BT Guilty of 'Under-Investment,' Says Sky

Satellite TV company accuses BT of parsimony and renews calls for incumbent to be carved up.

Iain Morris, International Editor

June 29, 2015

5 Min Read
BT Guilty of  'Under-Investment,' Says Sky

Sky has urged UK regulatory authorities to carry out a full market investigation into BT after accusing its Openreach access business of failing to do its job properly.

In a submission to regulatory authority Ofcom , Sky has charged BT Group plc (NYSE: BT; London: BTA) with a string of service-related offenses, arguing that Openreach regularly fails to meet targets for repairing faults, misses appointments and does not complete jobs.

The satellite player, which relies on a wholesale relationship with BT to provide its own broadband services, blames the shortcomings on a "history of under-investment" at BT and has intensified its calls for Openreach to be hived off as an entirely separate company.

Relations between BT and the UK's other operators have grown increasingly frosty since the incumbent unveiled plans to buy EE, the mobile market leader, for £12.5 billion ($19.7 billion) earlier this year. (See BT Locks Down £12.5B EE Takeover Deal.)

Besides Sky , players including TalkTalk , the UK's fourth-biggest broadband business, Vodafone Group plc (NYSE: VOD), its third-largest mobile operator, and CityFibre , an emerging infrastructure rival, would like to see Ofcom mandate the "structural separation" of BT -- splitting apart its infrastructure and retail activities to curb its dominance. (See Split BT to Lessen Regulation, Says CityFibre and Vodafone May Buy Content to Fight BT, Telefónica.)

Ofcom is carrying out its first strategic review of the communications sector in a decade and has refused to rule out such a move as a means of improving the competitive environment. (See Ofcom Does Not Rule Out BT Carve-Up.)

Analysts think it unlikely that Ofcom would take such a dramatic step, but this has not stopped Sky from arguing that "service delivery could improve significantly if Openreach was divested from BT" in its latest submission.

"The pressure on Openreach to deliver profits to finance other BT initiatives … via quality-reducing cost cutting would be eliminated," said Sky.

BT has made much of the fact it has spent more than £2.5 billion ($3.9 billion) on the rollout of new fiber-based networks in the last five years, and repeatedly insisted these investments would never have materialized if structural separation had come about.

"It would lead to huge uncertainty and fundamentally undermine the case for future investment, dragging the UK backwards at the very time it needs important investment in its infrastructure," a BT spokesperson told Light Reading.

But Sky takes issue with this argument, claiming the increase in spending on next-generation networks has been accompanied by a sharp reduction in spending elsewhere.

Research it has commissioned from a consultancy called Frontier Economics shows that BT spent about £1.08 billion ($1.7 billion) in capital expenditure in its last financial year, up from £951 million ($1.5 billion) in 2008/9, before it had begun investing in fiber.

Figure 1: Openreach Capital Expenditure ( GB pound M) Source: BT KPIs and Frontier estimates Source: BT KPIs and Frontier estimates

According to Frontier's data, however, BT spent only £600 million ($945 million) in its last financial year on parts of its business unrelated to fiber.

Sky's point is that BT has been neglecting its ducts and its copper network in order to pay for the fiber rollout.

As a result, problems at Openreach have proliferated, according to the satellite company, and BT has lacked the resources to address them effectively.

For more fixed broadband market coverage and insights, check out our dedicated broadband content channel here on Light Reading.

Among other things, Sky notes that more than 90% of new line installations take 10 days or more to execute, and that 10% take more than 30 days.

Sky also reckons fault rates across BT's network rose by 50% between 2009 and 2012, the last year for which data is publicly available, and that Openreach misses more than 500 appointments each month to install new lines for Sky customers.

It further accuses the incumbent of failing to complete as many as 4,000 jobs for Sky each month.

While acknowledging "there is more to do on customer service," BT insists it is meeting the standards that regulatory authorities expect of it. "Openreach has passed all 60 of the service targets it was set by Ofcom," says BT's spokesperson.

Those targets include the requirements that BT complete 70% of fault repairs within two working days of being notified and provide an appointment for 55% of new line installations within 12 days of being notified.

Nevertheless, Ofcom has recently criticized Openreach for taking too long to install leased lines and for changing the dates on which it promises to deliver services. (See BT Kicks Up Stink Over Dark Fiber Proposals.)

The average time it takes BT to complete an order has risen from 40 days in 2011 to 46 days currently.

Under forthcoming rules, BT will have to reduce this average to 40 days by 2017.

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

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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