The watchdog will now draw up detailed plans to implement changes at Openreach after it said its review had found the business “still has an incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems”.
Ofcom said the new model might require Openreach to become a ring-fenced, “wholly-owned subsidiary” of BT, with its own purpose and board members. If necessary, the regulator said it reserved the right to force BT to spin off Openreach as an entirely separate legal entity, with its own shareholders.
Sharon White, chief executive at Ofcom, said: “People across the UK today need affordable, reliable phone and broadband services. Coverage and quality are improving, but not fast enough to meet the growing expectations of consumers and businesses.”
Openreach provides the final mile of network connection into consumers’ homes, and is already used by rival operators who regularly complain about the service it offers.
The business will now be required to open up its telegraph poles and “ducts”, the small, underground tunnels that carry telecoms lines. Using these, rivals will be able to build their own fibre networks, connected directly to homes and offices.
Although some observers had called for a complete split from BT, Shore Capital media analyst Roddy Davidson said Ofcom’s proposals were a “reasonable compromise”.
He added: “In my view a full split may have weakened BT’s ability to invest in premium broadcast content as it seeks to build a rival service to Sky – although it could also be argued that building revenues from this source would have become a greater strategic imperative.”
A spokeswoman for Sky said: “We welcome Ofcom’s recognition that the current Openreach model is not working and that fundamental change is required. BT must now be held to account for improving service and enabling delivery of fibre to Britain’s homes and businesses.
“Ofcom’s actions today are not the end of the debate but a staging post towards delivering the network and service that Britain needs. We believe the simplest and most effective way to fix the current broken market structure is for Openreach to be completely independent. We are pleased to see that separation is still on the table.”
She added: “We will work with Ofcom to deliver change at Openreach and we look forward to playing a positive role in helping make Britain a digital world leader.”
However, Dido Harding, chief executive of rival TalkTalk, said the regulator’s plans had “little concrete action” behind them.
“Ofcom has done well in identifying many of the worst problems, including recognising, finally, that BT’s control of Openreach creates a fundamental conflict of interest which hurts customers,” she said.
“But having accepted all this, Ofcom has produced 100 pages of consultation with little concrete action behind it. The risk is that we end up with ten more years of debate and delays, rather than facing into the problems and delivering improvements for frustrated customers now.”