BT's rivals call for network to be split off as Ofcom launches probe
TalkTalk and Sky seize on first digital sector review in a decade to
demand separation of Openreach, the national broadband network, from BT
BT’s rivals seized on the review of phone, pay TV and internet services to press the case for forcing the former state monopoly to split off its Openreach national telecoms network.
They argued that allowing BT to own Openreach stifled competition and prevented prices for consumers falling further.
The infrastructure operation was created after Ofcom’s last review of the sector in 2005. The business, which is owned by BT, operates and maintains BT’s phone and broadband networks but is required to provide the same service at the same price for all companies in the market including BT’s rivals.
In the first half of this year the division brought in £1.25bn, or 29% of BT’s revenues.
TalkTalk’s chief executive, Dido Harding, said Ofcom should use the review to end the conflict of interest that deterred Openreach from meeting its obligations to BT’s competitors. Because BT already dominated the retail market, Openreach had no incentive to reduce charges for BT’s smaller rivals that they could pass on to customers, she said.
BT’s return to the mobile phone market with a £12.5bn takeover of EE would make matters worse by giving the group 40% of the retail telecoms market and 70% of the wholesale market, she said. The best people at BT would be drawn away from Openreach to “sexier” businesses such as mobile and pay TV, she argued.
“That is a huge beast that is being created and Openreach will become a smaller and smaller part of that group. Openreach’s service record over the last five years is pretty abysmal and the potential for conflict between the retail and wholesale elements [of BT] will only get greater. An independent company would want to have Sky, TalkTalk and everyone else on their network.”
Jeremy Darroch, Sky’s chief executive, also called for Openreach to be taken away from BT.
He said: “Structural separation of Openreach, the UK’s only nationwide broadband infrastructure, is at the heart of creating an industry that provides the capacity and incentive to invest whilst also harnessing the power of multiple competing retailers to drive higher take-up and lower prices for customers.”
Ofcom said new ways of keeping in touch such as Skype, Apple’s FaceTime and WhatsApp have emerged since its last review and companies that previously had only a single product were now offering combined packages of phone, pay TV and broadband. There has also been a series of mergers, such as BT’s takeover of EE, potentially concentrating power in fewer companies.
BT said there was no case for splitting off Openreach and the UK was the leading large European economy for superfast broadband. It said: “The current Openreach model has served the UK very well resulting in high levels of investment, intense retail competition, very high levels of coverage and take up and low prices.”
Ofcom said it had no preconceptions in launching its review. But it said increasing competition, reducing prices for consumers and encouraging investment in faster networks were three of its main aims. The regulator said average broadband speeds were 20 times faster than in 2005 and prices had halved. The cost of a monthly mobile bundle had also halved from about £32 to £16.
Steve Unger, Ofcom’s acting chief executive, said: “We have seen huge changes in the phone and broadband markets since our last major review a decade ago. Only five years ago, hardly any of us had used a tablet computer, high-definition streaming or 4G mobile broadband.”
The watchdog will meet companies, consumer groups, the government and other interested parties over the next few months and publish a discussion document in the summer. It expects to unveil its initial conclusions near the end of this year.
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