OFCOM LAUNCHES FORMAL CONSULTATIO ON BREAK UP OF BT

Communications regulator Ofcom has opened a consultation into whether parts of BT Group should be split off from the company.

The regulator said one option was to split off BT's Openreach service into a separate company.

Most internet service providers offer services through a fixed-line network controlled and maintained by BT.

But Ofcom said it had concerns BT Openreach's performance on behalf of those providers had often been poor.

I certainly think BT Openreach should be spun off from BT Group and I've said it before.

But there will be much opposition from fans (and possibly shareholders) of BT Group who will see it as a weakening of their empire.

It could only be a good thing.

The Ofcom announcement.

It does cover quite a lot more, as no doubt you know but others may find it interesting. Such as the babble about mobile and also TV streaming.

For the masochists, the full discussion document. A hundred and eighty-five pages on their initial thoughts.

In reply to a post by RobertoS:

It could only be a good thing.

Many said that about Network Rail

Before anybody starts to tinker with the present arrangement/system/call it what you will, it should be borne in mind that Ofcom has long been able to demand improvements where they have been needed. That it is complaining about the present situation is an indication that it has failed in this task.

Knowing as we do the long list of abject failure in introducing new systems and regulators I for one am sure that any alteration of the present system would be accompanied by a period, long or short, of complete chaos and confusion to the detriment of customers large and small

The current arrangements may not be perfect but if one considers the progress that has been made there is much merit in tweaking rather than embarking on empire demolishing followed by, probably, much wasting of money, most of which would have to be found by the customer

I for one have gone, in a very rural location, from a noisy old voice line via 28kbps dial up to fast fibre broadband in little over 10 years. Much (most?) of the UK has done much the same. That's not bad going in my estimation, and so far as I see the progress continues

It may not be perfect, but be careful what you wish for

In reply to a post by RobertoS:

It could only be a good thing.

Agreed I've often said as much.

My main concern is where the investment would come from for continued improvements. And, as 961a wrote I don't actually think Openreach has done a particularly bad job. It (or its descendant) could certainly have done a lot worse. Truth is for all the whining the UK's per capita internet use is amongst the highest in the world and has been for a long time. Whatever you might think about connection speeds they are clearly very fit for purpose.

The main areas I think need addressing are: End-user accountability. The current game of secret squirrels (User->ISP->[Wholesale->]Openreach often causes problems. It'd be far better if we could report faults direct to Openreach. Timescales is the other issue but again if customers could talk to OR direct it'd be that bit harder for them to faff around.

Edited by Andrue (Thu 16-Jul-15 13:47:45)

I doubt if we'll ever had direct user-accountability from Openreach however it is owned. It would be like being able to complain to the manufacturer of supermarket own-brand baked beans if there was something wrong with one you have bought.

In reply to a post by Andrue:

My main concern is where the investment would come from for continued improvements.

This is a concern in my view.

My electric distribution company is Chinese owned. My gas distribution company is 50% owned by a foreign pension fund. My water company is owned by a foreign pension fund.

BT Group put £2.5Billion into Fibre broadband on a long payback during a very deep recession. I can't see a demerged Openreach being independent for long and I don't think the pension funds or foreign owners would put up the money.

In reply to a post by Andrue:

The main areas I think need addressing are: End-user accountability. The current game of secret squirrels (User->ISP->[Wholesale->]Openreach often causes problems. It'd be far better if we could report faults direct to Openreach. Timescales is the other issue but again if customers could talk to OR direct it'd be that bit harder for them to faff around.

There is absolutely no chance of this happening. The market was set up this way deliberately. Punters are free to choose between good and bad providers. The idea is that if you get bad provider, you move to a good one rather than trying to bypass their customer service.

Edited by deleted (Thu 16-Jul-15 14:27:55)

WHY ARE YOU SHOUTING?



I'll believe it when I see it.

In reply to a post by RobertoS:

It could only be a good thing.

Demerging Openreach and it probably being in the hands of a foreign pension fund or Far East firm soon after, is probably a bad thing in the whole.

However i can see some positive stuff for BT Group. For example, Openreach have to give preferential treatment to LLU providers for repair service. I don't think that would be allowed anymore.

Similarly, only BT Consumer have to fund Openreach staff pension deficit. Under a demerger, the other players would have to cough up through prices that reflect the deficit.

Lastly, shareholders may do alright out of it. The shares have not bombed today.

Only BT Consumer?

For that to be true, every other part of BT Group would have to be loss-making.

I think Openreach should be split off but I don't believe it should be nationalised.

how is the spin off handled tho?

They cant simply spin it off and say hey its a new company, shareholders have to be compensated. As the overwall value of the BT group will obviously go down losing those assets.

So probably either

1 - the existing shareholders keep shares in the new split openreach so both companies owned by the same people. See the problem with this?
2 - Someone compensates them for the loss of openreach, who compensates them?

The Government could of course temporarily nationalise it and then sell it on the open market?

thats what I was thinking, so basically the gov compensates the shareholders and temporarily will own it.

Do we think as a separate company with a new set of shareholders (technically), this new Openreach will be more likely to invest in FTTP?

no idea, I dont think thats the reason for a split.

openreach on its own wont have to consider the impact of higher speeds at the retail market, e.g. to help sell iptv packages and compete against virgin media, they will only be worried about whats profitable to themselves.

As long as cheaper options exist such as g.fast I dont think a commercial rollout of FTTP is on the cards for them either way. Supposedly in the previous FTTC rollout FTTP was planned for various urban areas but got pulled due to the troubles they were having.

I've always thought Openreach ought to be spun into an independent company and run as a not-for-profit with all CPs charged a membership fee (they would own the company) and facility fees as they are now.

The profit from the membership fees would be ploughed into development of the network and running costs.

Every engineer I've dealt with has been terrific but I think their association with BT can sometimes tarnish tham.

In reply to a post by Chrysalis:

no idea, I dont think thats the reason for a split.

One of the main reasons, IMO is this: "It would remove BT's underlying incentive to discriminate against competitors".

BT's competitors don't get a lot of love in this forum, but nevertheless they deserve a fair deal. No matter how many safeguards are implemented I doubt Openreach will ever reach complete neutrality whilst it is owned by BT Group.

Some the profits from Openreach undoubtedly are used to compete against Sky, TalkTalk etc in the retail market, giving BT more ability to bid for Premier League rights etc. Sky, TalkTalk etc have no choice but to fill Openreach's (and therefore BT Group's) coffers. It's not entirely unlike the position the BBC enjoys with the TV Licence, which is an equally thorny subject.

This of course led to the �margin squeeze� test having to be implemented; something that would never have been necessary with an independent Openreach.

Some the profits from Openreach undoubtedly are used to compete against Sky, TalkTalk etc in the retail market, giving BT more ability to bid for Premier League rights etc.

Are you suggesting that Sky is only using its profits from selling broadband to pay ridiculous sums for TV rights rather than utilising profits from its satellite TV service? Surely not!

In reply to a post by arobertson545:

The Government could of course temporarily nationalise it and then sell it on the open market?

Yeah, righto. How many firms have a Tory government nationalised over the last hundred years?

In reply to a post by MCM:

Are you suggesting that Sky is only using its profits from selling broadband to pay ridiculous sums for TV rights rather than utilising profits from its satellite TV service? Surely not!

Invalid comparison. Sky does not have a monopoly on certain wholesale broadband infrastructure, but BT does.

In reply to a post by Oliver341:

Invalid comparison. Sky

Yes comparing to Sky and their TV service with significant market power is interesting. Sky control over their TV distribution arm would be looked at as severely anti competitive if it was in telecoms.

Similarly, Virgin offer no access to other telecom players to their network and they increase prices year on year. Whereas Openreach are reducing prices year on year.

Virgin also enter into deals with newsite developers that lock out any other player from offering services. This is the most anti competitive practice in UK telecoms today. Ofcom really need to look at Virgin.

In reply to a post by partial:

Yes comparing to Sky and their TV service with significant market power is interesting. Sky control over their TV distribution arm would be looked at as severely anti competitive if it was in telecoms.

Nevertheless Sky do not own, or make profit from the satellite infrastructure which carry their TV channels, it is owned by SES. If SES were owned by BSkyB then it would be an analogous situation, but it isn't.

As for Virgin Media, in all locations where they operate, BT Openreach also operate, so there is no monopoly situation there either.

Sky certainly control access to their TV boxes, encryption services and TV guide in a way that would unacceptable if it was excercising such significant market power in telecoms.

Virgin are locking Openreach out of many new developments throughout the UK and as such are locking out providers from Vodafone to Vivaciti. It is simply untrue to say that anywhere Virgin operate, Openreach operate too. Virgin are extremely anti competitive in newsites.

Edited by deleted (Thu 16-Jul-15 22:38:37)

And the relevance of that statement is? Are you suggesting that a company cannot use profits earned by one division to help another? As for Sky not having a monopoly for broadband, that may be the case, but against that it has an effective monopoly for the distribution of TV via satellite (leaving aside "continental" players where often specialised receiving equipment is required).

In reply to a post by partial:

Sky certainly control access to their TV boxes, encryption services and TV guide in a way that would unacceptable if it was excercising such significant market power in telecoms.

Still not the same. Freesat operate just fine regardless of how Sky choose to configure their boxes, as could any other satellite provider if they so choose. Service provisioned via SES, not Sky.

In reply to a post by partial:

Virgin are locking Openreach out of many new developments throughout the UK and as such are locking out providers from Vodafone to Vivaciti. It is simply untrue to say that anywhere Virgin operate, Openreach operate too. Virgin are extremely anti competitive in newsites.

I'm not aware of any areas where Virgin Media cable has a monopoly. But even if they do have such a monopoly in certain areas, it will be minuscule relative to the number of areas where Openreach has a monopoly.

In reply to a post by MCM:

Are you suggesting that a company cannot use profits earned by one division to help another?

No. I said where a company is in both retail and has a wholesale monopoly, there are issues.

As for Sky not having a monopoly for broadband, that may be the case, but against that it has an effective monopoly for the distribution of TV via satellite (leaving aside "continental" players where often specialised receiving equipment is required).

As I've said, Freesat also operate over SES's satellites and there's not a thing Sky could do about it.

I said where a company is in both retail and has a wholesale monopoly, there are issues.

Not at all. It's called business. Further Virgin Media might have something to say about BT Openreach being referred to as a monopoly.

In reply to a post by MCM:

Not at all. It's called business.

And sometimes businesses have to be controlled, because any business will naturally seek to exploit a monopoly situation.

Further Virgin Media might have something to say about BT Openreach being referred to as a monopoly.

A monopoly in the areas of the UK where Virgin Media do not operate (which are actually quite numerous).

Some other firm is also getting hold of developers and locking out all normal suppliers.

I spent ten minutes a bit ago searching for the recent thread where a couple of people were bewailing they couldn't get BT Wholesale, LLU or Virgin Media, so I could name the companies. I didn't find it, even though I'm sure I posted in it.

It's just occurred to me it may be on the Plusnet Community forums, but searching those is an absolute pain. Especially at this time of day. I'll look there tomorrow if I remember.

Edited by RobertoS (Fri 17-Jul-15 00:25:13)

And if vm expansion plans happen will be less than 1/3 rd without vm option

I dont disagree.

I witness first hand that the wholesale network BT built for WBC is of a lower standard than the one BT retail uses, and this of course makes BT retail look better than competing services.

In regards to openreach do BT get favourable treatment, probably, but obviously they put effort into hiding it.

In reply to a post by Chrysalis:

I witness first hand that the wholesale network BT built for WBC is of a lower standard than the one BT retail uses, and this of course makes BT retail look better than competing services.

I think a large part of that is that BT Retail has never had a problem paying for loads of bandwidth, because essentially they buy bandwidth from themselves so the money never leaves BT Group.

Of course some providers manage to escape some of this by using their own backhaul, and by using LLU for ADSL, but they are still obliged to pay BT for SMPF, MPF or FTTC GEA, money which can then be re-used by BT to compete with their competitors on a retail level.

It might even be that BT have seen the writing on the wall for Openreach for some time, as they have continued to expand their retail presence (e.g. the takeover of EE).

If you separate Openreach into separate BT company the conflicts are removed and the costs are far more transparent. As a part of the BT Group for example Openreach will pick up some o the BT corporate costs & R&D costs etc as a separate company that would not be the case

Splitting BT from the main BT Group is not as complex as is made out. It has happened with BT in the past when O2 was split off and then divested. What would happen with Openreach is existing BT shareholder would get Openreach shares

As BT are vertically integrated at present it is difficult to separate the costs. Openreach for example will be picking up BT corporate costs and central R&D costs

Re BT being locked out of developments, I mentioned earlier that according to a recent post there was some firm other than VM that was doing this by the look of it. (It is of course possible the poster is confused).

Link.

I totally agree you 961a, there is in reality no organisation in the country that could take this on and make a success of it.
Any possible takers are more than likely the Chinese and they would require a bottomless pot of money some which would probably be made by butchering what we already have!
One only has to look at Gas and Electricity to see that this is a recipe for a disaster waiting to happen. There are without doubt many improvements that can be made to the existing setup, greatly improved communication within the industry being a major one.
But breaking up what in reality is a more than adequate service then be prepared for foreign ownership, asset stripping and the fragmentation of the existing service.

In reply to a post by Andrue:

My main concern is where the investment would come from for continued improvements.

Yes, I could easily make a case that investment would fall if Openreach were independent.

Openreach would have more reason to sweat its existing assets than BT currently do and are likely to face higher borrowing costs to fund investment making it less likely/more expensive as well.