Openreach, Open Competition
16th May 2020
The Financial Times (£) reported on Thusday that BT is looking to sell a multibillion pound stake in Openreach, the part of BT that maintains the majority of our national broadband infrastructure.
In recent years, Openreach has always sat in a strange part of the British consciousness. It was birthed out of Ofcom’s Strategic Review of Telecommunications (TSR) in 2005, which resulted in BT spinning out their backhaul infrastructure into a separate provider for other ISPs to use. It was intended to reduce BT’s stranglehold on the broadband market and reduce consumer costs, but was set up as a wholly-owned subsidiary of BT. It was designed to increase consumer choice, but customer satisfaction reduced, relative investment levels went down, and Britain gradually slipped away from the forefront of global telecommunications. Openreach’s failings in recent times even became the subject of a key pledge from Labour in the last General Election:
Only 8-10% of premises in the UK are connected to full-fibre broadband. It's 97% in Japan.
8 in 10 of us experienced internet problems in the last year.
So we'll make the very fastest full-fibre broadband free to everybody, in every home in our country.
That's real change. — Jeremy Corbyn (@jeremycorbyn) November 14, 2019
There are two things of note here. The first, on the tweet above, is that Japan’s infrastructure is mainly provided by NTT, a private company, with a litany of other companies providing service in an increasingly self-regulated domestic market. Regulation designed to encourage market innovation is a contributory factor to Japan having 97% full-fibre coverage, not nationalisation.
The second is that the problem with Openreach isn’t a lack of state control. The problem with Openreach is almost precisely the opposite: the state has granted it near-monopoly over broadband infrastructure in the UK with no repercussions for poor service. Even Virgin Media sometimes have to use Openreach’s ducts and poles in order to install their own cabling and equipment.
Ofcom did step in last year and force Openreach to provide easier access to those deploying full-fibre networks, but this took nearly three years from initial idea to full implementation. Ultimately, this means that improvements in the UK’s broadband market move at the speed of regulation rather than at the speed of innovation.
In reality, the truth of the matter is that there is no competition benefit to Openreach being privately-held. It still has a significant amount of state-afforded control over the building blocks of our internet connectivity and their investment strategy has been lacking for a long time. Toothless regulation hasn’t helped, but ultimately there has been precious little incentive for Openreach to lead the world in telecommunications innovation.
The very fact that BT are having to sell part of Openreach off to raise the capital required for their infrastructure upgrade promises should tell you everything you need to know about their attitude towards investing in the UK’s critical broadband infrastructure. It’s not even like their plans are overly ambitious, either: connecting 20 million premises to full-fibre by the end of the decade falls a little flat when you realise that 97% of Japan’s 53 million households have full-fibre connections right now.
External investment in Openreach actually provides them an actual raison d’être to get on with the job of building out fibre infrastructure fit for the 21st century. An investment of this kind proves that there is value in the market, and would provide Openreach enough fresh capital to go to-to-toe with the newly merged O2-Virgin Media, who have been thinking about building an Openreach competitor for nearly a year. The new group have already promised £10bn of investment in gigabit broadband and 5G networks, meaning we could see someone take the fight to Openreach in the not-too-distant future.
In short, our current telecommunication market conditions means that an external investor in Openreach may produce the golden age of competition that Ofcom heralded when they published their first Strategic Review of Telecommunications 15 years ago. Bring it on, I say.