Ten engineer visits to fix a bad joing just outside your door when one competent visit could have sorted the problem, is hardly maximising profits is it.

In reply to a post by TheEulerID:

Quite, so if a business case can be made to invest in both BT Sport and the network they will do both. That will be true even if they have to borrow money as, if the business case is sound, then finance will be forthcoming. So it's not one vs the other. It's not do we spend this money on BT Sport of do we spend it on the network it's "does that investment give a return and can I convince investors".

Point being, the profits made by Openreach are fed back into BT Group who decide where best to invest it. They may or may not go back into Openreach. With an independant Openreach all Openreach profits would be put back into Openreach.

The next question is whether Openreach has made a net benefit over the years from profits from other BT Group divisions because BT Group decided Openreach had the best chance of a return on their investment. BT will say yes, their competitors will say no, and the argument rumbles ever onwards until it is settled with a split.

But there's no doubt that BT Group's recent spending has raised some questions about where BT chooses to invest its profits.

Oliver

From a financial investors point of view, BDUK (and FTTP) are being done as a 'social' case for the benefit of the country and to remove regulatory pressure on BT group. The BDUK case as stated in BTs financial reports had a 15 year payback, ( with the upgraded uptake figures this reduces I believe to around 12). Few investors in the western world would provide the money for those payback timescales especially including electronics that will then be obsolete.

FTTP payback timescales would be many times longer and would have led to a shareholder/bondholder revolt. Not even the Chinese work on paybacks over 25 years, so only if the price increases dramatically reducing the payback will FTTP rollout be on the cards in urban areas for existing premises.

New builds are a different matter IF included in the infrastrucure build as costs decrease dramatically and consumers cannot then choose not to use the fibre ( No Copper).

Some rural areas do cost the same as FTTC where specific conditions apply as they are cheaper to run the fibre but the complexity means that these will be small areas as we are seeing at present due to the huge (Manpower ) resource requirements. These manpower resource will not be present in a split OR either as they will be (are) under pressure to improve the provision and repair times and thus manpower will default to these.

OFCOMs regulated price pressure ( RPI-x) on access products means OR will not have the capital resources to do any more when spilt than today and may have less as the rest of BT will not be contributing to the Capital pot available. ( OR took 58% of BTs Capital expediture in the 1/2 year to Sep 2015 but only 38% of the operatin profit)

Heaven forbid the new super independent local loop operator ever makes a profit and returns some to shareholders before 100% of people have a speed that makes everyone happy.

The argument isn't so much have OR received net inflows of capital from BT group (it won't have - all profitable BT divisions end up paying out money to shareholders in the form of dividends), it's whether OR gains from being part of the BT group in other ways. The three main arguments are

1) there's a certain amount of cost saving as there are shared overheads, common personnel systems, common computing standards improved buying power, better office utilisation etc.

2) BT group as a whole has got better and cheaper access to finance markets and investors than a stand-alone OR as the group (as a whole), partly because OR are effectively constrained on revenue due to the way its regulated. Maybe marginal as OR (as a heavily regulated company) would have a sort of guarantee of income so will attract investors, but probably only for income (that is dividends) due to the limited growth prospects. It would require a major change in regulatory environments to change that.

3) The biggest benefit claimed for OR being a member of the BT group is that it has an "anchor customer" as it is effectively locked into OR infrastructure. BTR is not an LLU operator (it was considered about 15 years ago, but caused a major board bust-up and it's debatable if Ofcom would have allowed it). In any event, BTR have no competing products with GEA/FTTC (unlike the LLU operators) and it was the commitment of BTR that essentially decided the case for FTTC investment. In the early days virtually all the marketing on OR's FTTC was done by BTR (which is why so many people used BT Infinity synonymously with the OR FTTC product). Only some of the smaller ISPs (like Zen) without extensive LLU equipment of their own were as enthusiastic. The LLU operators were much less active, probably because it meant more revenue passed to OR and less to pay off their own investment on exchange equipment. To this day none of the major LLU operators resell GEA/FTTP.

I take all this loose talk of LLU operators investing in an independent OR with a big pinch of salt. Only Vodafone has the financial clout to do a lot of it (TalkTalk are paying dividends out of debt, Sky has more freedom, but large calls on their resources). In any event, if these ISPs did invest in OR they would expect a return, and short of diluting the existing shareholder's returns, that would mean paying OR more for wholesale services. It seems unlikely. What the LLU operators would really like is somebody to put in a fibre network to their major PoPs at MPF-type pricing, which really isn't going to happen unless father Christmas comes along with a huge sack of money.

Really what would be required for a national fibre network is a complete rethink of the regulatory and pricing regime to make fibre investments pay (and allow the withdrawal of copper network over a long transitional period). It's probably not going to happen - VM would love to see wholesale prices on the OR network increase as it would revolutionise their business, and I cannot imagine them standing for the sort of country wide levy system on BB that would be required to cross-subsidise rural fibre roll-out.

So the reality is probably that there will be a fudge and things will gradually improve, there will be trade-offs, deals done.

Personally I would like to see some geographic breakdown of market environments by Ofcom (going beyond their market A/B stuff for exchanges) with less regulation in infrastructure competition areas (ie. where VM operate) and more regulation, a USO and an explicit broadband levy system for cross subsidies. I don't see it happening though.

Similar arguments were used for Railtrack. They said it couldn't be done but it was.

What's to say that BT might consider Openreach a non-differentiating part of their business in the "long term"?

If they keep the infrastructure assets of EE away from any split and target a wireless based product offering, with heavily competitive wholesale terms from the OR split as well as relief from their other financial & regulatory liabilities then I believe they might be on to a winner.

Openreach split from BT mean this is the end of the road for fibre roll on and no g.fast. We are now facing backwards!

Nice one Tory Government for cutting back on future g.fast!

FIrst of all, there is not government position on this. Secondly the recommendation (at least nominally) is down to Ofcom, albeit they will be lobbied of course. Finally, Ed Vaizey (whose ministry this comes under) does not seem too keen on separation. So this is far from a done deal for all the noise Grant Shapps has made.

"8 out of 10 Openreach engineers are total morons without a clue. They openly tell you they dont care as no one else does and that they don't want to run around for non BT customers."

Total rubbish ! We dont care if its BTR , TT ,Sky or whoever as when working on a u/g its just a dumb bit of wire you fault on so why worrie about the SP ? So you have meet 10 engineers ! big deal in over 20 years i have worked with 100 's of them and by far the most are good guys who do a good job. For sure could do better if the stats men would let them. There maywell be problemes in OR but it sure as hell is not with the engineers but elsewere.