Openreach chairman on independence from BT
The Openreach chairman is bullish about its task to deliver a UK full-fibre broadband network, finds Christopher Williams
When he was offered the role of chairman of BT’S network arm, Openreach, Mike Mctighe was unsure. After 30 years in senior technology and telecoms jobs he was winding down and his wife Terry Vega was recovering from cancer treatment.
“It wasn’t an easy decision to take in the end because as a couple we were going in a different direction,” he recalls.
In his early sixties, retirement in Florida beckoned for Mctighe.
Yet the pull of Openreach proved greater than sunshine and daiquiris. As a member of the Ofcom board for eight years, he had witnessed frustration mount over Openreach’s record on broadband service and investment under BT.
It culminated in a protracted battle between BT and the regulator, which ultimately imposed a new ownership structure. BT would remain the sole shareholder of Britain’s national telecoms network, but Openreach would be separate, incorporated with its own board and independent decision making.
The chance to implement the overhaul and start building a full-fibre broadband network was irresistible for Mctighe. With his wife’s backing, he stepped into the breach.
Mctighe says the company’s relationships with big customers have since been transformed “like night and day” and two years later he has no regrets about taking on the task. On Monday, Openreach finally became the employer of 31,000 BT staff in the biggest ever such legal transfer. With the paperwork out of the way, Openreach wants to focus on the practical tasks of building networks and better relationships with big customers. Along with BT’S own consumer arm, Sky, Talktalk and Vodafone rely on the Openreach network to serve millions of homes.
The political pressure nevertheless remains high. Less than one in 20 premises in Britain is connected to full-fibre infrastructure, which offers much faster and more reliable broadband than Openreach’s traditional copper telephone lines.
Meanwhile more than one in five Italian homes and businesses have access. In France coverage is better than one in three.
Philip Hammond has promised Britain will catch up. He has said there will be 15 million full-fibre connections by 2025 and full coverage by 2033. Although Virgin Media and smaller players such as Hyperoptic are building, most of the task will inevitably fall to Mctighe and Openreach.
He has made a start. Mctighe and Openreach chief executive Clive Selley drew up a “fibre first” business plan in which other technologies designed to squeeze more life from the old copper network would take a back seat.
Earlier this year they won a cash commitment from BT to fund three million new lines by 2020 and set an ambition of 10 million by 2025.
The goal is a more digital nation, but the practical engineering and economic challenges are considerable, especially set against the backdrop of BT’S stretched finances and boardroom upheaval.
Mctighe is taking a three-pronged approach. He is pushing Selley to bring down the cost of each new line with clever new installation techniques and building trust with big customers to ensure they are ready to sell new full-fibre broadband services.
Openreach is also seeking to break down regulatory barriers, such as by lobbying for longer relief from business rates on its new infrastructure and planning for when old copper lines are scrapped.
On the first front progress appears good. Sitting in an office overlooking
‘There is a lot of vapourware out there; it’s not the first time I have seen this in new markets’
‘Personally I can’t see the rationale to not pass 15 or 20 million homes with full fibre broadband’
London’s historic Smithfield meat market, where Openreach engineers have just installed full-fibre broadband cheaply by drilling through concrete floors and keeping a closer eye on contractors, Mctighe is cautious but confident.
“Whilst there’s still room for improvement we are coming in under our original cost estimates,” he says. “It’s early days but we are experiencing lower build costs than we put into the business case that we got BT to approve. If we can continue to drive that we’ll have a much more attractive case.”
Openreach is trying to be smarter about its investments. A full-fibre installation on a site such as Smithfield includes “plug and play” capabilities so that new lines can be added in future at very low cost. It is currently building 12,000 lines a week, impressing Ofcom. Mctighe and Selley aim to complete a million this year.
Where there was once suspicion that Openreach effectively acted as a competitive intelligence gathering
function for BT, it is now able to discuss confidential business plans with the likes of Sky.
The growing trust was underlined recently when Sky became the first big broadband provider to sign up for wholesale price discounts in exchange for a commitment to sell faster packages and full fibre to consumers. Such deals are at the centre of Mctighe’s effort to ensure there is demand for full fibre once it is built. The strategy is in contrast to BT’S earlier broadband upgrades, which he says followed a “build it and they will come” plan.
“We basically decided right from the beginning that we needed to be far more assertive in the market,” he says. “It’s all around us moving from being a price taker to a market maker.
“Independence has enabled us to behave differently and to show transparently that we are able to deal with their confidential information and there is no back channel into BT.”
Mctighe views the relationship with Sky as particularly crucial. Ultra high-definition video is expected to be one of the main selling points of full fibre. A partnership with the biggest provider of pay-tv could help Openreach make its investment case and help Sky and its new owner Comcast move away from satellite dishes. Plus, says Mctighe, who as former chairman of set-top box maker Pace has dealt with Comcast chief Brian Roberts before, they have a common enemy in Virgin Media.
“A combination of Openreach and Sky is very powerful in that Virgin footprint,” he says. “I think there’s a lot we can do together with full fibre when their systems are set up. I intend to reach out to Brian Roberts at some point through Sky.”
Ofcom has been trying to encourage more competition into the market to challenge Openreach. Mctighe does not seem overly concerned though by newcomers such as Cityfibre and Gigaclear, the so-called “altnets”, who have said they will connect millions. Final terms on Talktalk’s own full-fibre joint venture with the infrastructure arm of M&G, announced with a target of three million homes back in February, are yet to be signed.
“There’s a lot of vapourware out there,” says Mctighe, who as well as Pace and Ofcom has worked at Cable & Wireless Communications and the consumer arm of the Dutch electronics giant Philips. “It’s not the first time I’ve seen this in new markets.
“What we’re doing is getting on with it. We’re just building where we think it’s sensible. We’re in 10 cities now as of yesterday. We want to grow to 40 in the next couple of years.
“I think the altnets will play a role. Do I think some of the business plans that have been presented will come to fruition? No I don’t.”
Perhaps the biggest competitive threat to Openreach’s full-fibre ambition is BT itself. Within the company, currently without a replacement for sacked chief executive Gavin Patterson, debate rages over how much cash should be allocated to full fibre and how much to 5G mobile networks.
In the US there is growing confidence that the speed and capacity of 5G will allow such “fixed wireless” connectivity to replace fixed-line broadband for many consumers.
It is an issue that highlights the challenge for Mctighe of being independent, yet the owner of EE, Britain’s most extensive mobile network. He is in the midst of his drawing up his annual financial strategy to fight Openreach’s corner.
“We will reflect what we think is in the best interests of Openreach. There is no doubt it will put into play some questions around thing like fixed wireless. We could well be competing for capital.
“Personally I can’t see the rationale to not pass 15 or 20 million homes with full fibre. Whether you then go into the home or attach a mobile microcell … we should be agnostic shouldn’t we? That’s why we do a strategic review every year, right?”
Questions over the relationship between BT and Openreach are unlikely to go away, however. The new chief executive of BT is expected to look again at whether it should be spun off, or take on outside investment from either industry partners, or pension and infrastructure funds. They see Openreach as a potentially attractive long-term annuity, particularly in a full-fibre world where its business is more like National Grid or other utility where returns are virtually guaranteed.
Mctighe sees little prospect of Openreach enjoying more steady utility-style regulation, saying “that ship sailed a long time ago as far as telecoms is concerned”. He welcomes moves by Ofcom to review the market less often though.
Mike Mctighe, chairman of Openreach, at Smithfield, where the company is installing high speed cables as part of its ongoing plan to build a full-fibre broadband network for Britain