It was announced today that BT has given in to the regulator Ofcom’s demands to legally separate from Openreach.
BT owns the operator of the UK’s broadband infrastructure but was under pressure by the regulator to separate the businesses.
This is because BT was accused of delivering a poor service and not investing enough into the network by its competitors who rely on it — including Sky, TalkTalk and Vodafone.
Under the deal, BT will create a legally separate company for Openreach, with its own branding and a separate board. Around 32,000 staff will move into the new company once pension arrangements are in place.
Ofcom wants Openreach to invest more money into upgrading its copper networks to fibre.
Sharon White, Ofcom Chief Executive, said in a statement:
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.
“We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”
However, Openreach is not going to be a completely independent entity after the enforced separation. BT will still set the annual budget for Openreach and remain the 100 percent shareholder.
In addition, the head of Openreach, currently chief executive Clive Selly, will still report to Patterson on legal and regulatory issues. Patterson has the option to veto the appointment of Openreach’s boss too, but only after notifying Ofcom
Patterson said the agreement has ended “a period of uncertainty for staff” and will lead to improvements at Openreach.
“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,” he said in a statement.
BT’s investors are clearly pleased with the decision as shares in the company jumped 4.6 percent to 345.6p this morning in London. It was thought Ofcom would insist on a full structural separation of the company but this hasn’t occurred.
Under the reforms, BT has also committed to change how the company functions in Northern Ireland. The reforms are set to come into full effect later this year.