BT takes heavy financial hit over historical Openreach breaches

UK telecoms regulator Ofcom has found BT guilty of a ‘serious breach’ of its rules regarding compensation payments for late installations to Openreach customers.

As a result Ofcom has hit BT with a record £42 million fine, reduced from £60 million due to BT’s acceptance of full liability and its agreement to make up the difference in compensation owed to those customers, which could amount to £300 million, according to BT’s estimates of how the subsequent negotiations will play out.

The ruling follows a complaint from Vodafone, filed in August 2015, regarding the delivery of Ethernet services to business customers. BT’s wholesale arm, Openreach, is obliged to pay compensation to its customers upon late delivery of these services and Vodafone’s complaint was that it misused the terms of its contracts to reduce those payments.

“BT’s contracts require it to deliver Ethernet services within 30 working days, or pay compensation to the company affected,” said the Ofcom announcement. “If BT encounters problems that require more time to resolve, in certain circumstances it can assume that a customer has agreed to an extension. But Ofcom found that BT did this retrospectively over a sustained period, to reduce the level of compensation it owed to telecoms providers.”

This ability to assume consent for late delivery without even consulting the customer seems, in retrospect, ripe for abuse, and so it was. “We found BT broke our rules by failing to pay other telecoms companies proper compensation when these services were not provided on time,” said Ofcom’s exotically-named Investigations Director Gaucho Rasmussen. “The size of our fine reflects how important these rules are to protect competition and, ultimately, consumers and businesses. Our message is clear – we will not tolerate this sort of behaviour.”

BT was contrite. “We apologise wholeheartedly for the mistakes Openreach made in the past when processing orders for a number of high-speed business connections,” said Openreach CEO Clive Selley. “This shouldn’t have happened and we fully accept Ofcom’s findings. Since I became CEO of Openreach in February 2016, we have monitored this area very closely, we have made improvements to how we process and deliver such connections, and we will make sure the same mistakes aren’t repeated in future.”

“The investigation into historical Deemed Consent practices at Openreach revealed we fell short of the high standards we expect in serving our Communications Provider customers,” said BT Group CEO Gavin Patterson. “We take this issue very seriously and we have put in place measures, controls and people to prevent it happening again. My management team and I are determined that BT applies the highest standards when serving our customers.”

Vodafone was pleased with the outcome. “We welcome Ofcom’s decision to hold BT and BT Openreach to account,” said a company spokesperson. “We hope this ruling will encourage BT Openreach to finally drop the unacceptable practices it has used to avoid paying compensation for late delivery of fixed fibre lines, which have impacted businesses across the country as well as our own 4G roll out. We look forward to improved quality of service from Openreach in order to deliver high speed broadband to businesses up and down the country.”

Commentators are taking this as evidence that all the moaning about Openreach has been justified. “Today’s ruling offers insight into just some of the factors contributing to Ofcom’s decision to split BT and Openreach into two separate entities,” said Dan Howdle, analyst at Cable.co.uk. “Clearly, being the sole owner of shared infrastructure has given rise to precisely the sort of conflict of interest of which BT has long been accused.”

“Ethernet and leased line services are the core of the business broadband world and is an area where BT Group is facing increasing competition and regulatory pressure to reduce the price it charges,” said Andrew Ferguson, editor of thinkbroadband.com. “However, if standards slip as they did between Jan 2013 and Dec 2014, fines like this are the result and it seems Ofcom is ready to act as regulator with a big stick.

“During that time, Openreach was making use of lots of third party contractors, so hopefully the ongoing recruitment drives will mean any faults or new installs are dealt with well ahead of any compensation deadlines.”

This ruling comes at a difficult time for BT. It has already had to bow to the will of Ofcom over the legal separation of Openreach and had salt rubbed in those wounds by the recent introduction of spot fines for consumer landline service failings. Meanwhile an accounting scandal at its Italian division will cost the company at least half a billion quid.

Patterson must surely be under pressure in the light of all this. While the EE acquisition seems to have gone well and it could be argued that the Openreach independence saga was managed competently, these two acts of outright misconduct happened under his watch.

You have to wonder whether the BT board will one day decide these things can no longer be treated as isolated incidents and are instead symptoms of a broader corporate culture that is starting to prove very expensive to BT shareholders. It must also be starting to wonder whether keeping ownership of Openreach is worth all the hassle.