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* UK regulator Ofcom proposes BT separates network
* Fibre upgrade could cost up to 25 billion pounds
* PM May wants Britain to meet European gold standard
* BT investing in upgrading existing fibre-copper mix
By Paul Sandle
LONDON, Dec 2 (Reuters) - Britons desperate for fasterbroadband are unlikely to get it from a plan to separate thecountry's biggest network from BT unless the industrytackles how to pay up to 25 billion pounds ($76 billion) toupgrade to fibre-optic cables.
In a bid to boost Britain's economy through Brexit, PrimeMinister Theresa May's government has said it wants to addressbusiness concerns and replace an ageing copper network with the"gold standard" common across Asia and parts of Europe.
But getting anywhere near the 1Gbps speeds the government isseeking is a big ask because the national network, owned and runby former telecom monopoly BT, is trapped in the copper age.
Pressure has been building on BT and its Openreach divisionfor years, led by rivals TalkTalk, Sky andVodafone, who rely on the network, and by a group ofpoliticians who believe it is failing consumers and businesses.
Rivals blame BT, saying Openreach's cashflow funds otherparts of its business - such as expensive sports TV rights - andhave called for the network to be spun off completely. BT saysits content costs are more than covered by its retail business.
Regulator Ofcom has instead proposed putting Openreach intoa legally separate company with its own board to increasetransparency over how it is run, saying a clean split would beriskier and more costly and take too long to deliver.
BT has defended its track record, saying it offers broadbandspeeds of more than 30 Mbps to nine out of 10 homes and that asmaller standalone network business would not be able to makethe investments needed.
"Rolling out networks is an expensive and risky businesswith very long payback periods, that's why it is so importantthat Openreach remains a part of BT Group," a BT spokesman saidin emailed comments to Reuters.
However, in terms of fibre to the home, Britain ranks 27thout of 28 in Europe, with only 2 percent of buildings connected.
Spain has raced ahead in rolling out fibre to the premise,helped by a more modern infrastructure that can be upgradedwithout having to dig up roads. More people also live inapartments, making it cheaper to roll out a network.
In Spain, Telefonica has taken the lead, investing in fibreto prevent customers from leaving while the regulator has alsoencouraged others to invest in the infrastructure.
"Our members tell us that broadband is the number one issuefor them. Faster broadband would make them more profitable andmore productive. We have a booming digital economy, but it's inspite of the network not because of it," said Dan Lewis, SeniorAdvisor on Infrastructure Policy at the Institute of Directors.
Lewis said the government needed to promote competitionaround the provision of broadband infrastructure.
Ofcom says its plan would create a more independentOpenreach, "well placed" to invest in full fibre broadband andthe debate has already spurred BT to pledge more fibre coverage.
A 6 billion pound investment plan by BT will help connect 2million premises with full fibre by the end of 2020 and takecoverage from 2 percent of properties to 7 percent. As part ofthe funding plan, it will also rely on G.fast, which squeezesspeeds of up to 330Mbs out of the existing network.
"That investment will see us make ultrafast broadbandavailable to 12 million homes and businesses...we believe ourmixed technology approach is the best way to get affordableultrafast speeds to as many people as possible in the shortesttimeframe," the BT spokesman said.
FEAR TO FUEL FIBRE FUTURE
Hull is feted by the government as an example of how theindustry can move towards a fibre future. The city in the northeast of England gets its network from KCOM, which willbe able to offer fibre to 150,000 premises by the end of 2017.
KCOM Chief Executive Bill Halbert said rolling out fibre hadbeen relatively easy because the network had been designed to beupgradable, so very few roads had to be dug up. But the paybackon the investment will still be 15 to 18 years, he said, basedon a 10 percent take-up modelled in 2010.
Industry reports have put the cost of rolling out fibre tothe premise at between 20 billion pounds and 25 billion pounds.
The only thing that will spur BT to make the investment,smaller fibre providers say, is fear of losing customers.
Greg Mesch, the CEO of CityFibre which has joinedforces with TalkTalk and Sky to build a FTTP network in the Cityof York in northern England, said BT Openreach had no motivationto invest when it was making money from its fibre-coppernetwork.
"They already have the revenue stream, they are alreadyvalued at a free-cash-flow multiple, so any cash that theydivert (to fibre) would actually drive down share value."
Mesch said 400 million pounds of government fundingavailable to smaller companies could help him build networks inother cities, chipping away at BT and prompting it to respond.
"The spark that we create is the spark that will change BT,"he said. "BT will only move because of fear."
Analysts said Ofcom's legal separation plan could help BTspin-off Openreach if it wanted to in the future, because itwould help crystallise its value. But they agree that legalseparation will not necessarily encourage any more investment inthe network.
BT said it expected to reach an agreement over its futurestructure that would suit both customers and shareholders.
A fully independent Openreach could in theory attractcapital from its customers - although Sky has said it is notinterested in investing in infrastructure.
TalkTalk's Chief Executive Dido Harding said separatingOpenreach would enable others to see how much money was goinginto the network, rather than any other BT service.
"In the end it is the action not the words that willmatter," she told Reuters. "If this (legal separation) leads tothe benefits that businesses and consumers desperately need,then it's a good thing." ($1 = 0.7906 pounds) (Additional reporting by Kate Holton; Editing by AlexanderSmith)
