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BT told to split Openreach. - Tech Altar

On November 29th Ofcom announced their intention to force BT Group to separate out one of its divisions, BT Openreach, the section of BT that looks after the copper cables and telephone exchanges the UK’s ISP sector relies on.

To really understand the ramifications of this or why it matters, it would help to have a better understanding of the complex beast that is the UKs Internet Service sector as well as some of the history of how we got to where we are today.

A bit of background

In the mid 1800s the UK’s first communications network was set up by The Electric Telegraph Company, this was later handed over to the control of the state run General Post Office in 1912, after most the remaining privately run communications networks were wholly transferred to them. By the 1980’s British Telecom became an independent entity, wholly separate from the GPO, with the sole responsibility of overseeing the UK’s telecommunications systems. A mere 4 years later BT were privatised with the last remaining government stakes being sold off in the early 1990s. In 1981, three years prior to BTs privatisation a separate telecoms firm by the name of Mercury was formed, as a subsidiary of Cable & Wireless to challenge BT’s monopoly. It could be argued that Mercury laid the groundwork that other companies later followed in the 90s once the doors were opened to third party firms to enter the market, thanks to a policy passed in 1990, the “Competition and Choice: Telecommunications Policy”. This effectively allowed consumers to pick and choose which provider they would take their service with, ending the effective duopoly the UK had seen while only Mercury and BT were providing communications networks, leading to the rise of many smaller ISPs such as Zen Internet, Plusnet, Opal, Mad as a Fish, Onetel and many others over the last 26 or so years, fundamentally creating a highly diverse market place where companies are able to compete on price, quality of service  and any other potential advantages they are able to bring to the table.

Of course, with such a lengthy history, there are a lot of legacy problems baked into the UK’s telecoms infrastructure, ranging from some cables that date back to the mid 1800s still being in use to how the overall network was put together in the beginning still having some degree of influence on how it is shaped in the present day and indeed in the future.

Finally for the last major change to BTs operating model and the UK’s ISP sector, we need to fast forwards to the 2000’s when BT moved to extend their wholesaled approach to selling services to third party ISPs a little further by allowing for technology known as Local Loop Unbundling (LLU) to be used, effectively allowing ISPs to use their own equipment instead of BT’s and simply pay for use of the copper from the exchange to the customer’s property. In 2003 a regulatory body known as OfCom was formed from the consolidation of various telecommunications, broadcasting, and radio regulatory bodies. 3 years later BT was split into three entities, which collectively form BT Group:

BT Retail, dealing directly with customers in much the same way a third party ISP would.
BT Wholesale, a wholesale provider of BT’s own services to third party ISPs
BT OpenReach, the ‘engineering arm’ of BT whose remit is to look after the infrastructure that BT have constructed through their long and storied history, from the telephone exchanges that house their and other ISPs equipment, the copper that connects exchanges to customer property, through to some of the optical fibre that carries network traffic up and down the country.

The idea behind this split was to ensure that all UK ISPs had an equivalent level of access to BT’s field engineers and network, with pricing set in a way that is fair and balanced, to ensure a level playing field for all providers. This split however was something that many ISP workers in UK have never been happy with, due to it adding additional layers of complexity and indeed has proven to be a serious bone of contention over the years, which is how we arrive at the recent news that OpenReach are being forced to separate by OfCom. Ultimately it boils down to a mix of accusations of preferential treatment to other members of BT group, unfair levels of access and allegations of underinvestment in the UK’s infrastructure with the intent to drive BT Groups profit margins using Openreaches own profits to improve BT Groups financials, rather than re-investing them into the network. Of course, there are arguments that have been made that BT Openreach are not overly profitable and instead are kept afloat by the other arms of BT Group. Time will tell on which side of this debate is the most accurate.

The Future

The key question is what happens next? In the short term, not much will change since Ofcom must notify the European Commission of its intent to implement the plans. Beyond this, it really depends on how BT and Ofcom agree to progress things, traditionally BT Wholesale would exist as a go between between resellers of BT Groups services and BT Openreach, with Openreach splitting off the role of Wholesale will undoubtedly need to be modified, seeing them either become integrated more into Openreach, or alternatively become part of BT Retails Business arm, functioning as a department that deals purely with resellers of BT Retails services which it will now have to fully lease from BT Openreach. As for LLU providers, most of them already have a direct path to BT Openreach, so other than SLA’s being looked at differently and the potential of any profits made by Openreach being re-invested in the network rather than being shifted into BT Group as has been alluded to by many. Of course if the counter argument is true, and Openreach are reliant on the other arms of BT Group to keep them running, then no doubt costs to ISPs will be increased, which of course will be handed to the end users.

 

Until more information is presented its hard to see how this will play out in the long term, separating sections of a business is never an easy affair at the best of times and in an industry like the UK’s communications sector, where ISPs have been known to resell their service to other ISPs only to then have it sold back to them again things can get particularly messy.  Regardless it will have ramifications for the UK’s ISP sector for decades to come and hopefully may see much of the aging infrastructure that carries the UK’s communications being invested in and indeed upgraded to meet modern requirements. We will of course provide further commentary on this as the shape of the split becomes more apparent.