Openreach to stay part of BT

In reference to www.bbc.co.uk/news/business-36891446:

BT's Openreach division, which runs the UK's broadband infrastructure, should become a distinct company within the BT group, according to regulator Ofcom.

The media watchdog has resisted calls from BT's competitors to split Openreach off entirely.

So while not its own PLC the list of changes Ofcom proposes are pretty extensive

Indeed. I'd hate to think what the costs would be of a full split and the management time and effort involved. Perhaps Sky et al would have been happy to have paid for it all...

Perhaps they would, if Openreach is fashioned along the lines of Network Rail.

Network Rail was created when the previously privatised company (Railtrack) was put into admiistration following action by the then Transport Secretary (Stephen Byers). There then followed a lot of controversy and some compensation was paid to Raltrack shareholders.

The assets (and debts £7bn - since grown to approach £40bn) were transferred to Network Rail which is, to all intents and purposes, a nationalised company as its debts are recognised as part of the National debt.

Such a route is not open to the government as there is no sense in which BT or OR are insolvent. To turn OR into some sort of not-for-profit company as Network Rail is (some would say a perpetual loss making company) would require the payment of a lot of compensation to BT shareholders. Perhaps £20bn or so as the value of the network. Who on earth is going to fund that?

To turn OR into a non-profit making company whilst still maintaining the fiction that it was privately owned (who on Earth would buy shares in such a company) would be ludicrous and quickly invite legal action.

The clip of Sharon White at 8:17 on the Today programme is worth a listen for anyone who didn't hear it.

Or the full conversation at 7.09
http://www.bbc.co.uk/programmes/b07lfsrl#play

It sounds very much like Ofcom are trying to take control of OR's investment plans via the back door.

In reply to a post by TheEulerID:

.
Such a route is not open to the government as there is no sense in which BT or OR are insolvent.

There was no sense in which Railtrack was insolvent either, but the Government made it happen.

Your argument that it could not happen to Openreach just came off the rails.

Are the BDUK contracts with BT Group with BTOR being a subsidiary but not legally a separate entity from BT Group?

So now those and future BDUK like contracts will automatically be handled by BTOR?

I am sure BTOR will go through some kind of re-branding exercise as a result of this. What do you think they will rename BTOR to?

I suggest it will be We Like Copper.

Openreach.

I think I detected the note of sarcasm there

This might be a canny move by Ms White and OFCOM, we all know Sky, etc are very critical of BTOR and we all know the practicality and finance of providing FTTP to the majority of the country vs cherry picked profitable locations is how we have ended up with an interim FTTC based solutions rolled out by BTOR forming the basis for FTTP/FTTdp solutions as technology and actual demand is required by typical consumers not interested in down the pub type bragging how fast and cheap their internet connection is.

So the main point Ms White stated in her discussion was that now Sky and others will meet/talk with BTOR directly and can in her words 'influence the future plans'. So now Sky have got what they asked for, now they have to take part in those discussions and should stop whingeing. Will Sky also now jointly invest in those hard to reach locations? We will see but I think we know the answer is no they will not.

It has been mentioned there is a change to the ducts and poles access rules last week, I have not seen the details of those rules. Anybody have them?

The Railtrack case was very specific, albeit politically motivated and highly controversial. It was based on a technical view that the company was insolvent and unable to continue to meet its public responsibilities and persuade a court to put it into administration and transfer the assets back to the state. The embarrassment factor was such that the government had to pay (some) compensation, and Stephen Byers eventually resigned. However, the class action against the government by shareholders (the largest ever) failed so the original case for putting the company into insolvency was effectively supported in the courts.

However, BT and its division OR are not in the same position at all. It's highly solvent (that might have been different in the past) and, unlike Railtrack, was not dependent on government support. Of course it did receive grants for BDUK

So how do you think a government could force BT into insolvency (at least in the short term). Arbitrarily cut regulated prices? I've no doubt regulators could make life much more awkward for BT, but such a thing would take a long time to act.

In addition, there's the issue over the government to do this. Do you really think that they want to land the responsibility of the pension deficit on the state as insolvency would do (and that responsbility has been confirmed in the courts)? Also, the state receives a fair amount of corporation tax from a profitable BT. Do you think they want to forgo that?

Then there's the knock-on effect of forcing one of the major FTSE companies into iinsolvency, the knock-on effect that would have on investment, employment and so on. That's not just the fixed line network of course, but the impact on EE. Then there are all the institutional shareholders too.

So no, it's pretty inconceivable that a government minister would do such a thing, or even has the powers, let alone the incentive. It is always possible that unwise regulation could cause a long-term decline in BT, but there's no "insolvency button" available at the moment.

You're missing the point. The Government can do what they like to Openreach. The precedent here is that they did what they wanted to Railtrack. They created Network Rail as an effectively nationalised company. They can do that to Openreach too if they want.

In reply to a post by BatBoy:

You're missing the point. The Government can do what they like to Openreach.

And you're missing the point that it can't. The UK is a capitalist democracy. There would be huge ramifications that would echo round the entire private sector if the government nationalised it. All previous nationalisations have had sound reasons behind them - mostly rescuing failing businesses. There is nothing wrong with BT from a business perspective and no justification for such an action. It would effectively be telling every CEO in the world that they could lose control of their company at a political drop of a hat.


That would destroy our economy.

Edited by Andrue (Tue 26-Jul-16 13:50:14)

As I said, the precedent has already been set. They did what they wanted to Railtrack.

And that precedent caused a huge political argument, the resignation of a minister, payment of some compensation and a major court case. That was in a company which was suffering financially and had been involved in several fatal rail crashes.

It simply isn't going to happen, and the idea that a Conservative government would make an arbitrary decision effectively confiscating private assets is other worldly. I think even Jeremy Corbyn might think twice about this sort of asset grab.

As far as I can see, Ofcom have ruled it out for now saying it would have taken too long. I can't see any reason to think they have ruled out doing it in the future - this could easily be the first step.

Everyone does understand that BT haven't agreed to this don't they? They've gone back to Ofcom with their own proposals.

As far as I know Ofcom doesn't have the legal power to force this proposal.

In reply to a post by BatBoy:

You're missing the point. The Government can do what they like to Openreach. The precedent here is that they did what they wanted to Railtrack. They created Network Rail as an effectively nationalised company. They can do that to Openreach too if they want.

That just isn't true!

Edited by deleted (Tue 26-Jul-16 14:50:22)

In reply to a post by Icaras:

Everyone does understand that BT haven't agreed to this don't they? They've gone back to Ofcom with their own proposals.

Ofcom have said they have not reached a definitive position and will consult on the proposals made by BT.

BT don't accept these proposals though. So they'll both need to agree on something, which won't be this.

You're saying compromise is the usual result of negotiations? Who knew?

I agree with you, but the press are reporting it differently. Even this website. As if it's a done deal and what Ofcom have proposed is exactly what will happen.

That's a different issue. What Ofcom have not done is insisted on floating off OR as a separate (commercial) company with its own shareholders. That would not be anything like National Rail as it would be a for-profit company expected to pay dividends in the normal way. It would be much more like the National Grid.

If the government want a national not-for-profit business, then they'd have to pay compensation for the shareholders and it's likely to hit competition issues with VM and other network owners.

Reported as such, since Ofcom would clearly like this to happen, and the stick to make it so is further threats to go the long way around and full split.

BT has been more positive than some of the other providers at the proposed changes today.

But yes today is a set of proposals with review after consultation in October, so would expect final version to be public Dec to Feb time. Then a year to 18 months to implement and another 12 months for many changes to produce any effect or start roll-out.

It is feasible that if BT/Openreach believe G.fast would be killed off early, that the roll-out may not go ahead and they'll focus on BDUK contracts, the FTTH they had planned and then see where the consultations with large customers take them in 18 to 24 months time.

To add Ofcom is saying it will invoke the Communications Act 2003 if it does get what it wants to get the proposed changes through. That may be a time limited threat as Act has some EU legislation at its core and if we Article 50 the act may need re-writing (buried in the full 77 page report).

Edited by MrSaffron (Tue 26-Jul-16 16:01:15)

Indeed it won't, and as OR will be losing money over exchanges like yours then I suspect that if they had their way they wouldn't want to run it anyway.

The cable just laying across the verge is something I have never, ever seen by the way. Just how much of that is there? Is there some local planning rule that doesn't allow poles and they won't bury the cable due to costs?

What cable across a verge? Is this supposed to be aimed at me?

I have seen that before though, as a temporary solution.

Apologies, replying to somebody else (I thought).

As OFCOM are proposing it OPENREACH would be a PLC with its own company number and registration at Companies house where it would have to file its accounts etc each year. It would not though have a stock exchange listing as the BT Group would own all the shares

I think OFCOM are sensibly suggesting splitting OPENREACH from the main BT Group. It then becomes a totally separate company but owned by BT. OPENREACH would be responsible for its own P&L and investment programme. It would no longer have to contribute to BT Group corporate costs or BT Group Corporate R&D or any R&D cost in the other BT Group business units

It means BT retail is now on exactly the same footing as Sky or Talk Talk etc in that they will be an eternal customer of OPENREACH. OPENREACH could also agree joint investment programs with other operators some of them may well be interested in deploying fibre deeper into the network so that they can provide higher speeds. FTTC is pretty limited unless some major technology breakthrough occurs

Ofcom seem to refer to Openreach Limited rather than Openreach PLC and there is a difference

I think you mean BT Wholesale, not BT Retail (Consumer).

That's very bad news for all concerned.

Not read the full new rules, but come into play 31st July, so all depends on whether operators make wider use of them, or do the handful making use now just get slightly larger.

Or put another way does TalkTalk use PIA2 to do its 10 million FTTP homes or badger Openreach to do it, or was it all talk and the smaller providers like WarwickNet will keep on using PIA for business parks.