The biggest reform of Openreach in its history is set to conclude, after BT agreed to Ofcom’s requirements for the legal separation of its network division.
This means Openreach will become a distinct company with its own staff and management, together with its own strategy and a legal purpose to serve all of its customers equally.
BT has agreed to all of the changes needed to address Ofcom’s competition concerns. As a result, Ofcom will no longer need to impose these changes through regulation. The reforms have been designed to begin this year.
To implement this agreement with the smallest possible effect on BT’s pension scheme, the existing Crown Guarantee would need to be maintained for Openreach staff who are members of BT’s pension scheme.
The new Openreach will have the greatest degree of independence from BT Group possible without incurring the delays and disruption – to industry, consumers and investment plans – associated with structural separation or the sell-off of Openreach to new shareholders.
BT’s commitments, combined with regulation imposed by Ofcom through its regular market reviews, will form a comprehensive solution to problems in the market that Ofcom had identified.
Chris Pateman, CEO of the FCS commented, “There are no industry stakeholders among the non-executives on the new Openreach Board . But, to BT’s credit, there are no former BT employees either. It is a Board in the operational sense of having responsibility for the management of Openreach’s business. This is a good thing, and it gives us hope that quality of service and the value of Openreach’s engineering workforce will be properly emphasised in the years to come. But it is not a Board in the sense of being able to raise money from anybody but BT, and on terms which BT alone will dictate. This we regard as a systematic weakness in the Board’s ability to truly plan and behave like the long-term, steady pay- back player the industry needs. We wish them luck.”
Mark Collins, Director Strategy & Policy at CityFibre, commented: “The real story here is the UK’s shocking ‘fibre gap’. Whilst it is welcome that these time-consuming negotiations seem to be at an end, there is nothing in this announcement to suggest Openreach will now start to build the fibre infrastructure this country needs. Ofcom’s focus needs to shift to encouraging alternative fibre builders to do the things Openreach can’t or won’t do – whatever its legal status.
“CityFibre is well placed to take on that challenge and to meet Ofcom’s strategic objective of reducing the UK’s reliance on Openreach to get the job done. The substantial Government funding for fibre announced in the budget this week will help to accelerate our own full fibre rollout programme.”
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.