UK Government MPs Try to Revive Option of Breaking Up BT to Aid Broadband

Newspaper reports have claimed that the Government may be reconsidering the option of completely separating telecoms giant BT from its UK broadband network business (Openreach), which is an approach that Ofcom rejected earlier this year (here) in favour of the less dramatic “legal separation” approach.[1][2][3] Generally it’s not been the best of years for BT (problems with pensions, Italian accounting scandals, Ethernet disputes etc.) and now a new report in The Telegraph[4] (paywall) has claimed that Government MPs may be returning to the idea of breaking the operator up (i.e. forcing them to “sell off” their broadband division). Apparently ministers fear that Openreach[5] isn’t capable of delivering the next generation of broadband (the paper says “superfast” but by the context we think they mean ultrafast / FTTP[6] connectivity), which comes less than a day after the Government rejected a voluntary offer from BT to deliver the new 10Mbps Universal Service Obligation (USO) for broadband (here[7]).

A Whitehall Official told the paper:

“There are concerns that the market is just not competitive. Given what we’ve seen with BT’s current performance we want the delivery of the next generation of broadband to be quicker and more competitive.”

Quite how they expect any future deployment of FTTP[8] to be quicker than the previous generation of cheaper FTTC[9] is a mystery. Today “full fibre” is the Government’s current mantra of choice but it could take a couple of decades to fully deploy and many billions of pounds more, unless the hope is to rely on a cheaper but slower and quick to deploy hybrid fibre G.fast fix for the whole UK (this doesn’t match the current “full fibre” focus).

On the subject of breaking-up BT itself, we’ve already had that debate multiple times between 2015-2016. In the end Ofcom[10] reached a voluntary agreement in March 2017 with BT that meant the “legal separation” of Openreach, which the regulator felt could deliver most of the desired changes, albeit without all the legal and financial chaos of a complete split or enforced sell-off. As a result Openreach has adopted an independent board and they’re also in the process of giving rivals greater access to their infrastructure (e.g.

Cable Duct & Pole Access), as well as introducing tougher minimum service quality standards and better information sharing etc. Over the longer term Ofcom reasoned that fostering greater independence and competition at the infrastructure level would deliver a more diverse and flexible market for faster digital connectivity. In fairness we’ve seen quite a bit of progress since then. Hyperoptic[11], Cityfibre[12] + Vodafone[13], Gigaclear[14], Community Fibre, TrueSpeed Communications, KCOM[15], WightFibre, Virgin Media[16] and others have all announced or already begun a significant investment and expansion of FTTP/H/B connectivity (several millions premises will benefit from this).

The market for alternative network providers is on the rise Meanwhile Openreach has so far committed to rollout 330Mbps capable G.fast to 10 million premises by the end of 2020 (they’re currently in the final pilot phase) and they’ve also pledged to extend their 330-1000Mbps “full fibre” FTTP network to 2 million premises by the same date. On top of that the operator is considering the possibility of a “large-scale” FTTP deployment to 10 million premises by around 2025 (here[17]), which would come at a cost of around GBP3bn to GBP6bn.

Finding a financially viable way to deliver that isn’t easy and BT has been campaigning for various solutions (e.g. more flexible regulation from Ofcom, co-investment with other ISPs, mass migration to FTTP and retirement of the old copper network, higher wholesale charges etc.). Suffice to say that there’s no easy fix, at least none that won’t attract disputes or big competitive / regulatory disagreements, unless Openreach were to just stump up the money and do large-scale FTTP regardless (easier said than done, there’s already enough debt and pension woes to worry about). Nevertheless some difficult decisions will soon have to be made.

The big question in all this is, what difference would breaking-up BT from their broadband network actually make? There’s plenty of talk about rivals being able to invest in a slice of Openreach and thus fund FTTP, but most of those only care about urban coverage (the first 60-70% of UK premises) and such areas are already increasingly well served (e.g. Virgin Media[18], Hyperoptic[19] and soon Cityfibre[20] + Vodafone[21] etc.). Meanwhile in many suburban and rural areas you’re still faced with the same challenges of economic viability, which remain true no matter what happens with Openreach.

Similarly by turning Openreach into a vehicle for the big ISPs to invest and hold control over a national network then you also run the risk of crowding out alternatives, which might reduce rather than boost competition at the network level.

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References

  1. ^ Openreach (www.openreach.co.uk)
  2. ^ Ofcom (www.ofcom.org.uk)
  3. ^ here (www.ispreview.co.uk)
  4. ^ The Telegraph (www.telegraph.co.uk)
  5. ^ Openreach (www.openreach.co.uk)
  6. ^ FTTP (www.ispreview.co.uk)
  7. ^ here (www.ispreview.co.uk)
  8. ^ FTTP (www.ispreview.co.uk)
  9. ^ FTTC (www.ispreview.co.uk)
  10. ^ Ofcom (www.ofcom.org.uk)
  11. ^ Hyperoptic (www.ispreview.co.uk)
  12. ^ Cityfibre (www.cityfibre.com)
  13. ^ Vodafone (www.ispreview.co.uk)
  14. ^ Gigaclear (www.ispreview.co.uk)
  15. ^ KCOM (www.kcomhome.com)
  16. ^ Virgin Media (www.ispreview.co.uk)
  17. ^ here (www.ispreview.co.uk)
  18. ^ Virgin Media (www.ispreview.co.uk)
  19. ^ Hyperoptic (www.ispreview.co.uk)
  20. ^ Cityfibre (www.cityfibre.com)
  21. ^ Vodafone (www.ispreview.co.uk)

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