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BT, Ofcom & the Battle of Britain

Iain Morris

When the UK's telecom regulator announced in July it would not carve up BT, as rivals had demanded, but instead impose tougher conditions on the former state-owned monopoly, it must have hoped the decision would spur some reconciliation between broadband stakeholders.

Far from it.

If anything, relations between BT Group plc (NYSE: BT; London: BTA) and its broadband competitors have descended to a new low since Ofcom 's ruling. BT CEO Gavin Patterson this week accused Sky (NYSE, London: SKY), TalkTalk and Vodafone Group plc (NYSE: VOD) of resorting to "Orwellian tactics" in an advertising campaign that highlights BT's perceived shortcomings. Those companies, which are among BT's biggest wholesale customers, have responded by noting that several emerging markets now trump the UK on the rollout of high-speed broadband infrastructure. (See Eurobites: BT Attacks 'Orwellian' Rivals and this article from Telecoms.com.)

Growing Rift
Gavin Patterson, CEO of BT Group, faces growing criticism from companies that are both retail rivals and wholesale customers.
Gavin Patterson, CEO of BT Group, faces growing criticism from companies that are both retail rivals and wholesale customers.

Operators that rely on BT's network believe that spinning off Openreach , BT's infrastructure division, would level the competitive playing field and foster investment. As a distinct, publicly listed company, Openreach would have no incentive to favor BT's retail business over other players, they argue. (BT, of course, insists that its retail business does not receive any favorable treatment from Openreach.)

Ofcom demurred, arguing that structural separation would be costly, disruptive and risky. Instead, it has advocated building higher walls between Openreach and the rest of the BT Group. Openreach will have its own CEO, who will not report to BT management, for example. And it will have to consult with its wholesale customers about investment plans.

The rollout of Gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.

Sky, TalkTalk and Vodafone are evidently unhappy, and yet Ofcom's aversion to structural separation is understandable. In Australia, the creation of a national broadband network (NBN) was meant to curb the power of Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and give the country a world-beating broadband network. Yet the NBN has become a political football that has been kicked out of its original shape. Australia languishes in 48th position in an international ranking based on average broadband speeds, according to cloud company Akamai Technologies Inc. (Nasdaq: AKAM). Telstra's dominance appears to have grown.

Indeed, structural separation is possibly a red herring. On the plus side, it would stop one retailer from controlling the infrastructure used by most of the others. But without more network-based competition, an Openreach that is independent could be just as unwilling to invest in ultra-fast networks as it is right now.

Next page: Broadband mediocrity

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User Rank: Lightning
8/18/2016 | 1:30:20 PM
those are not the competitors that matter
If the UK want to have a globally competitive infrastructure, then Ofcom need to stop listening to the parochial views of Sky, TalkTalk etc in the UK and realise that the competitors BT needs to worry about are DT, Telefonica, Orange, AT&, Verizon and the other global players. In terms of competition to them BT are minnows and most definately do not dominate the global market (and anyway they need to worry about the Indian telco's and Chinese state funded/owned competitors like AI etc who have captive markets with regions with more customers than the entire UK population)

Please, please, please can we stop focusing inwards, and instead focus on the global market that our industry needs to fight in. Look outwards and not inwards, we don't have many leading large scale industries left and letting talktalk destroy (for selfish competitive short term gain) one of few remaining is extremely foolish.

Having said that - BT need to up their game internationally as well. most of the competitors I identified above are far less dependent on a single country for the their revenues (and I include Vodafone, Libery Global and Sky in this list), BT need to make some international moves to defend what is left of their market and to stop Ofcom being the arbiter of their business model.
User Rank: Blogger
8/18/2016 | 8:48:15 AM
This will likely never end
The structural separation option, I feel, will not happen.

The Duct Co. option, with the opportunity for multiple investors, is very interesting but you can be sure that there will be many legal challenges to that too.

The key thing to sort out currently is the inconsistency that seems apparent in some rulings. 
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