I'm still at a loss to understand what you are proposing as no degree of functional separation is going to satisfy anybody that there isn't some form of internal activity going on which is unfair to competitors. It strikes me that only structural separation would eliminate those suspicions.

From a shareholder or regulation point of view, mere suspicion is not enough. BT is a PLC owned by its shareholders and, as such, there are certain property rights to be respected, albeit I realise there can be overriding issues of things like competition law or public interest. As such, there does need to be evidence that BT's vertical integration is, on balance, damaging.

Of course the argument has been made that if OR and BTW are functionally separate from Consumer and GS then why not structurally separate? Why have them as one company, what is the added value of doing so and if there is an added value isn't that inherently damaging to competition. If BT consumer doesn't gain from being in the same group then what's the point, and if they are gaining, surely that's proof of economic damage?

There are several responses to that. One is that, from the point of view of a shareholder there is added value over and above what some would characterise as unfair and prejudicial to competitors (which is what you seem to be saying is happening). Those advantages include the obvious, such as cost savings that are achieved be reduction of duplication in such things as personal, legal departments, accountancy, multiple procedures, multiple procurement regimes, office automation, improved buying power, payroll systems, R&D, common IPRs and so on. The industry as a whole, and consumers benefit from this as it has a direct impact on wholesale costs.

Then there is the enormous amount of cost and disruption of structurally splitting the existing company. I can't find a definitive version of what the functional separation cost, but industry commentators seem to be agreed it was very high with very large numbers of systems and interfaces having to be developed with a lot of ongoing costs incurred from this. All, of course, borne by the BT shareholder. If there is to be a structural separation, then most of the systems work will have been done, but there will surely be an immense amount of cost in going through that process. Just untangling debt, historic pension liabilities, legal fees, renegotiating company-wide license and contract agreements and so on. All this cost would surely be landed on the shareholders as I don't see anybody else picking up the bill.

Then there is the issue that BT has historically been a vertically integrated company. It has technical capabilities and resources which include expertise in building and running networks on a very large scale. A BT that was largely stripped of its engineering and R&D resource (as a structural separation would cause) is going to be at a disadvantage in global markets, especially against international competitors who are not in that position as there would be a credibility gap if it was not much more than a buyer of capacity without the network engineering ethos.

In the UK market, it would also suffer against its major LLU rivals as BT consumer would not have its own networks, exchange equipment and the like. It might seek to do so of course (not good news for an already declining BTW), and Ofcom regulation is such that BTW has to price its products using a margin squeeze formula (and a BTW collapsed into OR as you imply is desirable would surely be required to continue that way). If BTW became increasingly unviable due to loss of BT custom, then that would have implications for smaller ISPs. The whole corporate strategy will have been predicated on BT being vertically integrated. Who knows what the implications of such a change would be. It would lead to a huge amount of uncertainty as it would be immensely disruptive, and heaven knows what the shape of the industry would be, although rivals like VM would surely take advantage if there was a hiatus in investment by OR whilst the implications were all sorted out (something which would, of course, impact all the ISPs using OR facilities).

Does Ofcom care about the small providers, when there are perhaps 3 to 4% of the market?

Not got time to read and understand all that at the moment, but I'm not proposing anything. (By the way I didn't realise IgnitionNet had made the post I replied to previously, I thought it was you. But that is largely by-the-by).

It starts with this post.

All I've been doing is answering your utter and complete refusal to accept there is or even could be any closer relationship between the components of BT Group than the formal procedures, and that such a relationship could affect the overall scene regarding competition with other major and minor CPs.

The formal procedures they all supposedly go through are not in question. They are there and no doubt are used.

That a quick phone call here and there between people in different parts and have known each other for years could ever take place is of course totally impossible and never happens. Yeah - right! [hollow laugh]

Icarus

BTBusiness is the most profitable part but OR is not far behind (% Profit against revenue) OR makes more in actual terms because it is bigger.

However OR is spending more Capital than it makes in profit so money is moving from the other divisions to its Capital budget.

Only other spending more capital than profit is GS whose profitability is much lower on a higher revenue.

Half year accounts to Sep 2015.
Revenue Profit % Profit
GS 3102 149 0.048033527
BTB 1530 402 0.262745098
BTC 2201 348 0.15810995
BTW 1050 154 0.146666667
OR 2516 622 0.247217806
10399 1675 0.16107318

You do have to ask that question, as I've no doubt that they listen much more to BT Consumer, VM, Talk, Sky and Vodafone (despite their small fixed BB share) than the small ISPs. I've no doubt that's true of MPs too. What is good for the larger ISPs is often not good for the small ones (which is where BTW is important).

However, whilst small ISPs are not important in sheer market % terms, I think there's a very good case to be made that some perform very valuable niche roles, especially in the business area. Several integrate other aspects of systems and network support into their business services, so they deserve a voice.

Again, whether Ofcom take them as seriously, who knows, but I would have thought that BTW would be wise to cultivate them.

Ignitionnet ( and others)

It was/is very messy due to the way OFCOM 'argeed' the rules in 2005.

All Copper is OR asset
All access fibre is an OR asset.
Fibre from local exchanges to Metro nodes is an OR Asset ( Backhaul products)
Core Fibre is a TSO asset, but runs in the same ducts as fibre from Local exchanges to Metro nodes and can be in the same cables!.

The Electronics carrying services over the fibre from local exchange to metro are TSO. However the backhaul products using the electronics are OR!

The core electronics are TSO as are all the Metro and Core node infrastructures. But BTW, GS, BTB and BTConsumer can all own equipment within a metro or core node to provide their services.

All this leads to the difficulty in spliting OR as who will own the exchange buildings ALL the equipment is in? ( and the duct & cables)

As for the WLR product that OR provide, they only own the Linecard that provides the customer ports all the rest of the equpiment is BTW ( part of the same box!) it hurts your head to sort it out but that is the way OFCOM mandate it. Look at their cost controls for details

yes, when I questioned ofcom about the market failure on line rental, they quoted me that if there is at least 1 provider offering lower prices, no matter how small, then the market is working.

In reply to a post by Ignitionnet:

In reply to a post by WWWombat:

BTW owns the backhaul from Openreach locations to the core. But I'm not sure who owns the core network. BTW? or TSO?

As I understand it the core network is BTW owned, running over Openreach fibre.

Absurd, isn't it?

Yes that's absolutely spot on. Most of the backhaul fibre (regardless of whether for an LLU provider or not) is Openreach owned.

Am I correct in assuming Sky are the exception with their own backhaul ?

Roberto

whether you choose to accept this there are very strict rules around what can be discussed between whom and by whom and When in the wider BT . and the wider BT into Openreach -- so you infetrence you ring up someone who you used to work with to get an answer because they are your mate is not correct and totally outside the rules / undertakings -- there would be major consequences for anyone doing that