Tales In Tech History: BT And the Creation Of BT Openreach

The growing uptake of the Internet in the late 1990s and early 2000s meant that former incumbent telecom carriers, whose star had been on the wane for a number of years, were suddenly once again extremely strategic entities.

It should be remembered that back in the early to mid 2000s, the demand for internet connectivity was massive. But there was a problem.

The telecom incumbent of any particular country often controlled the entire telecoms network of that country. This gave telecom operators too much power, as they could dictate the rollout of connectivity and who had access to their network.

Growth Engines

Back in the 2000s BT was a telecom firm in a difficult position, dealing with a massive pension deficit, and declining revenue from its bread and butter landline service.

BT’s IT services operations (BT Global Services) did help to some extent, but BT had no real growth engine, as it was severely hampered by the fact that it had spun off its mobile operation, BT Cellnet (later known as O2) in November 2001 in order to bring in some much needed capital.

The carrier soon came to realise the demand for Internet connectivity could be a valuable growth engine for the firm in the years ahead.

Regulatory Oversight

But it had a monopoly on the UK’s copper-based telecoms network which it inherited from the General Post Office (except in Hull), and this did not sit well with the British telecoms regulator Ofcom.

Ofcom argued that BT had significant market power in the British telecommunications market, specifically in residential voice services, business retail services, leased lines, wholesale international services, and wholesale broadband and fixed narrowband services.

It began an investigation (the Telecommunications Strategic Review) which eventually concluded that BT had an unfair advantage in the wholesale and retail supply of internet and telephone services over competing ISPs and phone providers, who use the BT network.

Ofcom and BT did however sit down and in 2005, they both hammered out an agreement to create a separate division, for the purpose of providing equal access to BT’s local access network and backhaul products.

This agreement led to the creation of BT Openreach, which became the infrastructure division of BT Group in 2006.

Open Access?

Its task was to manage the local network between the local BT exchange and the phone socket in the home or business, the so called last mile.

Essentially, BT Openreach engineers were responsible for installing and maintaining the copper wiring and fibre connections throughout the UK, with the exception of the Kingston Communications area in Hull.

The principle purpose behind the creation of BT Openreach was to ensure that rival telecom operators had equality of access to BT’s local network. It was obliged to provide fair and equal access to the last mile network for all telecom operators and ISPs.

This agreement between Ofcom and BT was groundbreaking at the time.

Many felt that it introduced an element of competition in the growing ISP market. Customers could choose their connectivity package from multiple rivals, and not just be locked into the offering from the incumbent provider.

Indeed, the British agreement was often cited by European regulators and authorities as an ideal model and it soon became a blueprint for other European countries, where it was applicable.

Complaints, Criticism

But that is not to say that BT Openreach was universally popular.

Indeed, over the years BT Openreach has been the subject of thousands of customer complaints about poor service and also came in for fierce criticism from its rivals about the charges it levied for access to its infrastructure.

Rival firms also accused it of decreasing competitiveness in the UK’s internet infrastructure, despite the UK having at the time higher average speeds than Germany, France, Italy and Spain.

The UK also has one of the world’s largest reach of Internet connectivity, geographically speaking.

But rivals questioned Openreach’s independence, and pointed out that BT was abusing its Openreach monopoly, as it generated a sizeable chunk of BT Group’s operating profits. This, rivals alleged, was because BT Openreach underinvested in the UK’s broadband infrastructure, charged high prices and provided poor customer service.

And in the late 2000s this criticism only increased, when it became obvious that BT’s copper-based telecoms network was struggling to cope with the speed demands of the Internet.

Fibre was the answer, but its rollout was painfully slow for many, and rivals objected to the use of tax payers money to help BT extend its fibre footprint beyond its initial 66 percent coverage plan.

At present, the Openreach superfast broadband network reaches more than 26.5 million properties and BT is also offering to build 10Mbps for anyone in the UK who demands it rather than be subjected to the proposed universal service obligation (USO).

BT Separation

Ofcom once again decided to look at the BT Openreach arrangement and in July 2016 it declared that Openreach should become a separate company from BT with its own board, brand and CEO, appointed independently of its parent.

And in March this year BT finally agreed to make Openreach a legally separate company (to be called Openreach Limited) with its own CEO, board, budget, strategy and brand.

However it is worth noting that the network assets will continue to be owned by BT plc for land-contract reasons, and Openreach Limited will be wholly owned by BT Group plc (BT plc’s parent holding company).

However progress remains slow and in November the government expressed concerns that the legal separation of BT and Openreach is taking too long. It said it could ask regulator Ofcom to intervene unless more progress is made.

Whatever the outcome of that, there is little doubt that the British consumers and businesses are enjoying the benefits of a hugely competitive broadband market.

Whilst some will argue that things could have been better, there is little doubt that the UK is now in a much better connectivity position than it was five years ago.

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