Openreach

History

Following the Telecommunications Strategic Review (TSR), in September 2005 British Telecom signed undertakings with Ofcom to create a separate division, for the purpose of providing equal access to BT’s local access network and backhaul products. Ofcom previously 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. The resulting organisation, Openreach, opened for business in January 2006 and reports directly into the BT chief executive.

The functional separation of Openreach from BT has had mixed results, according to economists J. Gregory Sidak and Andrew Vassallo, who have argued that while Openreach’s creation produced the short-run benefit of lower prices, it also led to long-run costs, such as declines in telecommunications investment, customer satisfaction, and measures of the United Kingdom’s global competitiveness in telecommunications.

Today, the company is structured such that it is a wholly owned subsidiary of British Telecommunications plc (BT), which itself includes the four separately managed businesses and virtually all other assets of the BT Group.

In July 2010 Openreach signed an £800 million contract with ECI Telecom to help it service and create a fibre-optic network serving 18 million households in the UK. The deal was the largest in ECI's history.

Operations

Field Telecommunications engineers, install and maintain the physical network wiring from the telephone exchange into end customers' premises on behalf of 537 communication providers (CPs) which sell services directly to end customers.

Openreach engineers visit around 29,500 homes and offices every weekday on behalf of its customers, the CPs, make 80,800 provision visits on copper, fibre and TV, and manage 90,000 repairs to its copper, fibre and broadband networks every week, remove around 40,000 unused cable connections from its exchanges and provide another 75,000 every day.

Every week they also deal with 650 network breakdowns due to damage, theft and weather, test 12,000 poles and replace 920, replace 85 cables and street cabinets, fix 100 low wires and connect another 3,000 newsite plots to its network.

Criticism

Since 2005, Openreach has been criticised for its broadband speeds and for what its critics regard as the decreasing competitiveness of the UK's internet infrastructure, despite the UK having higher average speeds than Germany, France, Italy and Spain. Openreach has also received a high number of customer complaints relating to poor service, although it rarely communicates directly with its customers.

BT have been accused of abusing their Openreach monopoly, which generated almost 35% of operating profits in 2016, particularly by underinvesting in the UK's broadband infrastructure, charging high prices and providing poor customer service.

In 2009, BT announced Openreach would connect 2.5 million British homes to the higher speed FTTP network service by 2012 and 25% of the UK. However, by the end of September 2015 only 250,000 homes were connected. Instead, BT offered an 'FTTP on Demand' product, but in January 2015, BT stopped taking orders for the on-demand product amid reports that customers were forced to wait over a year to be connected, whilst other orders 'failed' (were not connected).

In January 2016, a cross-party report by the British Infrastructure Group of MPs, working from data from the Office for National Statistics found that around 5.7 million broadband customers in the UK had internet connections that did not reach Ofcom’s acceptable minimum speed of 10Mbit/s. Around 3.5 million of the customers affected lived in rural areas.

Split from BT Group

Telecoms provider customers who have problems cannot directly contact Openreach and have to go indirectly through their service provider. In 2015 BT consulted on the possibility of allowing Openreach to deal directly with consumers, which would have required the approval of Ofcom, but withdrew the proposal, partly due to objections from other service providers. Openreach are accountable to each of the telecoms providers, as well as Ofcom. In July 2014, Ofcom completed a review of Openreach's service, resulting in mandated performance levels on key services.

In August 2015, Labour MP Chris Bryant called for Openreach to be split from BT, criticising the infrastructure and stating that it is too slow to fix faults and install new lines.

BT Group's merger with mobile phone operator EE, which received regulatory approval in October 2015, was partly funded using £1.7bn of Openreach’s revenues. An investigation by the Competition and Markets Authority said it was not a competition issue but a matter for Ofcom, and Ofcom undertook its own enquiry. In December 2015 Ofcom indicated it was examining four options for Openreach's future: maintaining the current arrangement, more deregulation, structural separation from BT, or adjusting the current system. Keeping the status quo was said to be unlikely. The initial conclusions of Ofcom's investigation, which were published in February 2016, did not require BT to sell Openreach.

In January 2016, a report backed by 121 cross-party MPs stated Ofcom should force BT to sell off its Openreach service to open up competition. Nevertheless, Ofcom's decision, published in July 2016, did not require BT to sell Openreach, primarily due to the time required and costs involved in addressing pension and land-contract issues. Instead Ofcom decided that Openreach should cease to be a subsidiary of BT and instead become a legally separate company within the BT group, something which Ofcom said could "be implemented within months".

On 29 November 2016 Ofcom ordered BT to legally separate from its Openreach division, with Openreach becoming a distinct company within the BT group. Ofcom said that the competition concerns that it had identified in July had not been voluntarily addressed by BT in the interim. Ofcom further announced that it was preparing a formal notification to the European Commission to start the separation process.

In March 2017, BT Group agreed to make Openreach a separate company, with its own staff and management.

National security threats and personal privacy

Between 2010 and 2012 the UK intelligence community initiated an investigation aimed at Huawei, the foreign supplier of BT's new fibre infrastructure of which BT Openreach is a part, with increasing urgency after the USA, Canada and Australia prevented the company from operating in their countries. Although BT had notified the UK government in 2003 of Huawei's interest in their £10b network upgrade contract, what they did not do was raise the security implications as BT failed to explain that the Chinese company would have unfettered access to critical infrastructure. On 16 December 2012 David Cameron was supplied with a in-depth report indicating that the intelligence services had very grave doubts regarding Huawei, in that the UK governmental, military, business community and private citizen's privacy may be under serious threat. Subsequently, BT's Infinity programme and other projects underwent urgent review.

On 7 June 2013, a report of the Intelligence and Security Committee of Parliament concluded that BT should never have allowed the Chinese company access to the UK's critical communications network without ministerial oversight, saying they were "deeply shocked" that BT did not inform government that they were allowing Huawei and ZTE, both foreign entities with ties to the Chinese military, unfettered access to critical national systems. Furthermore, ministers discovered that the agency with responsibility to ensure Chinese equipment and code was threat-free was entirely staffed by Huawei employees. Subsequently, the committee confirmed that in case of an attack on the UK there was nothing at this point that could done to stop Chinese infiltration attacking critical national infrastructure.

ZTE, another Chinese company supplying extensive network equipment and subscriber hardware to BT Infinity, is also under scrutiny after the US, Canada, Australia and the European Union declared the company a security risk to its citizens.