Reaction to BT Openreach separation - glee, scepticism and cynicism

In light of Ofcom’s attempts to prize Openreach from BT, the wider telecoms industry has reacted. Some with glee, some with scepticism, and some with cynicism.

First up, Vodafone must have been given a wee heads up that Ofcom was about to raise the stakes, because it chose this morning to release some research saying how much BT is coining from Openreach.

According to the research, conducted by Frontier Economics, BT raked in £1 billion of excess profit in its 2016’s full year financial results. That’s excess profits – where they’ve already made a lot of profit, and returned a perfectly normal level of profit to shareholders, and the rest is just left over profit. Basically, one would be forgiven for considering it to be too much profit.

It’s a perfectly valid point made by Vodafone, bringing to light how much money BT makes out of Openreach. It then proceeded to shoot itself in the foot, though, by making a valid point followed by a stupidly-redundant statement to try and emphasise its point.

“The excess profit of £1.078 billion made by BT in the financial year ended March 2016 equals the amount the UK Chancellor set aside in the Autumn Statement for ‘full-fibre’ broadband and trials of 5G mobile communications,” it said.

Because if BT hadn’t made any profit ever we would all be living the FTTH and 5G dream right now. That’s a thoroughly pointless statement, which tries to imply BT’s profiting is intrinsically linked and directly proportionate to the government’s decision to get its skates on with fibre and 5G.

Vodafone’s Helen Lamprell, Director of External Affairs, compounded the over-egged messaging by saying: “It beggars belief that BT felt it could increase its excess profits at this time and further underlines the need for an independent Openreach.”

We get it.

Elsewhere, financial analysts at RBC Capital Markets reckon this is a massive power play from Ofcom to get BT to stop messing around and take this seriously. They suggest Ofcom has finally backed up its 24 months of empty threats with a ‘last chance saloon’ ultimatum for BT.

It concludes that Ofcom has forced BT back to the negotiation table, and that this time BT will capitulate to its will, while it continues to consult with the European Commission on the legal separation the two entities. If BT backs down to Ofcom, it will have a hope of keeping Openreach, but will have to give up a whole bunch of concessions.

Alternatively, BT may listen to Ofcom’s demands, but realise it’s too much effort, too much hassle and too expensive, so it could favour getting rid of Openreach and the general agro it brings with it.

“Ofcom’s move clearly raises the stakes saying BT’s proposals have not gone far enough, but Ofcom clearly leaves the door open for BT ‘We remain open to further voluntary proposals from BT that address these outstanding concerns’,” said RBC. “We believe BT will now be forced back to the negotiating table, where it faces a stark choice: Either to settle for a form of legal incorporation, or expect to be referred to the European Commission.”

Industry commentator Dan Howdle from Cable.co.uk reckons there’s a general lack of will on BT’s part, which underpins a staggeringly complex process anyway.

“It’s tough to read whether BT’s heel-dragging is as a result of a tactic with the intention to deliberately delay and undermine the process, or whether, rather like Brexit, the process of separating Openreach is simply too vast and complex to be fully planned out in such a short period of time,” he said. “That Ofcom has had to speak out of its ‘frustration’ suggests to me there is more to this delay than bureaucracy and red tape – that unwillingness to comply is also playing some part.”

Others reckon it’s a non-story.

“BT being forced to split off Openreach may be a non-story because they will still own the subsidiary, so will not be compelled to give the likes of Sky and Talk Talk a bigger slice of the broadband action,” said Paul Leybourne from Vodat. “The real story will not come for at least a year, if Ofcom decides that BT is still not sharing, at which point BT will probably sell Openreach.”

Lots of mixed opinions coming in on this story, as it has done over the past two years, and today’s news is by no means the end of the saga.