BT has been ordered to get its act together or risk break up in a report by MPs that accuses the company of a lack of transparency in its broadband and fibre rollouts that stifles competition and thwarts other providers' planning.
A report from the House of Commons Culture, Media and Sport Committee titled Establishing world-class connectivity throughout the UK examined the BT-led broadband rollout in the UK, particularly in hard to reach rural areas, and is especially critical about the slow pace of upgrades to fibre broadband in particular.
So-called superfast services are on track to reach 95 per cent of premises by the end of next year, but this has been achieved with subsidies of more than £1.7bn from public money to take broadband to parts of the country where it might not otherwise be commercially viable.
The Committee criticised BT for cherry picking the best parts of the ‘intervention areas' for rollout and neglecting the rest, as well as a lack of transparency in the Openreach costs and deployment plans, "the apparent effect of which has been to stifle local competition and thwart other network providers' planning".
As a result, BT has been able to scoop up all the contracts and subsidies for the rural broadband rollout, and bidders have dropped out, undermining the competitive tendering process.
Another problem identified by the Committee is the lack of forward planning in terms of technology selection in a bid to keep the field as open as possible.
"One difficulty in driving forward the Broadband Delivery UK programme is the need not to discourage private investment in infrastructure by preferring one technology over others, when that technology may not ultimately be the best for the future," the report said.
"Yet in reaching some of the harder to reach premises there will need to be judicious deployments of interim technology solutions to provide improved connectivity to those households and businesses which currently have little or no coverage."
But the Committee reserved its most scathing criticism for BT and its Openreach arm, accusing Openreach of delivering a "poor quality of service", specifically customer service, and not just to ordinary customers but, more ominously, to wholesale partners that use BT's infrastructure to provide broadband services.
The MPs also accused Openreach of effective profiteering and underinvestment, no doubt helped by the public subsidies raked in from the rural broadband rollout.
Further concerns expressed about BT have been that Openreach has been "over-earning" substantially in relation to its cost of capital while Openreach's investments, including in fibre, have until this year barely increased since 2009.
Hence, while Openreach is theoretically a ring-fenced part of the business on legal and regulatory grounds, the company as a whole still makes strategic decisions over Openreach that favour the whole Group's priorities and interests, especially financially.
"BT does not lack access to capital. Its current structure allows it to use Openreach's utility-type assets to cross-subsidise riskier activities elsewhere in the Group, while significantly under-investing in the access infrastructure and services on which a large part of the public rely," the report said.
The Committee stopped short of calling for an all-out break-up of the company, but the MPs suggested that BT's governance and capital structures, and the adequacy of its regulatory arrangements, should be examined more closely.
"It is a very difficult judgement call as to whether the benefits of full structural separation would outweigh the likely significant disruption and fallout to the wider industry and consumers," the report concluded.
"However, there is good reason to suggest that a more independent Openreach might increase infrastructure investment significantly."
Ofcom made the case for the formal separation of Openreach from BT earlier this year but stopped short of recommending such a move.
The MPs called for BT to increase investment in broadband, and fibre broadband in particular, to publish five-year strategic investment plans, and to improve quality and availability of service throughout the UK - or face break-up.
MPs have often taken a harder line on BT and Openreach, and many in the past have called for the two companies to be broken up.
BT defends Openreach management
BT said it was disappointed with the findings, noting that investment in Openreach was growing all the time and efforts to improve installations and fixes were also taking place.
“Openreach investment is 30 percent higher than it was two years ago and it will grow again this year.
“We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area.
We are hitting all of Ofcom’s service targets and are determined to exceed them given customer expectations are rising all the time. Thousands of engineers have been recruited and we are fixing repairs and installing new lines quicker than before.
It also reiterated its belief that making Openreach a separate entity would be detrimental to the UK.
“Separating Openreach from BT would lead to less investment, not more, and would fatally undermine the aims of the committee.”
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