BT and regulator Ofcom have reached a final agreement on the legal separation of Openreach, the telecom giant’s division which manages its copper and fibre network and provides wholesale services to the majority of UK phone and broadband providers.
The two sides have been locked in dispute about the extent of any separation which Ofcom had ordered to meet competition concerns raised by some of BT’s competitors, including Sky and TalkTalk, who’ve previously complained that Openreach provides a poor service to them and that investment decisions are skewered towards the needs of BT’s retail arm.
Under the deal announced today, Openreach Limited will become a fully separate legal entity within the BT Group and its CEO, Clive Selley, will report to the new Openreach board. The firm will be given all new branding and manage the network and investment in it but, crucially for BT, ownership of all assets will remain with the parent company.
Around 32,000 employees and their pension entitlements will be moved to the new business under the agreed deal.
While today’s deal has been endorsed by the regulator, it stops short of the full sell-off of Openreach which some telecoms firms had pushed for.
Gavin Patterson, BT Chief Executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure.
“It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.
“This has been a long and challenging review where we have been balancing a number of competing interests.
“We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”
Sharon White, Ofcom Chief Executive, said: “This is a significant day for phone and broadband users.
“The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT.
“We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly.
“We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”
In response to today’s announcement, a Sky spokesperson said: “This is a welcome step that we have long called for on behalf of our customers.
“A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs.
“It’s important that today’s agreement is now implemented by BT in good faith and without delay.”
Dido Harding, Chief Executive Officer of TalkTalk, said: “We welcome the agreement to create a legally separate Openreach. The new company will be better placed to deliver the improved investment and service that consumers and businesses deserve.
“This deal will require robust Ofcom monitoring and enforcement to ensure it delivers the improvements the regulator expects.
“We hope this is the start of a new deal for Britain’s broadband customers, who will be keen to see a clear timetable from Openreach setting out when their services will improve.”
How the new Openreach will work
- Openreach will become a distinct company. Openreach will be incorporated as a legally separate company within BT Group, with its own ‘Articles of Association’. Openreach – and its directors – will be legally required to make decisions in the interests of all Openreach’s customers, and to promote the success of the company.
- The Openreach Board will run the company. The Openreach Board that BT has already established in recent weeks, which has a majority of directors independent of BT, will become the Board of the new company. It will be truly responsible for running Openreach, under a new governance agreement.
- A separate strategy and control over budget allocation. Openreach will develop its own strategy and annual operating plans, within an overall budget set by BT Group.
- Executives will be accountable to the new Board. Openreach’s Chief Executive will in future be appointed by, and accountable to, the Openreach Board. BT Group will be able to veto appointment of the Openreach CEO, but only on notification to Ofcom. The Openreach Chief Executive will then be responsible for other executive appointments, and will report to the Openreach Chair – with a secondary accountability to the Chief Executive of BT, limited to necessary legal, fiduciary or regulatory obligations.
- Staff will work for Openreach. The new Openreach will directly employ all its 32,000 staff, who will be transferred across from BT. This will allow Openreach to develop its own distinct organisational culture.
- Assets will be controlled by Openreach alone. Openreach will have control of those assets – such as the physical access network – required to deliver on its purpose. The Openreach Board will make decisions on building and maintaining these assets: BT will hand these powers to Openreach, while retaining a title of ownership.
- Consultation and confidentiality for Openreach’s customers. Openreach will be obliged to consult formally with customers such as Sky, TalkTalk and Vodafone on large-scale investments. In future, there will be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group, as well as further protections for confidential customer information.
- Distinct branding. BT will be removed from Openreach branding, to reflect these changes and the company’s greater independence.