Ofcom calls for Openreach to be made 'distinct company' - but stops short of demanding formal break-up of BT

All the benefits of break-up with none of the hassle, claims telecoms regulator

The telecoms regulator Ofcom has called for BT to be broken in two, with the Openreach infrastructure division becoming a "distinct company" - but has stopped short of calling for it to be formally spun out as an independent company.

That is the conclusion of Ofcom's investigation into the company, following on from its report in February, which the regulator claims will "provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption" of a formal split.

Under the plans, Openreach will become a legally separate company within BT Group, with its own Articles of Association and separate board of directors, who would be required to make decisions in the interests of Openreach's customers.

It would also be obliged to consult formally with its customers, such as Sky, TalkTalk and Zen, on large-scale investments, including a confidential phase in which it will not be allowed to disclose its investment ideas to BT Group.

Staff will be employees of the independent company, rather than BT Group, and the company will also formally own the assets under its control. And, finally, in addition to independent branding, Openreach will also develop its own business strategy and annual operating plans, but "within an overall budget set by BT Group".

The model "is designed to ensure that Openreach acts more independently from BT Group, and takes decisions for the good of the wider telecoms industry and its customers. If it cannot achieve this, Ofcom will reconsider whether BT and Openreach should be split into two entirely separate companies, under different ownership", claims Ofcom.

While BT made its own proposals to Ofcom for giving Openreach greater independence, Ofcom does not believe they go far enough. A last-ditch plea by BT to hold on to Openreach just yesterday followed calls from MPs to simply break the company up to enable Openreach to invest more in its network.

The regulator is now consulting on its plans in a process that will last until 4 October. However, one element of Ofcom's new regime will come into force on Sunday, when rivals to BT will acquire new rights to access Openreach's infrastructure so that they can install and run their own equipment alongside BT's.

Under the regulator's plans, while Openreach will remain a part of BT Group for now, Dan Howdle, director of communications at consumer telecoms advice site Cable.co.uk believes that it's only a matter of time before full separation occurs.

"This move is clearly the first in a multi-stage process toward severing Openreach from the BT Group completely. If permanent separation were to happen, existing staff would need to be reassigned, a new board appointed, budgets allotted, and it would need to become discrete owner of its existing infrastructural assets - all of which is exactly what is happening today. Full separation is now inevitable," said Howdle.

Meanwhile, Mark Collins, director strategy and policy at CityFibre, criticised Ofcom's plan, arguing that it will do little to accelerate the rollout of fibre in the UK.

"Fundamentally, today's proposals do not address Ofcom's key objectives of reducing the country's dependence on Openreach and encouraging essential investment in fibre. Whilst correctly identifying Openreach as the principal source of the industry's dysfunction, it is hypocritical of Ofcom to focus on a restructured Openreach as a panacea," he said.

"Further debate and navel-gazing as to the appropriate structure of BT will continue to create a period of uncertainty at a time when the industry needs clarity, direction and competitive investment. Openreach has a critical role to play, but it is not prudent to entrust them with sole responsibility for our digital future."