BT break-up suggested by Ofcom

(ShareCast News) - UK communications regulator Ofcom has suggested breaking-up BT Group as one of a range of possible measures to improve competitiveness in the digital communications market.The regulator said separating Openreach, BT's infrastructure division, which owns the physical network used by several competitors, from the main group "could deliver competition or wider benefits for end users" and "would remove BT's underlying incentive to discriminate against competitors".Ofcom has had concerns about Openreach, which was created to operate as 'functionally separate' from BT in the aftermath of the last strategic review in 2005, as its performance on behalf of providers has "too often been poor", requiring the regulator to introduce rules for faster line installations and fault repairs.After completing the first phase of its market review Ofcom on Thursday put forward several suggested measures for consultation with the industry. These also included applying new rules to BT such as controlling wholesale charges and providing stronger incentives or tougher penalties to improve quality of service.BT's rival Sky was, unsurprisingly, pleased by the proposal and called for Ofcom to quickly ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry, arguing that Openreach's "history of under-investment has led to range of service quality problems including an excessive number of network faults, failure to meet targets for repairing faults, long waits to have new lines installed, appointments that are missed and jobs that are not completed".Ofcom's other proposalsA fourth suggestion was for further deregulating and promoting competition between networks: "Virgin Media and a variety of smaller operators own networks, which allow them to provide phone and broadband services without using BT's network at all."This kind of 'end to end' competition, which sometimes involves running fibre lines directly to premises, can help incentivise Openreach to improve its infrastructure. However, it could also lead to duplication of networks and weak competition."Sharon White, Ofcom's chief executive, said the aim of the review was to try and ensure "the best possible communications services" for households and businesses."Our priorities are clear. We want to promote competition, investment and innovation, so that everyone benefits from even better coverage, choice, price and quality of service in years to come."Another concern was that 15% of UK households cannot currently access high-speed broadband, with Ofcom also saying it intended to examine the increased use of 'bundled' media services by the same operator.For example, while telecoms services increasingly being sold to consumers with broadcasting content "can offer consumer benefits", the regulator cautioned that this "may also present risks to competition".Broker Killik said separation of Openreach from BT could be potentially damaging to the BT investment case."We would consider the probability of this as being fairly low, as Ofcom even admits that the process would be challenging and it may not address some concerns relating to Openreach - such as service quality, or the timing and level of investment decisions. We remain positive on BT as a strong play on the shift of data traffic to fixed line networks, while its recent purchase of EE will allow it to offer better bundled services, especially to corporates."Sky falls on OpenreachIn its initial submission to Ofcom, Sky put forward evidence that more than 90% of new line installations, which require an Openreach engineer to attend, take at least 10 days and that almost one in ten installations takes longer than 30 days.It also maintained that Openreach changed the agreed installation date for Sky customers on average around 36,000 times a month, that it had missed more that 500 appointments each month to install new lines for Sky customers and fails to complete a further 4,000 jobs per month.Mai Fyfield, Sky's chief strategy officer, said: "It is welcome news that Ofcom is putting the future of Openreach at the centre of its review. For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need."We believe Ofcom should now move quickly to ask the CMA to undertake a full competition inquiry. In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st century."