British telecom regulator Ofcom announced that BT has agreed to legal separation of its network division called Openreach.
BT was under tremendous pressure from rivals such as Sky, TalkTalk and Vodafone to separate the network division.
Openreach will become a distinct company with its own staff and management, together with its own strategy and a legal purpose to serve all of its customers equally.
BT has agreed to all of the changes needed to address Ofcom’s competition concerns. As a result, Ofcom will no longer need to impose these changes through regulation. The reforms have been designed to begin this year.
To ensure implementation, legislation will be needed to maintain the Government’s ‘Crown Guarantee’ for Openreach staff who are members of BT’s pension scheme.
The new Openreach will have the greatest degree of independence from BT Group without incurring the delays and disruption – to industry, consumers and investment plans – associated with separating the companies entirely.
Openreach will be incorporated as a legally separate company within BT Group, with its own Articles of Association.
The Openreach Board will run the company. The Openreach Board that BT has established in recent weeks, which has a majority of directors independent of BT, will become the Board of the new company.
Openreach will develop its own strategy and annual operating plans, within an overall budget set by BT Group.
Openreach’s Chief Executive will in future be appointed by, and accountable to, the Openreach Board.
BT Group will be able to veto appointment of the Openreach CEO, but only on notification to Ofcom. The Openreach Chief Executive will be responsible for other executive appointments, and will report to the Openreach Chair – with a secondary accountability to the Chief Executive of BT, limited to necessary legal, fiduciary or regulatory obligations.
The new Openreach will directly employ all its 32,000 staff, who will be transferred across from BT. This will allow Openreach to develop its own distinct organisational culture.
Openreach will have control of those assets – such as the physical access network. The Openreach Board will make decisions on building and maintaining these assets: BT will hand these powers to Openreach, while retaining a title of ownership.
Openreach will be obliged to consult formally with customers such as Sky, TalkTalk and Vodafone on large-scale investments. In future, there will be a confidential phase during which customers can discuss ideas without this being disclosed to BT Group, as well as further protections for confidential customer information.
