UK TELECOMS WATCHDOG Ofcom has called for more reform at BT in its Strategic Review of Digital Communications, but has stopped short of recommending the break-up of BT's Openreach infrastructure arm.
The regulator called for BT to open up its network so that competitors can more easily connect fibre to homes and offices directly, rather than just calling for the formal separation of Openreach from BT to create an independent company.
"Openreach will be required to open up its telegraph poles and ‘ducts', the small, underground tunnels that carry telecoms lines. Using these, rival providers will be able to build their own fibre networks connected directly to homes and offices," said Ofcom in its conclusion.
"Openreach must make it much easier for competitors to access this network, and provide comprehensive data on the nature and location of its ducts and poles."
Ofcom also called for an industry structure that will give the watchdog more power to intervene and regulate.
The organisation claimed that this approach would "promote large-scale rollout of new ultrafast broadband networks based on cable and fibre lines as an alternative to the partly copper-based technologies currently being planned by BT".
Ofcom described its proposals for deeper regulation instead of fundamental change as a "new model for Openreach", despite its admission that "the evidence from Ofcom's review shows Openreach still has an incentive to make decisions in the interests of BT, rather than BT's competitors, which can lead to competition problems".
"Openreach's governance lacks independence from BT Group. The wider company has retained control over Openreach's decision-making and the budget that is spent on the network, and other telecoms companies have not been consulted sufficiently on investment plans that affect them," the report said.
"For these reasons, Ofcom has decided it is necessary to overhaul Openreach's governance and strengthen its independence from BT. In future, Openreach needs to take its own decisions on budget, investment and strategy, such as the deployment of new networks.
"Openreach management should be required to serve all wholesale customers equally, and consult them on its investment plans. There will also be greater transparency over how costs and assets are allocated between Openreach and the rest of BT."
Ofcom will prepare proposals later this year to outline how these changes will be implemented. The new model might require Openreach to become a ring-fenced, wholly-owned subsidiary of BT Group with its own board members.
"If necessary, Ofcom reserves the right to require BT to spin off Openreach as an entirely separate legal entity with its own shareholders," the regulator said.
Not surprisingly, BT was fast out of the trap with a statement that "welcomed" the alternatives to splitting off Openreach, after the firm had grovelingly promised "reform" of Openreach in September.
"Ofcom has today explained why breaking up BT would not lead to better service or more investment and that structural separation would be a last resort. We welcome those comments," said BT.
"The focus now needs to be on a strengthened but proportionate form of the current model and we have put forward a positive proposal that we believe can form the basis for further discussions with Ofcom and the wider industry."
Others in the industry weren't quite so effusive. Alastair Masson, a client partner at NTT Data UK, was unusually forthright in his response, describing it as "little more than a list of low-impact measures to stimulate high-cost competition, rather than tackling the issue of Openreach and BT's influence on the wider market".
He added: "Not only does it neglect to address the imminent competition decision on Three's takeover of O2, it misses a huge opportunity to move away from the stovepiped view of communications too often used in the UK. When it comes to analysing market movements, context is everything.
"High-speed broadband should not just be offered by industry giants BT and Virgin Media. Smaller operators should provide it too. They should also be able to do it without having to commit to unnecessary physical infrastructure rollouts. The whole point of unbundling was to avoid the need for competing infrastructure."
MPs may also be disappointed. Many had called for BT to be formally broken up, blaming the company for not rolling out high-speed internet access comprehensively or fast enough. Sky, TalkTalk and Vodafone had also called for firmer action from Ofcom. µ
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