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Ofcom to force legal split of BT and Openreach 

U.K. telco watchdog not convinced by incumbent's own proposals to strengthen infrastructure arm's independence.
Ofcom said it will enforce the legal separation of BT and Openreach, after concluding that the U.K. incumbent's voluntary proposals to strengthen the independence of its infrastructure arm did not address its concerns.
BT maintains that its own proposals are fair and sustainable.

"Some progress has been made, but this has not been enough," Ofcom said, in a statement. "Action is required now to deliver better outcomes for phone and broadband users."

Under the regulator's proposals – issued in July – Openreach will become a legally separate entity, wholly owned by BT. It must have its own articles of association and its own board with the majority of non-executive directors – including the chair – having zero ties to BT. Said board would be appointed by BT, in consultation with Ofcom.

Openreach's board would be responsible for selecting a CEO, who would appoint a senior management team. Openreach's leadership would have no direct lines of reporting to BT.

On a more practical level, Openreach would be obliged to consult with wholesale customers like Sky and TalkTalk about large-scale investments. The process would include a confidential phase where discussions would take place without information being passed to BT.

In response, BT made a number of proposals too, including giving Openreach its own board with a majority of independent members. However, the CEO would report to BT's as well as Openreach's board.

BT also proposed establishing a three-stage consultation process for Openreach that would see the unit engage with wholesale customers in advance of significant investments. The process would also include a confidential element similar to the one proposed by Ofcom.



It seems BT has not done enough to assuage Ofcom's concerns though, and it now faces a fight with the watchdog over the future of Openreach.

"We are now preparing to notify the European Commission of our intention to implement these plans, requiring the legal separation of Openreach to make it more independent," said Ofcom, adding that it will hold a public consultation early next year regarding its submission to the Commission.
In a statement emailed to Total Telecom, BT said its own proposals are fair and sustainable, and "meet Ofcom's objectives without disproportionate costs."
The telco said it is implementing those proposals, as evidenced by the appointment of McTighe as Openreach chairman.
"We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach CEO and the form of legal incorporation," BT said. "We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the U.K.'s digital future."
Ofcom said it remains open to BT "bridging the gap between its proposal and what is required" to address its competition concerns.

News will disappoint those telcos – including TalkTalk, Sky and Vodafone – which called for a full structural separation of BT and Openreach.

"Steering clear of a structural split is unsurprising. This would have been the most controversial and costly action Ofcom could have taken, but would still not have offered guaranteed improvements for customers," said Kester Mann, principle analyst at CCS Insight.

"No doubt, BT's rivals will criticise Ofcom for not being brave enough to push for structural separation. But after many months of campaigning, they should see the regulator's efforts to engage with Brussels as a partial victory," he continued. "The move toward legal separation and greater independence will bring important benefits to companies like Sky and TalkTalk in the long-term."
Source: Total Telecom