The split between BT and Openreach into two separate legal companies will become a reality with British telecom regulator Ofcom proceeding with a formal notification.
Ofcom said BT failed to offer voluntary proposals that address the competition concerns of the UK telecom industry.
An independent Openreach will be in the interest of all providers. Openreach, a division of BT Group, develops and maintains the UK’s main telecoms network used by providers such as Sky, TalkTalk, Vodafone and BT’s retail business.
“We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users,” said Ofcom.
Ofcom’s proposal in July requires Openreach to become a distinct company with its own Board and non-executive directors, including the Chair, who are not affiliated with BT. Openreach will have more independence to make decisions on strategic investments and should treat all of its customers equally.
“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,” Ofcom said on Tuesday.
BT says the Ofcom model would trigger substantial costs, and there will be negative impact on the BT Pension Scheme Trustees. Its pension scheme has a deficit of £9.5 billion.
If legal separation is not delivering sufficient benefits for the telecoms industry and its customers, Ofcom will propose structural separation – fully breaking up the companies.
In July, Ofcom said a full sell-off of Openreach was not necessary but ordered BT to give the division more independence by making it a legally separate company, although it would still sit within BT Group.
Rivals including Sky, TalkTalk and Vodafone argue that BT has dragged its heels in opening up the network to their engineers, which has hampered their ability to offer homes superfast broadband access.
The move is only a partial victory for BT’s rivals, which have to access to the network to provide their own services to customers, who have lobbied for a full breakup of Openreach.
“We welcome the fact that the regulator has finally made a decision,” said Dido Harding, CEO at TalkTalk. “While we do not think legal separation goes far enough to deliver the broadband consumers deserve, it is at least a step in the right direction.”
A BT spokesman said: “We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom’s objectives without disproportionate costs. We are implementing these proposals and we are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach chief executive and the form of legal incorporation.”
Hours before Ofcom’s announcement on Tuesday, BT said Mike McTighe, the former Ofcom director and City veteran, would be Openreach’s first independent chairman.
Cable.co.uk’s Dan Howdle said: “It’s tough to read whether BT’s heel-dragging is as a result of a tactic with the intention to deliberately delay and undermine the process, or whether, rather like Brexit, the process of separating Openreach is simply too vast and complex to be fully planned out in such a short period of time.”