Forcing BT to spin off its Openreach access network business would spur much-needed investment in the UK's broadband infrastructure, according to a new report from the Broadband Infrastructure Group (BIG), a coalition including more than 100 Members of Parliament from across the political divide.
BT Group plc (NYSE: BT; London: BTA)'s infrastructure monopoly is blamed for the poor quality of broadband services across the country, with 5.7 million people unable to obtain a connection of just 10 Mbit/s -- as regulatory authorities require -- and 42% of small and midsized businesses complaining of broadband problems, according to the report's findings.
These shortcomings are costing the British economy as much as £11 billion ($15.7 billion) annually, says BIG.
Publication of the findings will renew the pressure on Ofcom , the national regulator, to make BT spin off its Openreach division, a radical step that several of BT's rivals have been demanding. (See Ofcom Does Not Rule Out BT Carve-Up.)
Companies including TalkTalk and Vodafone Group plc (NYSE: VOD), which use the Openreach network to provide their own broadband services, have complained about their wholesale arrangements with the former state-owned monopoly.
Although Openreach is "functionally" separate from the rest of the BT Group, TalkTalk has argued that BT is still able to "squeeze" its broadband rivals through manipulation of its wholesale and retail charges. Vodafone, meanwhile, is concerned that BT will be even more dominant following its £12.5 billion ($17.8 billion) takeover of mobile giant EE , which was recently approved by the UK's Competition and Markets Authority. (See BT Gets Final Go-Ahead for $17.9B EE Takeover.)
BIG also believes the functional separation of Openreach in 2006 has failed to address market problems, claiming that BT has "courted controversy, over-promising and under-delivering on pledges to improve speeds and service."
The report further criticizes Openreach for generating huge profits while also receiving about £1.7 billion ($2.4 billion) in taxpayer subsidies for the rollout of broadband services in rural areas.
It also slams BT's plans to invest in G.fast, a technology designed to improve the performance of last-mile copper connections. BT has been conducting trials of G.fast in several communities and reckons the technology could be used to provide services of up to 500 Mbit/s to around 10 million UK premises by 2020. (See BT Outlines Conditional Gigabit Vision for UK.)
"The obvious criticism to make of this approach is that BT [is] merely trying to eke out what life there is left in an outdated system instead of planning for the future and upgrading to a fully fiber network," says the BIG report.
BIG evidently believe the structural separation of BT -- splitting Openreach from the rest of the business -- would lead to improvements in the quality of UK broadband infrastructure, although it fails to explain how.
Indeed, while Openreach as an entirely separate entity might have no obvious incentive to favor one broadband retailer over another, it could remain an infrastructure monopoly following structural separation unless authorities took additional steps.
Those could include making it easier for other companies to access the ducts and poles that Openreach uses for its broadband network, but the BIG report does not address this particular issue.
BIG also makes some dubious comparisons, suggesting UK technology is lagging Germany's despite the absence of much fiber-to-the-home technology there.
Like BT, German incumbent Deutsche Telekom is trying to sweat its last-mile copper assets through investment in a technology called vectoring, which improves connection speeds by cutting out interference between lines. (See DT's $1.1B Vectoring Plans Thrown Into Doubt After New Ruling.)
Vectoring, however, is incapable of providing more than 100 Mbit/s, compared with the 300 Mbit/s to 500 Mbit/s that BT thinks G.fast will make possible.
Only this month, Vodafone accused Deutsche Telekom AG (NYSE: DT) of "aiming to exploit the existing outdated copper network infrastructure to offer only minimally increased broadband speeds -- to the detriment of necessary investment in modern fiber-optic technology." (See Vodafone Calls for Broadband Regulation Shake-Up in Germany.)
— Iain Morris, , News Editor, Light Reading