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

The Sunday Telegraph - Money & Business - - Front Page - Mike Mctighe

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

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