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Ofcom's failure to split BT, Openreach met with criticism in UK

New proposals by telecom watchdog Ofcom to regulate therelationship between BritishTelecom and its broadband network Openreach stopped short ofsplitting the two entities.

Outliningthe next steps in the long-running review on the relationship between Openreachand the rest of the BT Group, Ofcom said Openreach will become a legallyseparate company within the BT group in a move described by Ofcom ChiefExecutive Sharon White as "the biggest shake-up of telecoms in a decade."

Openreachwill have its own board, strategy and annual operating plans. It will also berequired to conduct consultations with customers on large-scale investments.

BTrivals like Sky plc,TalkTalk Telecom GroupPLC and VodafoneGroup Plc have longargued for a separation of BT and Openreach, stating the structurepresents an unfairadvantage for BT.

Thetelecoms giant is faced with widespread calls to provide competitors improvedaccess to its broadband infrastructure. To establish this, BT will now have toensure that it enforces the ring fence around Openreach in order to lower therisk of making decisions that serve merely its own interests and are againstBT’s rivals.

SkyChief Executive Jeremy Darroch welcomed Ofcom's decision as a positive step inthe right direction, but he did caution Ofcom's proposals fall short of therequired changes.

Darrochsaid the decision to leave Openreach's budget within BT control would raise"significant questions" about the future of Britain's fiberinvestment.

Inattempts to appease Ofcom and its rivals, BT has to put together an independentboard and chairman to run Openreach.

However,the U.K. department for culture, media & sport argued BT's proposals did not gofar enough and urged it to consider "full structural separation" asan option. The culture, media and sport select committee alsorecently stated the telecoms group not only exploited its position but is alsosignificantly under investing in Openreach.

Withseveral companies - from LibertyGlobal plc's VirginMedia Ltd., Sky and TalkTalk to regional providers like Hyperopticand Gigaclear - investing in ultrafast fiber networks, there is a strongsentiment among analysts that Openreach should be more independent from BT toensure it takes decisions for the good of the wider telecoms industry.

"Forsome, only full structural separation will be enough and it is important tonote that Ofcom has kept this option on the table should its proposed model notdeliver," Ovum analyst Matthew Howett said.

Industryobservers will be watching to see whether today's Ofcom announcement is able tocreate a truly competitivebroadband market.

Infact, Dan Lewis, senior infrastructure policy adviser at the Institute ofDirectors, believes this should be BT's "last chance" to show itscurrent relationship with Openreach will not hinder the latter's efforts todeliver "truly world-class broadband.”

"Londoncomes 26 in a [broadband] ranking of European capitals, behind Bratislava,Talinn and Sofia,” Lewis said, calling it “an embarrassment that countries withgenerally lower living standards are leaving us behind.”

Hethinks that if the U.K. fails to catch up, BT should face more extensive actionfrom the regulator.

Assuch, it may be only a matter of time before a split between the two entitiesmaterializes. In fact, according to Dan Howdle, telecoms spokesman forCable.co.uk, a clear separation between BT and Openreach is ultimatelyinevitable as Ofcom’s proposals create a split.

"Ifpermanent separation were to happen, existing staff would need to be reassigned,a new board appointed, budgets allotted, and it would need to become discreetowner of its existing infrastructural assets – all of which is exactly what ishappening today," Howdle concluded.

Ofcomsaid interested parties have until Oct. 4 to review the regulator’s proposals.

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