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[Black Sheep]

Ofcom’s digital communications review

Ofcom have today announced their latest proposals with regard to their review of the UK’s digital communications markets.

As we have said all along, the UK benefits from Openreach being part of the BT Group, so we welcome Ofcom’s recognition today that structural separation would be a disproportionate move.

We have volunteered to make significant governance changes to further enhance the independence, autonomy and transparency of Openreach, whilst ensuring it continues to benefit from being part of the larger BT Group. We believe our proposals provide Ofcom with every benefit they’re seeking but without any of the substantial and unavoidable costs associated with their proposal. We believe these changes are the right thing to do to improve customer service and how Openreach works with industry.

Our proposals, which we have already shared with Ofcom, include:

• the creation of an independent Openreach Board, accountable for the business’s strategy and operational delivery. It will have an independent chair and a majority of independent members to be appointed in consultation with Ofcom. Clive Selley would be accountable to the Board and to me
• an enhanced consultation process with industry on substantial future investment decisions and the development of new products
• greater delegation of operational and budgetary control
• enhanced capabilities and resources to enable it to be more self-sufficient in decision-making

The UK is the most digitally advanced nation in the G20, but further investment is required if it’s to keep and extend that lead. That’s why we are poised to invest a further £6bn over the next three years, but we want the regulatory uncertainty to come to an end.

I know for colleagues, particularly those in Openreach, Ofcom’s review has been unsettling. We believe the changes we have volunteered are a bold and appropriate response to the concerns outlined by Ofcom and others. We believe our plans can deliver all of the benefits but without incurring substantial and unnecessary costs. And they enable Openreach to give customers better service, broader coverage and faster speeds, while remaining part of BT.

There are some differences between our proposal and Ofcom’s, however they have been clear they have not reached a definitive position and will consult on the proposals. We will now discuss how we conclude this with Ofcom and industry over the coming months.

Gavin

[niemand]

Ya, Gavin conveniently ignores that that £6bn includes EE's capital expenditure.

I've been doing some research and it does indeed look as though BT Group have been spreading the risk of their investments in content across the group, including onto Openreach, at the expense of investment in infrastructure. This, alongside the frankly absurd way Openreach have been deploying FTTP, will have been a big reason for the shift from a mixed technology deployment to basically FTTC everywhere other than a few trials and taxpayer subsidised areas.

BT Group should absolutely keep hold of Openreach, however Retail should be gotten rid of. If BT think spending hundreds of millions on content rights and production is such a great idea it can live or die on its own merits, not have its risk mitigated at the expense of Openreach's customers.

[Bowdon]

Yes, well I agree this is the best way forward for all of us. It needs keeping an eye on.

BT need to focus on what made them in the first place. People complain about things that should be easily done by BT. I think being the carrier for content programmes in the long term will be a better investment than being in the position of sky who would then have to rely on that network.

[Black Sheep]

I think everyone is agreement things need to get better, but the sheer size and scale of the business dictates it will take time.

OR's CEO (Clive S) has also mailed his employees basically mirroring the comments Gavin made above, and also pointing out that our quarterly KPI's are  available to be viewed here ..............

https://www.homeandwork.openreach.co.uk/OurResponsibilities/our-performance.aspx 

.............. and show how progress IS being made. Continued focus is crucial.

[Chrysalis]

The invesrtment figures in openreach are a pittance, and at first I thought an extra 6 billion ok its a start, until ignition clarified its a misleading statement from the CEO.

I cannot help but feel ofcom have been had here, it makes no sense to me why they have been having meetings with BT the company they supposed to be regulating, as those meetings are obviously an opportunity for BT to manipulate the regulator.  I get the feeling ofcom wanted to split openreach off but BT made it clear to them if they attempt it they will be stubborn and make it difficult hence we got this solution.  But this I feel is useless if there is not a hard investment target set by the legislator otherwise BT can and probably will continue to dupe everyone.

[Black Sheep]

Lets leave these things to the big boys ....... until we have a proven Captain of Industry commenting on here, it's just ones opinions. Be that mine, Ignitionets, yours ...... whoevers.

[broadstairs]

I agree that this outcome is probably the best we could hope for, however unless real investment targets are set and achieved the I believe OFCOM will have no alternative but to go for complete separation. We simply cannot go on like this with BT calling the shots as I feel they have here. Lets hope OFCOM put their false teeth back in and really enforce change and increase investment.

@BS I dont think it needs a Captain of Industry to see what has happened here, everyone is entitled to their view but it is obvious that BT have yet again managed to get the best deal for the company and not necessarily the best deal for customers. However we have what we have and as I said OFCOM now MUST show their teeth and force more investment and far better customer service because the latter is woefully inadequate for the 21st century.

Stuart

[Dray]

Last time I looked, this whole website is full of opinions. Why should this one thread be different?

[Black Sheep]

Yeah ..... I suppose it is. I think BT have bent over backwards for Ofcom.

[NewtronStar]

With all this news being a headline on BBC news what does all this mean to Mr/Mrs average broadband users will we get faster broadband or more FTTP will we get better qualified OR engineer support or a new All in One Cabinet no more than 300 meters to any premises in the UK

[Bowdon]

I think if there had been a viable alternative to the current situation then BT would have been under more pressure. Ofcom can't really pressure the situation because if they did split it up, someone else is going to have to take a lead role and so far the other big player sky have been vocal but not actually committed to anything itself. It could easily setup a proper small scale version of OR and give a working example to ofcom. But it doesn't. It's half hearted attempt in York I think give them second thoughts.

I do think as the years ago on that the other smaller companies than sky, like cityfiber, hyperoptic might be in a situation to attempt a smaller scaled version. But until then with sky not giving ofcom real world alternatives then if ofcom did split we'd be jumping in to the unknown and who knows how long it would 1. take to sort out, and 2. how long current technology advancement would be delayed.

I think this situation goes back to the 'what happens when a nationalised industry goes private'. Someone as to own the network so they are always going to be at an advantage until an alternative network appears. Currently I think the only serious challenge to BT/OR is VM. I think it'll end up being a battle between BT and VM that drives investment forward for the next few years.

[WWWombat]

A long time ago, I think I pointed out that my stance was: Whatever got the best investment for the future.

I haven't reached a conclusion from today's 2 announcements as yet, so I won't say more about how I'm favouring things.

Ya, Gavin conveniently ignores that that £6bn includes EE's capital expenditure.

I think I was pointing this out on the day of the last results. Most people seem to ignore it, but I doubt that Gavin does.

at first I thought an extra 6 billion ok its a start, until ignition clarified its a misleading statement from the CEO.

Is it misleading? I don't think so: it is a nice, round, headline-grabbing number, and the constituent parts were never hidden. Anyway, I've now gone back and thought about it a little more deeply...

Looking back at EE results, it seems to show their CapEx has been running at £600m per year.

Until last year, Openreach CapEx had a few years of being around £1100m (I'll dig out a graph on that) - those figures being net of BDUK grants (which means Openreach spent more CapEx than the £1100m, but that extra capex was paid for by the BDUK grants). Last year the Openreach CapEx had jumped to £1450m, mostly because BT needed to report extra capex to offset the BDUK clawback being refunded (for that year, plus backdated clawback).

So should we expect BT to have a standard CapEx, for EE and Openreach combined, excluding any BDUK offset, of £1700m per year? £1100m + £600m per year, or a total of £5.1b over 3 years? That would continue an allowance of £300m-400m per annum in Openreach for NGA and/or commercial G.Fast funding.

It looks like Gavin's announcement of £6bn represents an increase of £300m per annum, or a 17.5% increase.

That's not huge, but its not to be sniffed at either. It would fund a doubling of the rate of the NGA rollout, for example.

We just don't know how much is destined for better commercial G.Fast coverage through Openreach, or for better NGA coverage through Openreach (via increased BDUK offsets, or USO funding), or for better 4G coverage with EE. We do know it isn't for TV rights.

I'll have a think about what I think this might mean, at best, for the investment in the planned (G.Fast & FTTP) rollout.

I cannot help but feel ofcom have been had here, it makes no sense to me why they have been having meetings with BT the company they supposed to be regulating, as those meetings are obviously an opportunity for BT to manipulate the regulator.

I don't see a conspiracy here.

While the threat of a significant change in regulation hangs over BT, they can't go ahead with *any* significant new investment. That will include the G.Fast rollout too.

It is in BT's interests as a business for them to reach a fast negotiated agreement - whether that agreement is with Ofcom alone, or with Sky and TalkTalk, or with all 3 and dragging VM in. It is in Ofcom's, and the government's, and the country's best interests too. Negotiation is how Openreach came to life, and is so much better than falling into the legal defensive pathway.

The skill in negotiation is, after all, trying to figure out a win-win situation for all sides. Why *wouldn't* you have meetings?

After they've figured that out, we can lend the negotiators to the Brexit team...

a misleading statement from the CEO.

Another aspect to this same issue...

Why would BT's CEO suddenly decide to add together the CapEx figure for two components of his empire, and headline it?

Is it just a way to combine the capex on the parts of the mobile & fixed-line network that subscribers normally see?

Or is it an indication of network convergence to come? Certainly BT have chosen to integrate EE in a way that *never* happened with Cellnet/O2.

[WWWombat]

Right, I found the graph I mentioned in the previous post.

The first one was published somewhere that I totally fail to recall. It shows the Capex for Openreach for each financial year, and splits it into an "NGA rollout" component, and an "everything else" component. I guess it demonstrates the "flat" total, but also highlights that the "everything else" category is, under Ofcom's guidance, meant to be dropping.

The second graph has been augmented by the additional capex for the BDUK rollout that is offset directly by grants (ie is capex paid for by BDUK).

The whole graph pre-dates the 2015/16 results, and doesn't include anything about the "deferred BDUK grants" - which will become extra BT capex (ie increased grey boxes) at the expense of less BDUK capex (smaller green boxes).

I've been doing some research and it does indeed look as though BT Group have been spreading the risk of their investments in content across the group, including onto Openreach, at the expense of investment in infrastructure.

In terms of these graphs (capex for each financial year) what kind of amount do you think Openreach has suffered?

[niemand]

I reckon the skewed risk has resulted in Openreach seeing 20-25% less investment than it should have.

Those numbers - when you put them in real terms how do they look?

I'll help - the 1.108 billion in CapEx from 2006/7 would be 1.446 billion now.

The way Openreach is being run is nuts. They are hiring engineers to maintain an obsolete network rather than trying to replace it. I just don't get the thinking on this. Surely with borrowing being so cheap across the board they should be investing heavily into capital expenditure in order to lower operational expenditure going forward, not hiring engineers to get the KPIs on their copper network up?

I'm obviously not privy to the behind the scenes regulatory discussions but surely if BT were making an effort to take the FoX project beyond the trial stage we'd have heard more about it, if nothing else through BT's PR machine?

[niemand]

Yeah ..... I suppose it is. I think BT have bent over backwards for Ofcom.

Indeed they have.

Ofcom have been a joke. They've completely messed up pretty much everything they've touched and their latest hair-brained scheme for cross-platform switching is just going to make things worse.

However I temper my sympathy for BT with the thought that, for the price of a single year of Champion's League rights, BT could increase their commercial FTTP coverage by a factor of 5.