New engineers.

Bob-s2

If the scheme remains with BT Group with no split the pension regulator would likely insist that the historic deficit was made good as it would then be too high risk for the rump company.

Normal terms are 5 Years but at a split of a company the regulator can insist that the deficit is made good before the split happens to protect the pensioners. This is designed to stop management splitting a company into good and bad bits and leaving the pension fund with the bad bit to fail later and selling the good bit on a large profit.

Bob-s2

Apart from approx 150 buildings only the adsl kit is not OR ( Either BTW or CP) so 5200 buildings are Majority OR. The ADSL space is already rented from OR on LLU terms ( Transfer charged or actual for CPs) .

Oftel models the PSTN equipment as front ended OR and backended BTW but the defined split is somewhere within the firmware on the cards within the concentrator so it is not possible to split . The Processors are the only BTW 'owned' part and they control all the rest so it is NOT possible to split the PSTN network.

The IT systems would cost £2 to 3 billion to split apart completely ( including building/renting data centre space) Easiest is to duplicate each system and then wipe the data not wanted in each part, OR then rents the systems from BT Group.

This would all 'eat' the management time and capital for the next 5 years, ( It took more than 7 years to do the undertakings separation to 95% completion!)

This is like a VERY messy divorce with other interested parties trying to put spanners in the works to ensure an acrimonious settlement.

In reply to a post by Icaras:

I think you'd be hard pressed after reading the document not to realise that you can't split off Openreach in any way without first merging Openreach, TSO and some of the functions of Wholesale. It just won't work from an engineering and R&D viewpoint.

So could they split BT Retail from the rest of the group? Would this be easier and meet Ofcom's objections?

BT Consumer. EE and Global Services. However, I'm not sure that Ofcom would like that as the remaining rump of BT Group would have a relatively low turnover (maybe £7bn?) and landed with the great majority of the pension deficit to fund. It would also carry a lot of debt. That will really make investment difficult.

If the it came to forced separation, then that might be the route that BT Group would go. Ofcom would have to redo their sums and might have to change their tune on including historic pension deficits in the costs. This will be particularly so if the pension trustees demand a much faster rate of covering the pension deficit. As it is, they've allowed BT Group to spread it over a very long time.

And the costs of doing so should be added to ORs cost base and then passed on to their customers - It is a legitimate cost, enforced by OFCOM and thus recoverable. I wonder what Sky and TT will have to say when they are asked to contribute towards the bill!

OR IT systems (at least the operational support ones) are already separate, as are BTW's for that matter. However, they do run in shared data centres which inevitably means some share of IT infrastructure too. They also don't have their own IT operational and technical support staff. The only viable way to continue it without immense expense and disruption would be for some form of common IT operations service company which raises charges against the companies.

One thing the legal separation issue would have to resolve (both full and this half-baked Ofcom version) is the software vultures will be looking for opportunities. It would (depending on how its worded) blow holes in existing licensing contracts.

Also, I believe BT has a common internal network. That would be a nightmare to unpick and fully isolate different parts of the business in that respect.

In all, potentially hideously expensive.

nb. Don't assume that Ofcom will revise wholesale rates to reflect any increased costs. They've long gone from doing it that way to retrospectively justifying their decisions. Nobody can ever see all the figures they use as the relevant costs are, of course, confidential.

No way an IT system split costs billions unless the person issuing the bill is taking you for a ride.

As I said before something been difficult or even expensive should not be a valid reason for changing a regulatory decision.

I see one of 3 ways forward.

1 - keep the status quo, I think this is unacceptable, but I know many dont agree with me. BT are a very anti investment company. I predicted 2 years ago that g.fast would be cabinet only and was mocked for suggesting such a thing, but it was a given with BT's history.
2 - Keep openreach as part of BT but have it deal with consumers independently of CPs. This I would guess is cheaper and easier than #1, but has not been considered because ofcom allow CPs to tell it what to do.
3 - split off openreach, this we already know is not a proper split but just trying to make openreach untied from BT in terms of decision making and resources. As expected BT are extremely opposed to this which of course has led to scaremongering been spread in the press and a few people on forums.

In regards to the extra costs, there will be some in the short term, but of course no longer will BT retail be able to use openreach income to subsidise its operations and as such openreach will probably have a net cashflow gain. Tied up capex for 5 years? What have BT promised in that time? a very limited g.fast rollout, Hardly much to lose.

They're only separated in respect of permissions. You can only access systems appropriate to what you do, but they are all on the BT.com internal network and the server addresses show as such.

I had a 40 year career working on the most massive IT systems in the country in various industries. I don't think you've got the foggiest idea just how much major IT systems cost. I invite you to look at the NHS system. Of major IT users, the telco industry comes second only to finance. In a very real sense, telco companies are IT companies.

I'd invite you to work on moving computer centres with thousands of servers, many petabytes of storage without taking systems down, without imperilling services. Try creating a live mirror system and reflecting data to a new site without disrupting services.

In any event, this isn't just about the IT system. It's about the immense amount of untangling of overlapping services, headquarter functions, buildings, pension systems. The ownership of IPRs, software licenses, maintenance contracts. There are HR systems, HQ functions, procurement, research labs and much, much more. Then look at the hundreds of millions of pounds that the mergers and acquisitions industry charges for lawyers,financial services, consultancy and so on.

Perhaps go back and look how much the Y2K challenge cost and the testing round this.

The NHS IT system is reckoned to have cost £10bn. I don't think you have any idea of the scale of what might have to be done.

A full separation of OR and BT will have costs measured not in the hundreds of millions, but the billions to be born by shareholders. It will increase OR operating costs.