Broadband misery as BT dodges break-up
MILLIONS of households will be left with “dire” broadband speeds because the regulator is refusing to break up BT, MPs have warned.
The Daily Telegraph understands that Ofcom, the telecoms regulator, will today reject calls to force the company to sell off its broadband division, thus ending its monopoly.
The decision, which comes after a review that ran for more than a year, will infuriate campaigners who have accused BT of underinvestment in its network, leaving millions of people with sub-standard connections.
Grant Shapps, the former Conservative Party chairman, said: “Ofcom’s continuing reluctance to act condemns hundreds of thousands of people to the slow lane of internet connections, meaning it takes longer to access information, download a movie or run a business from home.
“By now Ofcom should appreciate that high-speed broadband is the fourth utility which no modern household should be without. You have to wonder how many times BT Openreach has to fail the public before the regulator acts. The idea of one more chance is being stretched to its limit while ordinary families and British businesses continue to suffer through poor or no superfast broadband.”
It comes after 121 MPs from all parties called for BT to be broken up and warned that a “staggering” 5.7 million people do not receive the minimum expected download speeds as stipulated by the regulator. The poor service can leave customers waiting up to two hours to download an hour-long video, and have forced some businesses to close in the worst-affected parts of the country, the researchers say.
The MPs have called for BT’s Openreach division, which owns and maintains the cables and has a monopoly over the network, to be sold off.
However, Ofcom is expected to recommend that the structure of Openreach is reformed rather than split off from its parent company. The regulator is expected to accept more limited concessions from BT, such as that Openreach should have an independent board and control over its investment plans. The move is likely to infuriate companies such as TalkTalk, Sky and Vodafone, which have warned that only a forced separation will guarantee that BT does not unfairly profit from its monopoly over the network.
The regulator, however, is reluctant to push ahead with the break-up of BT amid concerns about the impact on its £53 billion pension fund, which is one of the largest in Britain. There are also concerns that breaking up BT would lead to a protracted legal battle which could end up in European courts.
BT’s rivals hope that the vote to leave the EU will give Ofcom more power and enable it to break up the monopoly.
Meanwhile, the Local Government Association, which represents councils, warned that the Government was failing in its pledge to deliver minimum broadband speeds.
Earlier this year The Daily Telegraph launched the “better broadband” campaign to improve connectivity in the countryside, towns and cities.
Sir Mike Rake, the outgoing chairman of BT, told BBC Radio 4’s Today programme that it would be the wrong time to break up BT and “would distract us from the remaining investment to get superfast and ultrafast broadband right across the country in the next two to three years”.
There’s an irony to the fact that one of the things that will save BT from being broken up today is also the thing that for years has most worried investors about the company. BT’s £53bn pension fund, and the massive deficit it faces, was always likely to play a role in the debate over the future of its network division, Openreach, and so it has. After well over a year of investigation and consultation, Ofcom is likely to cite the munificent retirement scheme as a reason not to carve off Openreach as a fully independent broadband infrastructure owner.
The deficit is now estimated at more than £12bn. Thanks to guarantees given by the Government when BT was sold off, taxpayers are on the hook if BT is unable to meet its liabilities.
So Sharon White, Ofcom’s chief executive, would have been brave to propose tearing the company in two, with all the instability and uncertainty that might create for the pension scheme.
It is doubly ironic, then, that BT made such a large corporate effort campaigning against Brexit. The falls in UK gilt yields since Britons decided to part company with Brussels have served to widen BT’s pension deficit significantly and so make separation of Openreach less likely still. Sir Mike Rake, BT’s chairman, was a vocal Remain campaigner. He can at least console himself that when he steps down next year he won’t be leaving in the midst of another complicated break-up.
While pensions are important, and Brexit helped underline the fact, the UK’s for now continued membership of the EU is the main reason why BT is not being broken up.
Under the current law, British regulators are junior to their counterparts in Brussels. If White had decided to pursue Openreach separation, she would have had to ask permission from the EU and it would almost certainly not have been given. No former state telecoms monopoly has been stripped of control of its network and BT’s counterparts in Germany, France and elsewhere would have gone into battle on its behalf if the move was seriously proposed.
This is not an argument for or against Brexit, but it is an example of an important area of policy where the real power is in the hands of officials in Brussels, not UK politicians and regulators.
So instead, Ofcom will propose a halfway house and hope not to have to defer to the EU. The resulting relationship between BT and Openreach is likely to be comparable to the kind of complicated, lawyerly arrangement Britain is likely to end up in with the EU, in fact. Similarly, it also seems quite likely to please nobody.
Perhaps that is too pessimistic. Yet looking at the ways in which the broadband market and BT’s grip on it frustrates consumers, businesses and competitors, it is hard to see a stable long-term settlement emerging.
For instance, a great deal of Sky’s anger at Openreach is driven by dissatisfaction that its huge, predictable cash flow has helped BT invest heavily to challenge its own dominance of pay-TV and especially live football. Nobody likes the poor service Openreach currently provides, even BT, but Sky’s attacks are at least as much about a desire to reduce the financial firepower of its bigger rival.
BT, meanwhile, is likely to fight tooth and nail to keep its hands on that Openreach cash. It may not directly pay for the company’s consumer division to bid for sports rights, but £1.4bn of steady money a year certainly helps convince investors that BT can afford the risk. Rake said yesterday that the company was willing to give Openreach more authority in its investments with a majority independent board. He did not say BT was willing to wait patiently for a dividend from a financially unconsolidated subsidiary. The devil will be in the detail of White’s proposals today, but satisfying both BT and Sky on this key financial point seems a stretch even for an experienced Treasury operator such as her.
What is certain is that none of BT’s major rivals have bought into Ofcom’s idea that they should invest heavily in building their own ultrafast broadband lines on top of Openreach’s underground ducts and telegraph poles.
This is the regulator’s main plan to introduce more competition to BT to improve Britain’s broadband infrastructure, and so far it has received a frosty reception from operators and their investors.
The scepticism is rational. Building multiple fibre-optic broadband networks is inefficient. Ofcom could attempt to create economic incentives convince BT’s rivals to spend, such as allowing Openreach to increase wholesale broadband prices. It would probably cost the regulator its hardwon industry reputation for reasonable light-touch regulation, however, and risk consumer anger.
Ofcom nevertheless appears convinced it will work. Perhaps it will. Maybe Openreach service will improve rapidly and thousands of miles of new fibre-optics will be funded by Sky and Vodafone shareholders. Perhaps an ultracompetitive industry will learn to collaborate via the new Openreach board and give Britain a truly worldclass internet infrastructure.
Or it could easily be that today’s proposals for reform of BT are just another staging post on the road to separation of Openreach. Three years from now, the duct and poles plan may have failed again and interest rates may finally be on the rise, narrowing BT’s pension deficit. Politicians who have told BT repeatedly it is on its final warning to improve service might carry out their threats. BT shareholders might have become weary of the arguments and see value in selling off the network to infrastructure investors voluntarily. Most crucially, Britain may have its own telecoms laws independent of Brussels and regulators with more ability to act.
The recent politics of Britain in Europe and Scotland in the UK suggest that once the separatist genie is out of the bottle, it is reluctant to go back in.
Three years from now, politicians who have told BT it is on its final warning might carry out their threats