Ofcom Decides Against Openreach Structural Separation

If Openreach becomes a wholly-owned affiliate of BT, but with its own board of directors, will that increase competition in the U.K. internet access business?

Ofcom, the U.K. communications regulator, apparently believes that is the preferable alternative to complete structural separation of Openreach. All other policy concerns aside, Ofcom arguably wants to avoid years of legal wrangling and substantial costs that would be triggered by what would be a divesting of BT instructure from its retail role.

Many will disagree. For many observers and industry participants, the structural separation of Openreach from BT has been deemed necessary. Ofcom, the U.K. communications regulator, has been looking at the broader question of broadband policy, as well as the specific question of the structure of Openreach and its ownership by BT.

Rivals of BT were chief among those believing structural separation was necessary to protect and promote healthy competition in the internet access market. Virgin Media was rare among BT competitors who advocated. That, some might conclude, was an additional reason to allowing Openreach ownership by BT.

The reason? As the primary facilities-based provider of fixed network internet access services, Virgin Media can be presumed to be a good judge of how policy changes affect its business. If Virgin Media opposes structural separation, it has to be deemed a reflection of Virgin Media’s own belief that Openreach would be a more-formidable platform when structurally separated.

Now it appears Ofcom has concluded that structural separation is not required. Instead, Ofcom is said to be moving to what it calls “legal separation,” recasting Openreach as an owned subsidiary of BT.

“Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time,” Ofcom said.

In Singapore, Australia and New Zealand, full structural separation between a wholesale infrastructure services supplier and the former owner was chosen.
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