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[Chrysalis]

I dont know where this came from, I assumed ofcom's recent decision would put it to bed for a decade or so, but all of a sudden BT are under scrutiny again and may get split.

http://www.bbc.co.uk/news/business-36832505
http://www.bbc.co.uk/news/business-36834693

[Dray]

The MPs said the shortfall in investment in Openreach arose because BT appeared to be "deliberately investing in higher-risk, higher-return assets such as media properties, and not investing in profitable lower risk infrastructure and services through Openreach".

That'll be BT Sport

TalkTalk's chief executive, Dido Harding, welcomed the MP's findings. "This report puts beyond doubt the need for radical reform of Openreach. MPs have concluded that Openreach is not fit for purpose and is letting Britain down.

Typical monopoly behaviour - letting Great Britain down.

[Black Sheep]

? Strange, the BBC radio 2 news reported that the MP's findings agreed more needed to be done with regard to BTOR 'customer care', if you like .............. but the same group are reportedly against the splitting up of Openreach. That's what was said in the news item. 

[niemand]

The numbers do make for some grim reading. It does look as though rather than providing entirely new funding for SFBB Openreach were wrung for 'efficiencies' on the existing operations to keep expenditure roughly flat until 2015/16. By their own admission BT keep hold of the additional profits generated due to these efficiencies on the grounds that Ofcom will return the savings to their customers within 3 years through price controls.

I see the MPs' point. If true it is utterly unacceptable that BT are investing less than expected in infrastructure in order to spend on content rights and production.

While I'm far from being a fan of Openreach separation you have to wonder at what point enough will be enough. While I wouldn't call for it now, the underinvestment is done, I would be an advocate of monitoring Openreach's investment on an annual basis with a view to immediately commencing the Competition Act proceedings if there's a substantial underrun. The following needs to be taken account of.

BT confirmed to us that Openreach does not have its own capital structure or debt. Financing is raised at BT Group level rather than at the Openreach level. In assessing all projects in Openreach and for other parts of the BT Group, BT uses a group cost of capital, which is currently 10.4% (nominal pre-tax rate). BT Group’s average weighted cost of capital has most recently been estimated by Ofcom to be 9.9%. Ofcom then disaggregates this estimate to reflect the activities and risk profiles covered by Openreach and the rest of BT. It has recently calculated Openreach’s cost of capital to be 8.8%, and that of the rest of BT to be 12.4%.

Yet, as the Committee’s advisory panel has highlighted, the fact that Openreach has to pass BT’s investment “hurdle” rate, which is set at the BT Group weighted average cost of  capital (10.4% by BT’s estimate), while Ofcom allows it a rate of return at 8.8% suggests that Openreach is presently under-investing in its infrastructure and business. This also suggests that the utility-like part of the Group, Openreach (sitting inside BT), is in effect subsidising riskier projects in the rest of the Group such as sports rights and IP TV channels. By requiring a higher rate of return (10.4%) than the estimated cost of capital for Openreach (8.8%) BT will, inevitably, reduce investment in Openreach to below optimal levels in this part of the business. Profitable projects whose expected return falls between these rates will not be pursued, to the likely detriment of shareholder value. The profile of BT’s potential investments is not clear, but the amounts of profitable infrastructure investment forgone as a result of the 1.6% gap between hurdle rate and cost of capital could potentially be hundreds of millions of pounds a year

In return, keep price controls off VDSL for a little longer and allow a regulatory holiday for G.fast and FTTP for the foreseeable.

We need investment, so the super-cheap model favoured by TalkTalk and Sky likely has run its course. Virgin Media will be perfectly happy with prices going up slightly, they need to invest too.

http://www.bbc.co.uk/news/technology-36833231

Who knows, if prices for next-gen are adequate maybe even Sky will put their hands in their pockets and build some infrastructure? Probably not, but stranger things have happened, just not often.

[Chrysalis]

My view still favours a separation but I also like the idea of where BT are allowed to continue under single ownership but with investment targets that have to be met on openreach infrastructure, so basically what ignition just said.

It is also worth considering ofcom's system is now proving to fail, they are imposing price controls on BT wholesale services to keep costs lower down the chain, but the CPs (essentially resellers) are not passing this on, as evident by the growing gulf between wholesale and retail line rental.  So this isnt directly benefiting consumers, all its doing is increasing the share price of sky, talktalk and co.

I will also admit I was pretty underwhelmed by BT's plans for the next 3 years or so with g.fast deployment just from cabinets and not much else.  I think g.fast alone was hard to take but to do it without nodes is sort of a one finger salute from BT.  Although bear in mind I have sources who told me the g.fast rollout does include some network rearranging so is not simply just adding some cards and nothing else.

Is worth pointing out ignition, I dont know why you class sky as some kind of race to the bottom budget provider, I paid plusnet a BT owned company circa £30 a month for my line and broadband, the same spec'd product from sky is costing me £46 a month.  Also sky have at least spent money on their backhaul network as well.  The point I know you raising about local loop investment, I still think tho its dead money building a network to rival openreach.  I am still surprised by what virgin media are doing, but at least in their case they building a different type of network to openreach which also can supply cable non IP based tv services.  Whilst if we assumed sky were to build FTTP, it would be the same type of network as openreach (if they countered with their own FTTP).  If I was a telco I would only do a rollout if I had an assurance from the regulator of exclusivity for a decade, of course which the regulator wont give.

[niemand]

The point I know you raising about local loop investment, I still think tho its dead money building a network to rival openreach.  I am still surprised by what virgin media are doing, but at least in their case they building a different type of network to openreach which also can supply cable non IP based tv services.  Whilst if we assumed sky were to build FTTP, it would be the same type of network as openreach (if they countered with their own FTTP).  If I was a telco I would only do a rollout if I had an assurance from the regulator of exclusivity for a decade, of course which the regulator wont give.

Sky can, and do, deliver TV over fibre in some isolated pockets without using IP.

Not having to offer a wholesale product isn't a big concession from Ofcom. Unless you have SMP it's not happening.

[Chrysalis]

I meant exclusivity in that a competitor cannot build a local loop in the same area or upgrade an existing local loop to equal or superior capability.

[WWWombat]

I just read an article on something entirely off-topic, but it made me think of the ever-present battles between people who believe Openreach should be split vs those who don't...

Motivated Reasoning
never needing to change your mind...

There’s Probably Nothing That Will Change Clinton Or Trump Supporters’ Minds

In particular, there is one section that discusses "Trump’s habit of repeating lies that have already been publicly debunked," and shows "that once an incorrect idea is lodged in someone’s mind, it can be hard to overturn and corrections can actually strengthen people’s belief in the misperception."

So Sky and TalkTalk are bound to keep bringing the issue up no matter what. It just helps reinforce the position over and over again.

It also makes me wonder about how much this affects individual members of, say, a Parliamentary Select Committee. If an MP covers a rural, underserved areas and is receiving lots of broadband complaints, are they already predetermined to believe evidence presented to them that confirms their existing belief about BT? And subsequent debunking is laughed off as "they would say that, wouldn't they?"

[Sounds like the EU referendum too. ]

[NewtronStar]

I think what MP's are saying is Oprenreach is failing to spend money in rural areas for people who don't even have Broadband and if they do have Broadband they only get less than 5-8 Mbps

[broadstairs]

I think in many ways this sums up the problems we have here. The government and many other organisations are expecting people to move to the internet for doing many things, from booking doctors appointments to paying bills and registering to vote, and they are not thinking about the wider population. There are folks who live in areas currently very badly served for access, but there are also very many who need to be persuaded that this is the way to go and no one is attempting to fix either. Leaving the poorly served areas to commercial organisations without some impetus is bound to fail, equally not addressing those who have a reluctance for what ever reason if again a huge problem. This is a much larger problem than splitting OR from BT, that will on its own solve nothing, we need to address some fundamental issues before we consider if it is right or wrong for OR to be a separate company.

Stuart

[Chrysalis]

I just read an article on something entirely off-topic, but it made me think of the ever-present battles between people who believe Openreach should be split vs those who don't...

Motivated Reasoning
never needing to change your mind...

There’s Probably Nothing That Will Change Clinton Or Trump Supporters’ Minds

In particular, there is one section that discusses "Trump’s habit of repeating lies that have already been publicly debunked," and shows "that once an incorrect idea is lodged in someone’s mind, it can be hard to overturn and corrections can actually strengthen people’s belief in the misperception."

So Sky and TalkTalk are bound to keep bringing the issue up no matter what. It just helps reinforce the position over and over again.

It also makes me wonder about how much this affects individual members of, say, a Parliamentary Select Committee. If an MP covers a rural, underserved areas and is receiving lots of broadband complaints, are they already predetermined to believe evidence presented to them that confirms their existing belief about BT? And subsequent debunking is laughed off as "they would say that, wouldn't they?"

[Sounds like the EU referendum too. ]

think this is nothing to do with sky wombat, its MP's frustrated by lack of investment in their local areas.

[WWWombat]

Is that a "motivated reasoning" reply?

What I was noting was the way that article exemplified (using Trump/Clinton supporters) the kind of behaviour that we see from Sky, TalkTalk, and rural MPs. Not because Sky triggered the report.

Sky and TalkTalk get a mention because they always choose to jump on the bandwagon of a report like this, or indeed almost any event. TalkTalk themselves are mentioned in the BBC report.

Note how this Sky story, today, goes back to the MP report? Even though a circuit-breaker problem in Telehouse North has nothing to do with Openreach, the access network, or superfast broadband?

Or how this Sky story, yesterday, goes back to both the MP report and highlights TalkTalk's calls for a split? Even though a Telecity power fault has nothing to do with Openreach, the access network, or superfast broadband?

Or how this Sky story, the day before, happens to report on the split aspect too.

I note none of the "in depth" kind of soul-searching questions that the BBC has finally managed to come up with.

The end result is that everyone is talking Sky's agenda: "Split Openreach!" instead of the real content behind the story. Just like the EU referendum triggered the "we are sick of experts" statement, the agenda here is being driven by emotion, not facts.

[WWWombat]

but there are also very many who need to be persuaded that this is the way to go and no one is attempting to fix either.

equally not addressing those who have a reluctance for what ever reason if again a huge problem.

I think there are plenty of schemes in place that attempt to broaden the skills of people who are being left behind by the internet age. It just takes a lot of work to get through.

Wasn't Martha Lane Fox appointed as a "digital champion" for inclusion for a while? And to end up running "Go On UK" to help achieve that (though it seems to be known as doteveryone these days.

[Chrysalis]

of course sky will jump on it and put a tint on the story, but I think the MP's are the source of it been brought back into the limelight.

Wombat you are coming across as biased, try to look at it rationally and in a neutral manner.  The bbc news article appeared before any of the sky articles.

Yes sky want the split, but they are not alone and there is sound arguments that suggest what's happening now isnt acceptable to different sets of people, including the shifting of openreach investment to pay for sports rights.

My neutral point of view e.g. accepted ignition's proposal where there is no split but there is investment targets openreach have to reach.  This would keep openreach under BT ownership and I assume avoid the implications of a split.

Of course MP's asking for a split doesnt mean ofcom are even considering it again, they have moaned to the press to try and manipulate ofcom, but ofcom has yet to comment on it.

[Black Sheep]

I don't think W3 is being biased, he's simply giving his point of view ...... his opinion. This debate has been flogged to death a few times before, nothing's changed just more hot air.