BT Avoids Having to Spin-off Openreach

– But Only after Committing to Invest More to Upgrade Its Broadband Network

– Supporters Gain; Sky, TalkTalk, Vodafone Lose

Makers of chips and equipment will be happy to hear that Ofcom, backed by BT rivals, has forced BT CEO Gavin Patterson to announce that BT is willing to spend more money to upgrade its broadband network.

That’s in addition to BT’s prior commitment to invest £1 billion ($1.4 billion), which it had made in September 2015.

Patterson’s announcement came a few days before Ofcom published its review and analysis of the UK’s telecoms industry. BT feared that the Ofcom report would recommend that BT spin off its Openreach division, which is the UK’s national broadband network.

The Ofcom report, released subsequently, did not recommend that BT divest itself of Openreach but did say BT must open up its network of telephone poles and underground tunnels to rivals broadband service providers.

BT has become the telcos’ poster child for broadband technology and has signaled that most of its broadband upgrade efforts will be in deploying, not in building an all-fiber network.


BT HQ St Pauls London

BT: poster child


Sky (Openreach’s biggest customer), TalkTalk and Vodafone are the main third-party users of BT’s Openreach. Liberty Global’s Virgin Media mainly uses its own hybrid fiber/coax networks, which it is already upgrading to all-fiber speeds. BT often refers to its hybrid fiber/copperwire networks as “fiber networks,” as we have reported. Many people might think that a “fiber network” means an all-fiber network like FTTH or FTTP – all the way into the home – but BT does not mean that. It means that some of the network that connects to homes is fiber.

Sky and Vodafone have been pushing BT to replace its entire copperwire network with an all-fiber one. Patterson countered by saying that a nationwide upgrade to all-fiber would cost £20 billion ($28 billion) and said it would take 20 years to break even. Depending on the length and condition of the copperwire to the home from a fiber cabinet, in its current version can provide between 100 Mbps to up to 500 Mbps.

Patterson alluded to when he said, “There is a significant investment that we are ready to make now” and BT has a few new technologies that would allow Britons to browse the Internet at “ultra-fast” speeds. He said would be rolled out in three months and will significantly improve the speed of residential broadband. The “but,” however, according to Patterson, is that BT needed to know with certainty that it would not be forced by Ofcom to spinoff Openreach. He said that without certainty from Ofcom, “It puts us in a difficult position with shareholders. We have got no certainty.”

Ofcom said other broadband services will be permitted to build their own fiber networks that connect directly to the house. That is an expensive, disruptive and time consuming undertaking but many have such as incumbent telcos like Verizon and new entrants like Google Fiber.

BT will now be required to provide rivals with information about where its ducts and poles are so that third parties can build their own fiber networks as BT is planning to do but by and large only extending fiber’s reach so it can use technology over the last 100 or so meters. Patterson said BT has opened up its network for the last seven years but rivals had shown “very little interest” in it. He said, “We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done. We will see if that now changes.”

Ofcom is pushing BT to make Openreach more independent from BT but did not say how. Ofcom said, “Openreach needs to change, taking its own decisions on budget, investment and strategy, in consultation with the wider industry. This would mean Openreach taking independent decisions on where to roll out broadband, how much money to spend on improving service quality and new high-speed broadband technology.”

BT countered by saying that the Ofcom mandate is still not clear, “The focus now needs to be on a strengthened but proportionate form of the current model and we have put forward a positive proposal that we believe can form the basis for further discussions with both Ofcom and the wider industry.”

Sky said, “BT must now be held to account for improving service and enabling delivery of fiber to Britain’s homes and businesses. Ofcom’s actions today are not the end of the debate but a staging post towards delivering the network and service that Britain needs.”

TalkTalk CEO Dido Harding said the report contained “little concrete action” and said BT’s control of Openreach is still “a fundamental conflict of interest which hurts consumers.”

Vodafone said BT “still remains a monopoly provider” and sais BT should be forced to reinvest years of “excess profits” in all-fiber networks. It said, “BT makes half-promises to spend an unsubstantiated amount on old copper cable. But BT should reinvest its excess profits on bringing fiber to millions of people.”

Ofcom said it wants to make affordable broadband a ‘universal right’ and set for 10 Mbps as the new minimum standard. It also said it will begin to publish data about service quality performance on all service providers and try to make possible automatic compensation for consumers and small businesses when things go wrong.

So the regulatory wars will continue but at least BT …

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