BT must separate from Openreach, says telecoms watchdog

File photo dated of a BT Openreach van in Woking, Surrey. Telecoms watchdog Ofcom said BT must legally separate from its Openreach network division after it failed to address competition concerns. PRESS ASSOCIATION Photo. Issue date: Tuesday November 29, 2016.  Photo:  Jonathan Brady/PA Wire

File photo dated of a BT Openreach van in Woking, Surrey. Telecoms watchdog Ofcom said BT must legally separate from its Openreach network division after it failed to address competition concerns. PRESS ASSOCIATION Photo. Issue date: Tuesday November 29, 2016. Photo: Jonathan Brady/PA Wire

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BT must formally separate from its Openreach network division after failing to address competition concerns, the telecoms watchdog has announced.

Ofcom said it will launch a formal notification to the European Commission over plans to force BT to spin off its Openreach arm, which develops and maintains the UK’s main telecoms network used by telephone and broadband providers such as Sky, TalkTalk, Vodafone and BT Consumer.

But the regulator said during this process it still remains “open” to further proposals from BT to meet its “strong competition concerns”.

It said: “We are disappointed that BT has not yet come forward with proposals that meet our competition concerns.

“Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

Ofcom said its proposals - which were first put forward in July - would not see BT forced to sell off Openreach, but instead legally break off the division into a separate company with its own board.

On Monday night, BT appointed the first independent chairman of its Openreach arm - hiring Mike McTighe, who was on the board of Ofcom between 2007 and 2015.

But Ofcom wants Openreach to have a board made up of a majority of directors who are independent of BT.

BT has faced mounting calls for a full split from Openreach after the division has been being criticised for poor customer service and a lack of investment.

Ofcom said: “A more independent Openreach would be well placed to invest in ‘full fibre’ broadband for everyone.

“Our proposal requires Openreach to become a distinct company with its own board.

“This would comprise a majority of non-executive directors, including the chair, who are not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.”

Ofcom is also concerned that under BT’s plans, the chief executive of Openreach would still report to BT boss Gavin Patterson.

The regulator wants Openreach management instead to report to the chairman of its own board.

It also wants Openreach to have greater consultation with customers on large-scale investments, its own staff working, ownership of assets that it already controls, its own strategy and control over budget allocation, as well as independent branding.

Once legal separation is in place, Ofcom will regularly monitor Openreach and could still force a sell-off if it believes it is not being run as a truly distinct company.

BT has hoped to avoid legal separation, saying it is a step too far.

It has instead vowed to make “significant governance changes” to Openreach, including forming a new board and greater budget independence.

BT was not immediately available for comment on Ofcom’s plans to force a legal separation, but said on appointing Mr McTighe that it hoped the move can “underpin a sustainable, proportionate and fair regulatory settlement that is in the interests of the whole country”.

Rival companies such as Sky, Vodafone and TalkTalk have long urged the regulator to force a full split between BT and Openreach.

They pay to use the network and have previously complained over poor service and urged the group to replace its ageing network of copper wire.

The current structure of BT was introduced by Ofcom in 2005, but the watchdog has said it meant BT retained influence over significant Openreach decisions and has an incentive to make these decisions in the interests of its own retail businesses, rather than competitors.

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