Openreach Split Within BT Urged By Ofcom

Ofcom has called for Openreach, which develops and maintains the network used by phone and broadband providers, to become a "distinct company".

However, the communications watchdog stopped short of ordering BT Group to sell Openreach as it sought to bolster digital communications competition.

Rivals have long complained that a conflict of interest means BT is both a provider of services to customers and responsible - through Openreach - for the final mile of network connection to consumers and businesses.

Those connections are used by BT, which also owns the EE mobile network, as well as by its competitors including Sky - the owner of Sky News - TalkTalk and Vodafone.

Although nine out of 10 households have superfast broadband, Openreach has faced frequent complaints that it is too slow to make repairs and new connections.

Ofcom said on Tuesday it was clear that BT currently "retains influence over significant Openreach decisions".

"BT has an incentive to make these decisions in the interests of its own retail businesses, rather than BT's competitors, which can lead to competition problems," it said.

The watchdog said Openreach should become more independent and have its own board.

It said while BT would control who was on it, a majority of members would have to be non-executives with no connections to BT.

Other proposals include greater consultation with customers on large-scale investments and independent branding.

Sharon White, Ofcom's chief executive, said: "We're pressing ahead with the biggest shake-up of telecoms in a decade, to make sure the market is delivering the best possible services for people and business across the UK."

The report was released a week after MPs said BT should be broken up unless it put its house in order, accusing the FTSE 100 firm of significantly under-investing in Openreach.

MPs also called for tougher penalties for poor service, in order to encourage greater investment.

BT said it believed the "unprecedented" changes outlined by Ofcom provided "the basis for a fair, proportionate and sustainable regulatory settlement".

Chief executive Gavin Patterson added: "We have listened to Ofcom and industry and are introducing significant changes to meet their concerns. These changes will make Openreach more independent and transparent than it is today, something both Ofcom and industry have requested."

Ofcom said it was to seek industry views on its plans.

Sky's chief executive, Jeremy Darroch, said: "Today's proposal to create a legally separate Openreach is a step in the right direction, although falls short of the full change that would have guaranteed the world-class broadband network customers expect and the UK will need.

"In particular, leaving Openreach's budget in the hands of BT Group raises significant questions as to whether this will really lead to the fibre investment Britain requires."

TalkTalk boss, Baroness Harding, echoed those sentiments. She said: "Structural separation is cleaner, with less red tape - and removes BT's ability to exploit loopholes in the regulation.

"In taking one cautious step forward, I fear Ofcom may in practice have taken five steps back."

The Government welcomed Ofcom's findings but added it was "right that full structural separation remains an option."

The Department for Culture, Media and Sport spokesman said it was the Government's goal "to make sure the UK builds the right infrastructure to maintain our position as a world-leading digital nation".

"Swift and clear action is needed to give certainty to consumers, industry and investors in the UK's broadband infrastructure, and which delivers rapid improvements in the level of investment and service."