MPs Report: BT And Openreach ‘Natural Monopoly’ Should Be Separated

A cross-party report calling for the formal separation of BT and Openreach has received the support of 121 MPs.

Broadbad, the first report to be published by the British Infrastructure Group (BIG), claims the current structure has resulted in unsatisfactory speeds and coverage, and says the government-assisted rollout of broadband has failed to deliver value for money for the taxpayer.

The future of Openreach is currently one of the subjects of Ofcom’s once-in-a-decade review of the UK communications market. The majority of BT’s rivals support separation, but the company is adamant that Openreach works better with the support of BT’s capital and R&D efforts.

Coverage issues

“With the UK economy now so reliant on its internet infrastructure, this BIG report contends that our future is being held back by systemic underinvestment stemming from the ‘natural monopoly’ of BT and Openreach,” said Grant Shapps, Conservative MP, who led the report. “The report concludes that the current situation is stifling competition, hurting our constituents and in the process limiting Britain’s business and economic potential.”

The BIG’s chief accusation is that 5.7 million people, of which 3.5 million are in rural areas, cannot access 10Mbps. However it erroneously claims this is the ‘required’ speed, whereas the proposed universal service obligation is currently being discussed by the government. BT has gone on record to say it would support any such move to increase the minimum required speed.

The report also claims two fifths of SMBs experience problems with their Internet and that 400,000 do not have access to superfast broadband. Additionally it alleges huge regional variations in service levels.

Broadband Delivery UK (BDUK), which offers government funding to local authorities for the rollout of broadband in areas not covered by commercial deployment, is also criticised for effectively subsidising BT without offering a substantial return. BDUK has frequently been criticised, including by MPs before, and the BIG’s report says Ofcom and BT have let MPs, who are absolved of blame, down.

BDUK has connected almost four million homes to fibre and attention has now turned to connecting those not covered with satellite. The current target is 95 percent coverage by 2017.

Structural problems

However the chief argument for separation is that the current structure does not promote competition or investment. According to the BIG, BT has no incentive to invest in infrastructure or fix network faults due to a lack of competing infrastructure and because Openreach delivers significant revenues for the company.

The decision by BT to deploy fibre to the cabinet (FTTC) rather than fibre to the premise (FTTP) technology is seen as evidence of this, as is the decision to use G.Fast to speed up copper connections. G.Fast could offer 500Mbps to the majority of the UK population within a decade and BT has previously said it is indeed prepared to “sweat” its copper assets.

The BIG’s remedy would be for the creation of a fully independent Openreach acting on behalf of all communications providers capable of seeking its own sources of investment – an argument supported by the likes of Sky and TalkTalk, but not Virgin Media.

BT criticism

BT, which has spent the majority of the past year defending the current model, has criticised the report and denied that the UK would be better off with an independent Openreach. It believes the UK’s ‘fibre success story’ would have been impossible otherwise, as a smaller firm would have been unable to invest during the midst of a financial crisis.

“We take any criticism seriously but we think this report and its recommendations are misleading and ill-judged,” a BT spokesperson told TechWeekEurope. “Independent data from Ofcom, the EU and others repeatedly place the UK number one for broadband and superfast broadband when compared to other large EU countries.

“We understand the impatience for progress to be even faster, but improving broadband is a major engineering project that involves contending with all manner of physical and geographic challenges. The idea that there would be more broadband investment if BT’s Openreach infrastructure division became independent is wrong-headed. As a smaller, weaker, standalone company, it would struggle to invest as much as it does currently.”