BT has announced that it has reached agreement with Ofcom to fulfill the UK regulatory agency's desire to separate BT's Openreach business unit into a standalone company. Openreach will become a legally separate company with its own board, but will remain within the BT Group.
Openreach deploys and manages the copper and fiber access networks that BT is legally required to share with competitors. Those competitors successfully convinced Ofcom that Openreach therefore suffered under a conflict of interest as an integral part of BT (see "Ofcom calls for legal split of BT, Openreach").
In its new incarnation, about 32,000 BT employees will transfer to Openreach Ltd. The newly separated entity will have its own brand without the BT logo, but remain under BT's umbrella as a subsidiary. Openreach's CEO will report to Openreach Chairman Mike McTighe, who will have accountability to the BT Group Chief Executive for "certain legal and fiduciary duties that are consistent with BT's responsibilities as a listed company," in the words of a press release announcing the deal.
Completion of Openreach's reformation depends on several conditions. Parliament must enact new legislation concerning the new company's pension liabilities. BT's board also must formally adopt the separation plan. BT therefore hasn't put a timetable on when the separation will be finished.
The agreement concludes a long period of negotiations between BT and Ofcom, after the regulatory agency concluded at the end of a Strategic Review of Digital Communications begun in 2015 that the current relationship would no longer work (see "Ofcom: BT can keep Openreach for now, but changes needed"). Ofcom said it considered full separation but concluded such a course would be too complex to succeed.
BT attempted to meet Ofcom halfway with a series of concessions. But the regulatory authority ultimately decided the situation required some form of legal separation between the service provider and Openreach.
"This has been a long and challenging review where we have been balancing a number of competing interests. We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future," said Gavin Patterson, BT's chief executive.
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