The Divestment of Openreach from BT is not a simple case

February 8, 2016

It would perhaps be easy to jump on the band wagon and champion the case for freeing Openreach from its parent BT, which according to the press is a given. But in fairness, both Openreach and BT deserve credit in areas

BT is a truly world class business. It is a leader. It has delivered (mostly) on its promise to provide the UK with its Information Super Highway. But yet more change and progress is sought after.

Better apart?

The proposal to divest Openreach from BT may bring more challenges than we have today opposite speed of change and progress. More complexity. More governance and regularity issues. Investment may actually stall rather than speed up. There are no guarantees that Openreach and BT will perform better independently, or indeed that others (business customers, partners, consumers) will benefit from a split.

Openreach is already functionally separate within BT. The challenge is whether Openreach operates in the spirit of openness, or whether it favours the agenda of its parent. Would an independent Openreach really deliver improved competition or speed up investment? Would the perceived rate of change and progress – the perception of more innovation actually be delivered delivered if Openreach were no longer ‘restricted’ by BT’s agenda, governance and control? Both BT and Openreach’s customer service are questionable, but where would the real alternative appear from?

I know some {LWD subscribers] who believe that BT does trade on its monopolistic position. Ordinarily most would condemn the incumbent as the bullying type leveraging their position for self-interest. Perhaps part of this argument is true. Listening to a BT video link, I note that the speaker does acknowledge that the competition [Sky, talk talk, Vodafone?] consider the BT Openreach relationship as unfair.  Perhaps this is natural position for them to take. Of course they would. They are the competition after all.

Depending on an individual’s perspective

Depending on an individual’s perspective, BT are cumbersome, inefficient, and an abuser of their monopoly position. Or perhaps they could be seen as actually being efficient, well run, and a true global leader in a competitive market place.

IF the UK is to continue to benefit from the technology infrastructure that Openreach has built and delivers to us, then perhaps one of the most important questions Openreach needs to ask itself is whether it is investing enough cash fast enough to align to customer demands and expectations.

I believe BT does recognise and acknowledge the challenge. In the video, the speaker states that customer demands are very high. The customer asks that Super-fast broadband is always available, from anywhere, from any device. Realistic expectations? Or difficult expectations to deliver?

How quickly can BT deliver the services that the customer and the market place are demanding. Are BT and Openreach driving change and progress quicklyy enough? Maybe not, but the problem is tempered and made more complex by the fact that BT is a commercial organisation and no longer a nationalised industry. Therefore, it is right to treat each major investment decision with the correct level of due diligence and moderation before overcommitting spend and investment to services that may not be commercially viable in the short term.

Major Investment is still needed

That said, it is still of question when, not if the investment is needed. The speaker in the video talks about maximising the use of the existing infrastructure using innovative technology to deliver high speed broadband without replacing with expensive fiber. This sounds like an equitable and sensible compromise.

Fiber based superfast broadband for all may well be the next major step, and an end goal – but we need to be sensible with expectations around timescales. Some of that investment and infrastructure has already been made and is available to some lucky users. For others perhaps in rural areas, they need to wait. These are the folk most likely to argue BT needs to do more, and faster too.

With faster greater bandwidth comes downstream opportunities for all. The popularity of new services would grow faster than at current rates – for example: the move towards On-Demand content could happen quicker. Cloud is now a mega-trend. I remain convinced Cloud computing will be seen as a separate computing paradigm. Openreach and BT do deliver the services that underpin downstream Cloud provision.

BT is adapting too

We can also flip the argument around. BT themselves are now delivering content and challenging Sky with BT Sports. I do believe that TV as we have known it will continue to change and be disrupted. Openreach are in some ways influencing and controlling the rate of change because of the overall dependency on bandwidth and superfast broadband.

I’m sure there will be a shift towards faster lines and that eventually the demand will be there to justify the investment and provide the requisite return on investment. Eventually it’s just a case of getting the business model right.

Conclusions

I suppose my concluding thoughts are that investment represents a double-edged sword for Openreach. There is no guarantee that consumers or big business will take-up new more expensive services with immediate effect. This is very much a generic business statement though. No investment comes with guarantees. It’s about understanding the risk versus the reward.

Greater speeds and more bandwidth are nice to have, but in our cost conscious world I too often hear the phrase ‘is the provision “good enough”– often the reality is yes. What we have today is good enough and meets our needs.

So there is a dilemma here. What comes first, the chicken or the egg? Greater, faster investment from Openreach against the commercial reality and ‘guarantee’ of customer demand for new products.

If Openreach is split off from BT, and starts to either compete with rivals, or offer technologies that align with specific customer/partner needs then really we may just have new different challenges around agreed technology standards and regulation. These are the same issues that exist today, perhaps just in more complex forms.

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