Let’s bang the drum for BT – not bash it
Ofcom is right not to hive off Openreach: broadband expansion is on track, despite rivals’ criticism
Ofcom has now published its preliminary views on the future of BT – or more specifically, its infrastructure arm, Openreach. This is dry, technical, regulatory stuff, but it matters for millions of UK citizens who now depend on fast broadband speeds.
For some time, BT’s fiercest competitors and biggest customers – Sky, Vodafone and TalkTalk – have been calling on the company to be broken up, and for Openreach to become a separate and completely independent company.
Ofcom has resisted this solution, known as structural separation. And it is right to do so. Structural separation would potentially load huge costs on to BT group, not least its already beleaguered pension scheme, and at a time when it is vulnerable post-Brexit. It could also lead to protracted litigation, distracting Ofcom from other regulatory matters, and BT from its job of building out broadband infrastructure.
If people think Ofcom has sold out, they should remember that no other country has imposed structural separation.
What we have instead is a proposal for “functional separation plus” – greater independence for Openreach, but not a break-up. In effect, Openreach could become a wholly owned subsidiary of BT, with much greater freedom in how it invests in the network, and the deals it does with its wholesale customers.
The functional separation of BT, which was brought in a decade ago in the UK, has created a hugely competitive market, with BT retail having the lowest market share of any incumbent. It has been widely copied, not least across Europe.
BT finds itself under threat today mainly because of Openreach’s woeful customer service and poorly maintained infrastructure. As a minister, I called it out on this publicly. At times they seemed to have a death wish, with ranks of MPs complaining to me vociferously on behalf of their constituents. It needs to improve rapidly in this area.
However, many other criticisms are unfair. Until recently, I oversaw the rural broadband programme that BT is delivering. Almost 5 million homes have now been passed, and by the end of next year 95 per cent of the country will be covered.
The contracts we negotiated provide a mechanism to claw back money as take-up increases, and it may be that almost all of the hundreds of millions of pounds of taxpayers’ money committed will be returned or reinvested to go even further. By any measure, it is Britain’s most successful infrastructure project in recent years.
Some commentators, driven more by a kind of evangelical zeal than by rational analysis, would like to see a network built now that delivers speeds of around 1 gigabit per second to every home – more than 35 times speeds currently defined as “superfast”.
Leaving aside the expense, time and lack of demand, it flies in the face of the facts. The incremental approach has seen the widest coverage, the lowest prices, the highest take-up and the best outcomes of any comparable country. We download more data, do more e-commerce and watch more highbandwidth content than any of our competitors.
New technology and competition will see the situation improve in line with customers’ expectations. Virgin Media is a fierce competitor expanding its footprint. BT’s GFast technology will multiply speeds on the existing network at a fraction of the cost of the current programme.
Eventually over the next decade, we will need to build a future-proof “fibre-to-the-front-door” network, and BT is already leaning in that direction.
The holy grail, which the new Ofcom proposals are designed to enable, would be co-investment by BT and its competitors to share the cost and risk, and deliver the outcome more quickly. If Ofcom’s proposals can be quickly accepted, and if BT’s competitors stop lobbying and start investing, we can get there.
But beating up BT and imposing ever-more regulation is counterproductive and ultimately selfdefeating. BT is one of our national champions, and does not get nearly enough credit for what it has achieved.