BT and Openreach’s Senior Leadership Refute Speculation About Deeper Split
During the Connected Britain event in London this week, top executives from BT and Openreach vehemently dismissed any notion of a more significant division between the two entities.
Howard Watson, BT’s Chief Security & Networks Officer, expressed his surprise at being questioned about structural changes during his keynote session, emphasizing that there is “no intent to separate.” He emphasized that the group is not dedicating time to contemplating a separation of the infrastructure business.
“We believe that the remarkable expansion of our fiber network over the past few years, coupled with the outcomes of the Wholesale Fixed Telecommunications Review (WFTMR), serves as compelling evidence of Openreach’s distinctiveness from BT Retail. This successful separation is advantageous both for the BT Group and our valued shareholders,” he asserted.
Openreach’s Chief Executive, Clive Selley, echoed this sentiment during a later panel discussion, stating that he does not contemplate a split as it would divert attention away from the critical task of fiber deployment. He characterised any alterations to their structure as distracting from their mission to rapidly transition from a copper-focused company to a full-fiber provider.
Selley also revealed that Openreach’s fiber deployment is accelerating, with plans to pass at least 850,000 premises by the end of the quarter ending September 30, 2023. He aims to increase this figure to one million or more per quarter and stressed the need for unwavering focus on this mission, avoiding any distractions.
“In order to achieve this, we must remain unwaveringly committed to our mission. I am determined to avoid any form of distraction,” he emphasized.
These discussions come in the context of Allison Kirkby‘s impending appointment as BT Group’s next CEO by January 2024, which has raised questions about potential shifts in strategy. Openreach, viewed as a prized asset for the group, has been subject to speculation about its value.
The topic gained additional attention from the Independent Networks Cooperative Association (INCA), which recommended that the government require Openreach to create a separate entity for its duct and pole infrastructure, not owned by BT. As the industry and Ofcom gear up for the next five-year WFTMR, set to be finalized by 2026, structural considerations are expected to remain a focal point of discussion.
Structural Challenges Run Deep in the Telecom Industry
In the telecommunications industry, structural concerns are deeply ingrained. CityFibre, recognized as the largest alternative network (altnet) wholesale provider, boasting coverage of three million households and 200,000 customer connections, offers a distinct perspective on the relationship between BT and Openreach. CityFibre’s CEO, Greg Mesch, has called upon Ofcom to take a proactive stance in investigating why BT’s consumer division solely relies on Openreach and refrains from procuring wholesale services from alternative network providers.
Mesch expressed that if BT Retail were genuinely separated from Openreach on a structural level, it would actively engage with alternative network providers. He underscored instances where CityFibre possesses the sole available infrastructure in certain regions, yet BT chooses not to utilize its network. Even in areas where BT has recently secured government-backed Building Digital UK (BDUK) Project Gigabit contracts, intended to provide fiber connectivity to nearly 800,000 premises in underserved areas, CityFibre’s network remains untapped by BT.
In addition to BT, Sky also exclusively relies on Openreach’s network. Together, these two entities command a substantial 60% share of the internet service provider (ISP) market, while CityFibre’s ISP customers account for 25% of the market. Mesch argued that this concentration contradicts the principles of fair infrastructure competition policy.
“You can’t have 60% of the market dominated by a single player. We view this as inequitable and an uneven playing field. We call upon the regulator or the Competition and Markets Authority [CMA] to address this issue,” Mesch stated.
During the same panel discussion, Clive Selley, CEO of Openreach, offered a counterpoint in defense of his company.
“We provide exceptional products and services… Openreach ensures that vast portions of the UK are well-served, making it an attractive proposition for communication providers. Ultimately, retail service providers will make their own choices regarding the infrastructure they opt for,” Selley emphasized.
Mesch contended that service providers should have the freedom to make these choices “without being bound by long-term volume commitments, without being constrained by technology that locks their systems in place… We aim to offer better prices and superior services.”
Regarding BT’s stance on alternative wholesale options, Howard Watson, in an earlier keynote address, indicated that BT remains receptive to the possibility of utilizing altnet wholesale services. He acknowledged the presence of competitive offers in the market, especially in areas covered by BDUK contracts where alternative networks are mandated to open their networks to other service providers. However, Watson noted that such arrangements require time and that the current pricing structure is not conducive to immediate adoption.
Watson highlighted that prices in the alternative wholesale sector can be “significantly higher” than those offered by Openreach, with some alternative networks even pricing their wholesale services higher than their retail offerings.
“Adopting a new wholesale broadband offering takes considerable time, especially due to the extensive IT development needed,” he said.