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Update: can Ofcom’s reforms fix the Openreach network?

Fixing broadband

Ofcom has set out plans for the future of Openreach, the broadband infrastructure network division of BT. But are these reforms enough to make a difference?

In February 2016 Ofcom published the findings of its Strategic Review of Digital Communications. The regulator said Openreach needed to be reformed and make more of its own decisions on strategy and budget, as Ofcom found that while Openreach has an obligation to treat all its customers fairly it still has an incentive to act in the interest of BT.

So after six months of discussion what has Ofcom announced?

Ofcom’s plans for Openreach

Ofcom has announced in its plans that Openreach should:

      • Become a distinct company within BT with its own ‘Articles of Association’ and its Directors should make decisions in the interests of all Openreach’s customers
      • Have its own Board with a majority of non-executive directors, including the Chair, and should not be affiliated to BT Group in any way
      • Ensure Openreach’s Chief Executive should be appointed by, and accountable to, the Openreach Board not BT Group
      • Consult more widely with customers such as Sky and TalkTalk
      • Employ staff directly rather than have staff employed by the BT Group
      • Have a separate strategy and control over budget allocation
      • Independent branding

Last week the Culture, Media and Sport Select Committee published a report which warned BT that unless the group reforms and addresses under-investment in the network then it should split from the Openreach network.

At the same time thousands of you were hit by outages across the BT network on Wednesday and Thursday last week with the company saying the issue affected 10 per cent of internet usage. BT Group apologised after fixing the fault on the network.

Ofcom has said that these plans for reform will help deliver ‘the best possible services for people and businesses across the UK’. But has the regulator gone far enough?

Taking action for better broadband

We know that many of you feel frustrated by your internet connection, which is why we want everybody to be able to access good quality broadband, be able to switch provider easily, and ensure automatic compensation is introduced if and when things go wrong with your broadband service.

It’s clear that Ofcom needs to move quickly on these plans and ensure Openreach is genuinely improving services for customers, many of whom have been let down for far too long.

Now is a perfect time for Ofcom to consider the greater role consumers can play in shaping Openreach’s future, as well as sharing their experiences and views on issues such as switching, compensation and a broadband Universal Service Obligation.

We’ll be pushing for many of these measures through the recently announced Digital Economy Bill which making its way through Parliament over the next year. But I want to hear from you.

Update: 30 November 2016

Ofcom has ordered BT to legally separate from Openreach. Back in July, Ofcom announced plans to make Openreach a ‘distinct company’ within the BT group. However, the regulator has found that while some progress has been made by BT, BT’s voluntary plan to address concerns it laid out earlier did not go far enough. The regulator will now start the process to force separation.

Under Ofcom’s plans, the separation would see Openreach manage its own branding and budget, with its own board, chairperson and non-executives that are separate to BT’s.

Update: 10 March 2017

BT has reached a deal with the telecoms regulator, Ofcom, to legally split from Openreach.

Openreach controls the fibre connections, ducting and pipework for the UK’s broadband infrastructure and sells access to other broadband providers.

The telecoms regulator has been preparing for a series of reforms to improve the Openreach service. Reforms have included a forced legal split of BT and Openreach.

Ofcom believes that the plans to make Openreach a distinct company will improve the service for Openreach customers. Openreach will have its own board and make its own strategy decisions, but the BT board will continue to set the annual budget as the 100% shareholder and owner of the company.

Our Managing Director of Home Services, Alex Neill, said:

‘Millions of people have suffered woeful levels of service from Openreach, so these reforms must lead to significant improvements for customers who have been let down for too long.

‘Telecoms are now an essential part of our daily lives, so it’s vital that consumers now really do see better phone and broadband services.’

Do you think this will improve broadband in the UK? Will this lead to better and faster broadband?

Comments

So if Openreach need a load of expensive directors and a load of their own staff, surely they’ll just use that as an excuse to up prices. So I for one am not impressed.

I totally agree. BT Users are being ripped off each year with its charges, even if we have a 12 month Contract renewably each year, it still increases charges for services eg telephone and broadband during the 12 month period as it did mine by nearly 10% when only 6 months into my current contract – I’m about to contact Ofcom!!

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As I read it, Openreach will remain a wholly owned subsidiary of BT Group which is a public limited corporation in private ownership. Openreach is not being put up for sale. The difference from now is in the governance.

The major telecom providers – TalkTalk, Sky, Vodafone et al – have been campaigning [at their customers’ expense] to break up Openreach and detach it completely from BT. It is acknowledged that Openreach has been partial to its parent to the detriment of its rivals and the Regulator is addressing that. The measures are set out in the Intro and seem fair to me but the other operators don’t think they go far enough. They complain about Openreach’s lack of haste in rolling out more high-speed fibre broadband and failure to maintain a robust network; they, of course, consider themselves to have no imperfections in terms of service performance or customer service. They have glossed over the fact that they have all the powers they need to install fibre in the existing ducts or to lay new ducts if they wish to; they have chosen to abstain from that and, as Duncan has frequently reminded us, to cherry-pick the hotspots and more affluent areas, plus they have preferred to kick Openreach to wire up the tricky bits so they can milk the subscribers in due course. That’s OK – it’s commerce. The new Openreach will have an incentive to get on with the nationwide roll-out because they will make money from carrying the traffic of BT and the other service providers; if they are no longer answerable to BT and can act independently, as now proposed by Ofcom, then there is more likelihood that they will go for the money wherever it comes from.

The alternative would be for the Government [or Ofcom if it has the authority to do so] to compel BT Group to offload Openreach on the stock market. That would be a prolonged legal process and it would be a brave person who said that would not have an impact on the broadband roll-out and affect routine operations like maintaining the basic telephone network. The size of Openreach is such that it would be indigestible in one chunk and would have to be spread out over a number of offerings. Even if the sale of Openreach was structured to initially favour employees and individual shareholders we all know that it would eventually end up in the hands of large corporations and institutional investors mostly based overseas as with other utilities. We can also imagine that BT Group without Openreach would lose a lot of its value [bad news for pension funds] and end up as small fry to be kicked around by the international corporations which is why they back the break-up.

I suspect the hand of government in Ofcom’s decision – rightly so – and it is inconceivable that CEO Sharon White has not run it past Greg Clark the new Secretary for Business Energy and Industrial Strategy. There are enormous security and other strategic implications in the control and maintenance of the telecoms network: keeping it under the BT Group umbrella – even though it’s walking on its own without BT holding its hand – gives the government more leverage [and I believe the government still has a golden share in BT Group so it can prevent any action that would be critical to its strategic significance].

I would not rule out the possibility that Openreach could one day be hived off and sold on the stock market but while we have got (i) high-speed broadband to deliver to all areas, and (ii) Brexit to negotiate in short order, pulling BT and Openreach apart and flogging off the juicy bit is a waste of precious political energy and resources.

All large business always seems to exist to make profit for the shareholders That seems to be the most important thing The consumer or whoever pays for anything makes that profit for them. Why ???do they always put the consumer the very last in all they do??? The consumer is ignored in the chase for more and more money when it the consumer who makes the money for them Do they have the right people running them???Small businesses always think about the consumer/customer because they know that’s where their money and profits come from.

Healthy profits are essential for investment in developing the business. All businesses exist to make profits but there are differing means to that end. If there is plenty of competition we can choose which serves us best. Companies that do not put their customers first in an open market will struggle to survive. That is why it is vital to maintain a fair and open market and resist excessive corporate power.

Shareholders are entitled to a fair return on their investment because it is their capital that has floated the company and provided the funds [out of profits] for further investment. If profits fall too low the market value of a company will decline and it will either collapse or be taken over thus reducing competition. Good companies attract investment by insurance funds and pension schemes from which millions of people benefit and these institutions, collectively, monitor the governance of the companies in which they invest. It is not perfect, and there is considerable room for improvement in accountability as the new Prime Minister has promised, but that is the ‘acceptable’ face of capitalism.

On the other side of the coin we have seen an example recently of a private retail company [having no outside investors] where the previous owner is accused of starving it of investment by taking out bigger dividends than the company could sustain and also of transferring employee pension fund contributions to their own benefit. That company clearly did not put the interests of customers first because they were not satisfied with the merchandise and it has now collapsed; 11,000 staff are losing their jobs and retired employees face much-reduced pensions. Another well-known privately-owned retailer is accused of treating their employees like slaves, riding roughshod over health and safety provisions, and paying below the minimum wage to staff on zero-hours contracts. The customers, however, are happy, and keep spending there, because they can get sports and leisure goods at what they consider to be low prices [financially].

At the other end of the scale are small businesses which also must make good profits to keep their owners solvent. The overwhelming number of small businesses are run satisfactorily with the customers’ interests in mind but there are also those that do not serve the customer well and in some cases deliberately exploit them.

It is certainly the fact that a lot of companies do not have the right people running them – possibly as many as a fifth. Some owners, directors, and managers are incompetent, negligent, greedy, dishonest or contemptible. Picking out the best and controlling the worst is where consumer power comes into play.

Just like Government John. Do they have only “good people running departments and with the interests of the population at the top of their list? Or public bodies like the NHS?

People invest in companies to make money (which is where pensions come from, interest on savings however small) and if a company underperforms that money will be withdrawn and invested in a better company – with the likely failure of the original enterprise. Survival of the fit(test). So companies on the whole cannot rest on their laurels; they need to innovate through research, development, reach new customers and markets to grow, and this involves risk and therefore competent management to minimise the risk.

Without customers – private or corporate – most businesses fail. Therefore customers will be a top priority along with shareholders. If we, the customers, don’t like the way we are treated we can, mostly, take our business elsewhere. The trouble is, most seem not to care as much as they say and really can’t be that bothered.

Government, at both national and local levels, as well as big organisations like the NHS and the military, suffer less from greed and dishonesty in my opinion, but they can be vulnerable to inexperience, political folly, malcontentment, a sort of dithering misguidedness, pomposity & posturing, and a head-in-the-clouds detachment from the realities of everyday life [plus perhaps a head-in-the-sand approach to costings!]. On the other hand, there are some brilliant, dedicated and high-performing people in the public service and many public service organisations that do an excellent job and put their clients first. The problem with the public sector is that we don’t have a choice.

Sums up the point I was making John. good, and bad, in all walks of life. It is all down to people.

I think they have done the best thing with Open reach. If they separate completely, it will probably end up in foreign hands and we have enough of our essential services already at risk with foreign ownership.

This is totally wrong. If Talk Talk, Sky etc want better service they should put in their own infrastructure, not use an existing one to do it on the cheap. It is like going into Waitrose and using a checkout to buy groceries at Aldi prices.

I notice that the monthly Line Rental charges seem to becoming more and more expensive recently. I’m not sure how a charge of £18 per month and more is justified. Is this not a price increase by the back door?

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As (relatively) fewer people use landlines for phone calls, or buy all-in call packages, the total revenue to maintain the system reduces. Line rental costs will therefore increase to compensate.

Chris, It’s all part of the con. By loading the line rental the Broadband looks cheap. This will stop when companies are forced to include the broadban/phone line rental in one price so they cannot ‘hide’ the cost of provision in the line rental alone. It won’t make it any cheaper but it will be more honest and reflect the true cost of Broadband provision. Also BT make huge sums of money from the cold calling market, no landlines, no cold calling, no revenue. I think the majority would choose not to have a landline but this not made easy for you. The bottom line is BT are a monopoly and until this changes I’m afraid we all have to just get on with it. We know it’s bad for competition but Offcom have made their decision and we are all stuck with it.

Interested in comments that say separating BT from Open reach would precipitate broadband price increases. We’re just coming to the end of our current contract with BT and learn that all the different elements in our contract are increasing in price, including our broadband. We find we are now paying a substantial amount per month for our phone and broadband service but find it difficult to compare other company’s packages with BTs; there seem to be few direct comparisons to be made.

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Jill says:
27 July 2016

There should be a legal obligation for all homes and businesses in the UK to have a broadband speed that allows them to use the Internet reliably. My BT broadband speed of 1.5mb means we cannot access services most people take for granted. We live in Essex, not the Outer Hebrides. How hard can it be to provide reasonable speeds in areas like this?

I don’t see why it should be legal; there is no such obligation for tv reception, mobile phone coverage, or more importantly the supply of mains gas, bus services………

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My understanding is that the wires in exchanges and green boxes are rather a mess with so many providers having access and making connections. One well controlled company (Open Reach or BT) has better standards of care and responsibility than many who only have their own interests to care about.

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A monopoly is a monopoly. No amount of tweaking will change anything. BT have so much clout, Offcom are scared of them and even the EU couldn’t do anything. BT must be laughing their socks off.

There are a number of “monopolies” – water supply, gas pipelines, electricity transmission, rail track. BT have invested their shareholders money in providing their infrastructure and I see no reason to donate this, on other than sound commercial terms, to others who wish to make use of it – private profit making companies that are not exactly paragons of virtue. As Duncan says, let them fund their own profit-making enterprises. Why hand Rupert and co. gifts to increase their own wealth?

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Annette says:
27 July 2016

nobody is suggesting that we pay for the service we get – i get so little i should not be paying the same as someone who has a mega service. I have been battling for full connection since 3rd June -only twice have they seen fit to actually make an appointment with OpenReach. Both times keep putting if off for more tests and more tests & some threats.
Most services you pay for what you use – why should BT be any different. i am sure they would up services more quickly if that was the case

I don’t see how it could become any worse. I had a slow but useable broadband speed of 2mbps – the last year it’s slipped to about 0.5Mbps. They have connected large towns to the detriment of rural areas. Being rural (but not out in the sticks!) we are more dependent on Broadband than the towns and large villages as we don’t have a hot-spot within 20 miles! I work from home for an overseas financial institution and the last year has been a nightmare. I was lucky if I actually received any Broadband most days as some idiot had got the wires crossed so everytime our phones rang we lost our connection. On trying to deal with this issue it became apparent that there was absolutely no communication between BT and Openreach so each engineer had to go through the same laborious process to determine the issue was not internal. For a COMMUNICATIONS company the fact they don’t communicate or log past communications is appalling. The question remains to be seen as to whether they improve the fact they are very inefficient. A viable private business really can’t afford that kind of waste but their ethos still appears to be fully entrenched in ‘public sector’ so efficiencies are made in the wrong areas. Really they need a new and more efficient approach but changing that culture will be the challenge! Do I think that will happen ?- probably not but I’ll continue to hope!

John D says:
29 July 2016

Jacqui. It is not just rural. Until April our business was based on the Commercial Road in the City of London. BT told us it was not viable to upgrade our local cabinet to fibre. It it isn’t viable in the City of london, where is it going to be?

Openreach struggle like many technical and skilled businesses to get good staff. One senior BT manager told me just a few years ago, that in London they struggle to find someone who knows how to use a screwdriver! The lack of skills available isn’t BT’s fault, but a succession of governments of all persuasions that have pushed our young into university degree courses and completely ignored the fact that the country needs skilled technical people not media studies or a degree in Corsetry! Yes, De Montfort uni in Coventry have 65 places each year on that course. Where are 65 people going to get work with a corset degree in the world, let alone the UK? Our university and colleges should be offering what the UK needs, and that is skilled workers.

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Absolutely brilliant comment, John D.

This is a total sham and an abrogation of OfCom’s responsibility to the business and residential customers who have suffered for far too long because of this BT monopoly. Why can’t they be forced to subsidise people who will lay fibre optics such as Virgin if they won’t do it? With this result BT win every which way and we’ll have even more fat cat directors getting paid for failure!

Why should one private company subsidise another? If Virgin, who no doubt also make a lot of money, want to provide a service then let them put up the capital.

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I used to work for BT (retired) and have seen outside contracters work?? ha ha, and if they get the job of running broadband or telephone services you’ll end up paying more and more with no restictions.

I live 2 miles from the BT exchange and my broadband supposedly comes direct from the exchange. We therefore have to accept an unresponsive, slow, non-multi-user friendly service. It would be ‘too expensive to put fibre optic in our road, but if we would like to club together with neighbours to pay for this – that would be fine’!!!! The roads either side of us are deemed farther away and have Infinity. Do I live in the wilds of the Outer Hebrides, the depths of a forest? No, suburban North London! And I’m a BT shareholder – much to my shame. They have promised Infinity for years. Come on BT get your act together and give customers some service – does it matter what they call you – BT or Open REach – you are supposed to provide a service whatever you are called – that’s what we pay for!

Hello Sue, thanks for sharing your experience as a BT customer, we’ve made your comment our featured comment of the week on the Which? Conversation homepage.

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I do not understand how it is decided who gets fibre broadband. When I bought my house the neighbours warned me that the copper broadband was very poor and that was confirmed by the estimated speed provided by the ISP. Before I moved in I learned that fibre was coming and with help from Duncan I have established that I have FTTH from my local ISP.

My home is part of a small housing development a mile from a village that still has slow copper broadband. I don’t know why I have been lucky but Sue has not.

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I know that my immediate neighbours have fibre broadband too, so maybe one of them is a VIP, but I’m just a very unimportant person.

Graham says:
27 July 2016

Openreach should be owned by all the companies who use it. As an additional safeguard it should be structured so that no three companies together should have a majority of votes. The board should include representatives of consumers and the workforce.

They’d have to fork out a lot of money to buy their share of Openreach’s assets. Why should Openreach give up their business to foreign companies like Sky?

I thought BT open reach was privatised.
Wasn’t that supposed to make everything better, will someone tell Sid?

I agree with the other comments, it will just be an excuse to up the prices. I also agree that it is all about money for the “Already rich directors”, the days when, and I quote “The customer is always right” seem to be long gone. So I say they need to be controlled, NO MORE rises for the already FAT CATS. Put the funds back into a DECENT SERVICE for the customers, of whom there are many.

Anything bt controls it will bleed dry at customers expense