UK government slams Openreach, threatens full BT separation

The UK’s Culture, Media and Sport Committee has said it will give Ofcom full support for the separation of BT and Openreach if the telco doesn’t “get its house in order”.

In a statement from the UK Parliament, the CMS commons select Committee says BT has consistently underinvested in Openreach since 2009; and that it has exploited its position as the UK’s wholesale internet connectivity provider by making strategic decisions that “favour the Group’s priorities and interests”.

Industry scrutiny of BT’s Openreach ownership has been a very public serial in recent times, with a plethora of internet competitors putting pressure on UK regulator Ofcom to level the playing field for all and enforce a separation of the two entities. Earlier this year, Ofcom deemed Openreach’s wholesale and enterprise performance to be “unacceptable”, and set medium-term performance improvement metrics for BT to reach, lest it face the consequences.

In today’s statement, however, the CMS Committee went so far as to say Ofcom’s measures haven’t been strict or effective enough, which in turn hasn’t forced BT to sufficiently review or reform its management of Openreach.

“Ofcom’s charge control regime has kept a downward pressure on prices, so that the UK’s communications prices are among the lowest compared with similar EU countries,” the CMS Committee said in a statement. “But this mechanism has not been successful in holding Openreach to an adequate quality of service; and it is an open question how effective overall it has been in stimulating investment in Openreach’s infrastructure.”

Concluding its comments on Ofcom, the CMS Committee said the prospect of “stiffer penalties” should also encourage BT to voluntarily invest more in infrastructure – which one can assume means the break-up of BT and Openreach.

The CMS Committee did acknowledge the UK’s position within the European market as one of the better performing countries with regards to superfast broadband service coverage, take up and lower prices, and congratulated Openreach for its work in reaching 90% coverage to-date. It did, however, quickly state that a down side of the Broadband Delivery UK project, of which Openreach is one of the principal leaders, is that superfast broadband rollout has gone to the easiest to reach premises first and left patchy coverage which will become increasingly difficult to fill in going forward.

It was also forthright in criticising BT for not investing heavily enough in Openreach, compared to its high level of investment in its media ventures, such as BT sport.

“BT appears to be deliberately investing in higher-risk, higher-return assets such as media properties, and not investing in profitable lower risk infrastructure and services through Openreach,” the CMS Committee said.

BT’s pursuit of growth in the TV market with its BT Sport offering is no secret, however a BT spokesperson told Telecoms.com of the telco’s disappointment and disagreement with some of the accusations levied at it in today’s report.

“We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little,” a BT spokesperson told Telecoms.com. “As the report acknowledges BT’s investment has made the UK a broadband leader among the major economies in Europe. Openreach investment is 30 percent higher than it was two years ago and it will grow again this year. We are already pumping in hundreds of millions of pounds of extra money and we have also committed to invest a further six billion pounds over the next three years.”

BT also came under fire for allegedly allowing its quality of service levels to plateau, or even drop, in the CMS Committee’s report; a claim the operator strongly contests. Back in March, Ofcom said BT needs to raise its game over the next two years when it comes to Openreach leased-line installation data promise fulfilment rates, customer order fulfilment times and outlined plans to reduce the country’s reliance on Openreach.

As a result, BT recently confirmed it is approaching these targets as a minimum service level rather than a regulatory requirement, and said it is in the process of recruiting an additional 1,000 engineers and 200 apprentices to help achieve these goals – equivalent to more than 20% of its current workforce. It also said Openreach is currently exceeding all of the 60 service measures set by Ofcom in July 2014, and is continuing to improve its customer appointment fulfilment rates.

“We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area,” said BT’s spokesperson. “We are hitting all of Ofcom’s service targets and are determined to exceed them given customer expectations are rising all the time. Thousands of engineers have been recruited and we are fixing repairs and installing new lines quicker than before.”

The ultimate aim, from BT’s point of view, is to ensure it can maintain Openreach as one of its subsidiaries, in the face of ever growing pressure from competitors, regulators, and now politicians. It says the separation of Openreach from BT would lead to less network infrastructure and QoS investment, and would “fatally undermine” the objectives of the CMS Committee.

It does appear that BT is walking a tightrope at the moment, with the Committee stating in conclusion that unless it is satisfied that BT has successfully offered the necessary reform and investment assurances required to allay its concerns, Ofcom should move to enforce a full separation of Openreach.