BT agrees with Ofcom to legally separate Openreach

BT has reached an agreement with UK broadcast regulator Ofcom to legally separate out its internet infrastructure division Openreach.

The deal will establish Openreach as a distinct company with its own staff, management, strategy and an obligation to “serve all its customers equally”, said Ofcom in statement.

Announced this morning, the deal draws to a close protracted discussion between BT and the regulator, during which BT rivals including Sky, TalkTalk and Vodafone repeatedly called for the separation of BT and Openreach.

Around 32,000 employees will transfer from BT to the new Openreach Limited, which will still sit within the BT Group but will be legally separate and run by its own board.

The long-term settlement is based on voluntary commitments by BT, which meet Ofcom’s competition concerns. This means the reforms, which are due to start this year, will not be imposed on BT through regulation.

“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,” said Ofcom CEO, Sharon White.

Openreach Limited will have its own branding and not feature the BT logo. The Openreach CEO will report to the Openreach Chairman and accountability to the BT Group CEO will be limited to “certain legal and fiduciary duties”.

“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,” said BT CEO Gavin Patterson.

“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.”

Openreach builds and maintains the tens of millions of copper and fibre lines that run from telephone exchanges to homes and businesses across the UK – infrastructure that is also used by BT’s rivals, including Sky.

The satellite operator described the new deal as a “welcome step”, claiming that a “more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs.”

Previously Sky had claimed that there was a “fundamental conflict of interest” while Openreach remained vertically integrated within BT Group, and called for it to be fully separated from in order to “fix Britain’s lagging internet”.

Commenting today, Virgin Media CEO Tom Mockridge said: “Openreach is just the same old snail’s paced network with a new shell. Call it what you like but it’s still BT, four times slower than Virgin Media.”

BT’s new commitments will also include include reforms to how BT works in Northern Ireland, where Openreach does not operate. Ofcom said that these will extend the benefits of the Openreach changes to BT Northern Ireland – including greater independence, confidentiality, and independent branding.

The deal comes after Ofcom said in November that it would formally notify BT to legally separate Openreach, claiming it was “disappointed” that BT had not yet to made proposals to fully address the concerns it had raised in July.

In February last year, Ofcom said that BT must open up its Openreach infrastructure arm to competitors, but will not be forced to shed the unit entirely, in the initial conclusions of its review of digital communications.