BT Bulks Up Openreach Board to Appease Ofcom

BT has take steps to appease regulators threatening to break it up, appointing two independent board members at its Openreach networks business.

The UK fixed-line incumbent is under pressure to erect new barriers between Openreach and the rest of the company, with several big rivals calling for an Openreach sale.

Regulatory body Ofcom has stopped short of forcing BT Group plc (NYSE: BT; London: BTA) to spin off the networks division, fearing the disruption this would cause, but it wants to see Openreach run as a more independent company within BT Group. (See Only BT's Dismemberment Will Sate Rivals.)

That means ensuring Openreach has separate management and an independent board, and that it operates at arm's length from other BT businesses.

Ofcom last November expressed dissatisfaction with BT's efforts and threatened to drive through its own form of "legal separation" unless the operator made acceptable progress.

The warning came despite BT's appointment of Mike McTighe, an Ofcom veteran, as Openreach's chairman on the same day.

BT has now followed up that move by naming Sir Brendan Barber and Edward Astle as independent Openreach members.

Barber and Astle will oversee strategy, investment and service delivery at Openreach, said BT, with a soon-to-be-announced fourth independent non-executive focusing specifically on customer service.

Barber was formerly general secretary of the Trades Union Congress and is currently the chair of Acas, a government body, while Astle is a former board member of the National Grid, a utilities company.

BT said it plans to establish new Openreach committees to further strengthen its corporate governance.

"I understand that customers sometimes feel let down by Openreach because we haven't always delivered the service they expect or that we hope to provide," said McTighe, in a company statement. "We need to do more to re-build trust and credibility. This will be the board's focus and we are currently in consultation with BT Group about agreeing the plan to deliver better service broader coverage and faster speeds for consumers and businesses across the country."

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The Openreach appointments come at a difficult time for BT, which last week revealed that an accounting scandal in Italy, combined with a deterioration in some of its markets, would wipe out sales growth and decimate profits this fiscal year. BT's shares lost about a fifth of their value on the news and have since failed to recover. (See BT Looks to Home Comforts Amid Italian Crisis, BT's Patterson Feels Italian Heat and Dodgy Italian Job Savages BT Earnings, Share Price Tanks.)

Despite the financial hit, and rumblings of discontent among shareholders and analysts, BT remains committed to investing about £2 billion ($2.5 billion) annually in new broadband and mobile network technologies. During an earnings call last week, it even suggested that costlier fiber-to-the-premises technology could play a bigger role in its plans than previously expected. (See BT Hints at More Widespread FTTP Rollout.)

Rivals that use BT's infrastructure, including pay-TV giant Sky and mobile operator Vodafone Group plc (NYSE: VOD), have argued that spinning off Openreach would improve competition and spur broadband investment.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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