, mobile operators are liable to become highly reliant on the high speed backhaul provided by fibre, meaning that access to fibre infrastructure will be vital for operators looking to protect their customer bases. Therefore, despite the challenges associated with unbundling the fibre loop, it is essential for alternate operators that they find a solution.”

The broader underlying trend that makes this issue so important is convergence within the CSP industry, with fixed, broadband, mobile and video expected to increasingly be offered as a bundle. BT’s move on EE is the most conspicuous example of this and its right that its competitors are worried that it will concentrate too much UK comms capability in the hands of the company they rely on for their broadband offerings.