BT and Openreach: Splitsville or not? We'll not find out till Feb – at the earliest UK comms regulator Ofcom's much-awaited digital communications review, which will determine whether to break BT's broadband monopoly by forcing a spin-off of Openreach, will not be released until late February at the earliest. The Strategic Review of Digital Communications will set the regulatory framework for the industry for …
“I think full separation would be an enormous undertaking...."
No more than when BT was separated from the GPO and privatised, surely?
"...incredibly time consuming..."
So what? Is OFCOM really so busy with other stuff?
"... [and have] lots of potential to backfire,....”
That's never deterred the government in the past.
The separation of 'BT' from the GPO postal services was that between to distinctly different organisations. In the case of Openreach, it is core to the BT business.
The argument being given by some parties is akin to a neighbour demanding access to your freezer because they have been too lazy to either or stock their own.
...is not whether the natural monopoly that is Openreach gets spun out of BT. The important question is - will the government acquire/obtain some kind of control of it, as they have with the National Grid and Network Rail? Or will it remain an infrastructure monopoly in purely private/corporate hands, run for profit?
If it remains private, the primary beneficiaries will be the telcos who resell Openreach's ADSL, who won't have to compete with (the currently unfairly-advantaged) BT Retail.
But taking control into public hands would reflect the reality that most of this network was built with public money (even some of the latest investment, which came from government subsidies to BT), and provides an opportunity for administering the network in the public interest instead of for the profit-trousering of executives and shareholders.
I know it's all very boring for you cosmopolitan types who have cable and 4G options coming out of your ears. But a remarkably large number of British people (and companies) still struggle to get an internet connection running at more than 1Mb/s, and that costs the country a lot of lost tax revenue. Public-interest control of the BT copper would provide a real opportunity to improve that lamentable situation.
What control does UKgov have over National Grid? It's a PLC, with OFGEM as a regulator...
So no different from status quo with BT.
Netwreck Rail, i agree, state owned company LTD by guarantee... but not really a flagship example of state control...
Natural monopoly? National Grid yes, Openreach no more, for the market segment where VM is not present, yes. So based on VM assertions 30-35% of the country will have BTOR as a monopoly.
"30-35% of the country will have BTOR as a monopoly."
So?
100% of domestic-scale electricity users have no choice of whose wires provide their electricity supply. It mostly works (nb billing company is not the supply/distribution company).
100% of domestic-scale water users, gas users, have no choice of whose pipes provide their service (billing company is generally the distribution company, for water, but not for gas). It mostly works.
BT Openreach mostly doesn't work all that well (except for BT plc), otherwise this would all be a very short discussion.
Not to say that you put a valid question, but the opportunity for an effective unmessy separation or state owner has past.
A clear government led initiative should have been implemented in the 90s, very early 00s. Ala S.Korea and other forward thinking countries.
But the approach taken was let the market solve the problem when in reality there were 2 markets, the low expense and the high expense infrastructure. The market was never going to solve an issue with that kind of problem...
The original network may have been largely built under public ownership (but paid for by the consumer), but it was actually bought off the government by shareholders, and not given away. Indeed, if you correct for inflation, what was paid was rather more than BT's current market capitalisation (especially when the rights issue post 3G auctions is factored in).
In any event, the nationalisation of OR would cost upwards of £20bn (unless you are proposing the confiscation of privately owned assets - which would be illegal under EU law and fall foul of HR legislation). That's before you even consider the problem of state competition with VM and other network operators which would severely hamper the ability to subsidise investment using public funds. I suppose you could nationalise VM too (yet more cost). BDUK only got approval for gap funding following an OMR which established that there was no significant prospect of commercial investment in the relevant areas. So now your plan will involve compensating BT shareholders, buying VM before you even think of finding public money for investment. If you want to see what happens when you try that, then have a look at the financially disastrous Australian National Broadband Network which has been significantly descoped and, scaled for population comes in at about £48bn in UK terms.
You might also want to factor in OR's responsibility for the BT pension deficit (which, if done on past employee functions when the great majority worked on the distribution network probably means taking on the larger part). The government have been through this with Royal Mail where they took on the £8bn of pension deficit. In all, a very, very large bill.
Or you could look at Network Rail, a publicly owned not-for-profit infrastructure company which currently sits on £38bn of debt (and rising all the time).
The problem with making Openreach a not for profit or government body is that it would put Virgin out of business. Virgin can exist because Openreach charge more than their network costs to provide - it provides a gap for another operator. If that gap disappears Openreach has a better economy of scale and Virgin are sunk. I think that's why the Virgin boss has come out firmly against separation - it destroys his business.
Remember that Openreach don't have a monopoly - Vjrgin's network reaches most UK homes and London has competing local networks from outfits like Colt. In a competitive market giving state backing to the biggest player will kill the others.
This post has been deleted by its author
This post has been deleted by its author
No, it would not put Virgin out of business.
It would free Openreach to sell/lease duct space to Virgin and dark fibre to all comers.
Look at what happened in New Zealand. Once the dead hand of the telco was removed from the handbrake, the infra company was able to sell to anyone and promptly did so, resulting in it being a robustly healthy company in a healthy market with the former owners not doing so well.
This post has been deleted by its author
In New Zealand the government stepped in with an open wallet. Chorus haven't yet stood on their own for any length of time.
Not to mention that in New Zealand there was no cable company covering about half the country, Chorus are an absolute monopoly.
So unless you know something I don't about the UK government planning to offer Openreach some nice, low rate loans to do FTTP to mostly urban and suburban areas alongside running a public-private partnership to deliver wireless to rural areas I'm not sure we can use New Zealand as an example.
I agree with openreach being returned to its original holders i.e. the ones who paid for it all those years before it was sold off for tawdry profit for the rich and to keep wages low by maintaining high unemployment.
People posting "wont someone please think of the share holders" forget that prior to it being sold off everyone in this country had an equal share and if eminent domain can apply once it can apply again.
To be fair those people who bought my shares of the company have had a nice little earner off the UK public for long enough but as they clearly have no restraint upon their greed (phorm, prices etc) it is only fair they give it back. I didnt get an option to keep my shares of BT from me being a UK tax payer and it should follow that they should not either so they should just buckup and benefit as we all will to finally getting the infrastructure we have paid for repeatedly
If virgin are unable to compete then their network can be incorpated into the new UK infrastructure and from that point onwards new builds all get fibre connections from the start. Then we can join the rest of Europe who enjoy telecommunications not based upon victorian infrastructure without having to sell their first born
"People posting "wont someone please think of the share holders" forget that prior to it being sold off everyone in this country had an equal share and if eminent domain can apply once it can apply again."
BT and the other former utilities are mostly owned as investments by pension funds. They're not in it for growth, they use the dividends to pay people's annuities.
I'm not sure what effect your 'remedy' would have on British pensions but having the state forceably taking their assets away doesn't seem like it would do a huge amount of good in the industry.
"If virgin are unable to compete then their network can be incorpated into the new UK infrastructure"
What kind of message do you think that would give potential investors into the UK?
" that point onwards new builds all get fibre connections from the start"
The cost of providing fibre to every home is something like £50Bn - though on the evidence of Australia's NBN it would end up being a fair bit more. That's about the cost of running the NHS for a year. How much of a tax bill increase are you willing to pay to fund this?
https://www.nesta.org.uk/sites/default/files/exploring_the_costs_and_benefits_of_ftth_in_the_uk_v7.pdf
" Then we can join the rest of Europe who enjoy telecommunications not based upon victorian infrastructure without having to sell their first born"
The UK is above average on broadband availability in Europe, a little bit below on average speed and cheaper than average on price;
http://www.ispreview.co.uk/index.php/2015/10/mixed-uk-results-in-eu-study-of-broadband-speeds-price-and-coverage.html
I've looked at this problem in multiple countries. The base problem is always economics. People want a service that costs £2000 to deliver but they'll only pay £30 a month for it. The telcos have to borrow that £2000 - by the time they've paid interest on the loan it takes a decade to pay back at least. Where the fastest broadband options are installed only one in six, one in seven potential customers actually buy it - so now the telco is borrowing money to install a service that most of their customers don't even want.
In Europe no telco has a monopoly any more (though some try). Anyone can lay duct, install fibre, launch a service. Very few do though and the ones that do often go bust.I buy business fibre connections all over Europe - the providers that survive are the ones that insist on the full installation charge being paid up front - thousands of pounds usually. If the telcos were making vast profits it would be easy for competitors to steal their lunch. Virgin in the UK have a lower cost base than BT, they don't have all the inherited pension liabilities or the universal service obligation, but they've shown no inclination to build outside of larger towns and cities. That's not because they're lazy or disinterested, it's because they can't make any money doing it and investors get cross if you lose their money.
Probably the biggest thing on the horizon that can change the economics is G.FAST.There are trials going on in Australia, Taiwan and Austria at the moment, if they work as expected telcos can deliver 100's of Mbps without replacing last mile copper.
http://www.zdnet.com/article/nbn-announces-g-fast-fttb-trial-with-800mbps-speeds/
"BT and the other former utilities are mostly owned as investments by pension funds. They're not in it for growth, they use the dividends to pay people's annuities."
Got any evidence for that?
Have you seen the Office for National Statistics occasional survey on who owns the shares in UK quoted UK domiciled companies?
Have a read. Even though it doesn't discuss BT specifically, you might come out better informed. For example, pension funds own only 3% (by value) of the UK market.
2014 survey:
http://www.ons.gov.uk/ons/rel/pnfc1/share-ownership---share-register-survey-report/2014/stb-shared-ownership.html
give it to TT. Then lets see what level the complaints are as compared to under BT.
A case of the devil you know etc.
There is no easy solution apart from a joint ownership of BT, TT, Sky and all the other LLU suppliers.
Then there is no one to blame but themselves for problems with the service.
Then see how the likes of TT and Sky like it.
Naturally, the likes of TT and Sky will have to invest in the infrastructure. That is something they won't want to do or will they? That is the $64M question.
Imagine if it got bought by the bunch that bought Rover, milked it dry and left it to die. There's every chance a change of ownership will make things much worse.
The only owners who can afford and have the inclination for ROI of a decade or longer are utilities like, erm, BT. If there was a pot of gold at the end of rolling out fibre to rural areas Virgin would already have done it.
Steve Davies 3 wrote: give it to TT
Please no, no; anything but that. Such limited problems (well so far anyway) that I have had with our BB service have not been attributable to OR and I cannot imagine TT making anything less than a complete hash of it.
Having said that There is no easy solution apart from a joint ownership of BT, TT, Sky and all the other LLU suppliers. Then there is no one to blame but themselves for problems with the service. Then see how the likes of TT and Sky like it has a lot of appeal because they would only have themselves to blame for anything that any one, or any combination of the three, didn't like.
Non - BT ISPs have become too used to blaming OR for all sorts of ills; very easy to do of course when there is a regulator to which one can moan. IMHO they should remember the old adage of "be careful what you wish for..."
That was written tongue in cheek.
I was trying to say, if they think that they could do better then, ok, here you go get on with it.
The likes of TT would run a mile.
IMHO, a lot of the whinging is to cover up their own crappyiness.
If a JV was setup where all the LLU companies had a stake then that might get them to shut up and improve the whole thing rather than slag off BTOR all the time. Yes, there are times when OR rightly deserve a knee in the crotch but most of the time they seem to do a pretty good job.
If we keep the status quo, and that seems likely, then OR need to be funded specifically to upgrade the hard bits of the network. Make FTTC the universal standard. Make all new developments have FTTH laid and if needed, make it the law to do so.
I'm sure that OFCOM could make it happen if they wanted but seem to be totally useless.
See ICON for what I'd like to do to Ofcom
The competition commission could trivially step in and declare BT to be a monopolist and order a split.
Ofcom need to be kept out of commercial/antimonopolist regulation. There are better-suited agencies which have sharper teeth. Ofcom have shown themselves to be useless at dealing with anticompetitive activities. No great surprise when you realise that people come from and go back into the comms industry, so they're looking to ensure a fat paycheque later on.
"The competition commission could trivially step in and declare BT to be a monopolist and order a split."
How would that make any difference though? Changing the owner of a monopoly doesn't remove the monopoly. All the rural areas with one choice of last mile provider would still have one choice of last mile provider. The economics of last mile networks don't change just because you give someone else the keys. If a change of owner results in lower pricing then the economics get worse, not better, and the chances of getting faster broadband in the sticks recedes even further.
>>The economics of last mile networks don't change just because you give someone else the keys.
Maybe not, but those same economics matter differently if the new owner isn't a purely-for-profit entity, but some kind of government-staked body with a public interest element to its constitution. The greater benefit to the country (including increased tax revenues, as well as happier people) could be weighed against subsidising the running of the network at a modest loss - something which the corporate sector cannot do.
The subsidy bit is already happening, of course - but it currently gets paid to BT for "rolling out rural broadband" (yeah, right) and trousered by their executives and shareholders (or possibly spent on football rights). Let's at least be honest about our national need to have this network, whether or not it can be run at a profit - like the NHS, the fire service, stuff like that - and create something to run it accordingly.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
