When the UK's telecom regulator announced in July it would not carve up BT, as rivals had demanded, but instead impose tougher conditions on the former state-owned monopoly, it must have hoped the decision would spur some reconciliation between broadband stakeholders.
Far from it.
If anything, relations between BT Group plc (NYSE: BT; London: BTA) and its broadband competitors have descended to a new low since Ofcom 's ruling. BT CEO Gavin Patterson this week accused Sky , TalkTalk and Vodafone Group plc (NYSE: VOD) of resorting to "Orwellian tactics" in an advertising campaign that highlights BT's perceived shortcomings. Those companies, which are among BT's biggest wholesale customers, have responded by noting that several emerging markets now trump the UK on the rollout of high-speed broadband infrastructure. (See Eurobites: BT Attacks 'Orwellian' Rivals and this article from Telecoms.com.)
Operators that rely on BT's network believe that spinning off Openreach , BT's infrastructure division, would level the competitive playing field and foster investment. As a distinct, publicly listed company, Openreach would have no incentive to favor BT's retail business over other players, they argue. (BT, of course, insists that its retail business does not receive any favorable treatment from Openreach.)
Ofcom demurred, arguing that structural separation would be costly, disruptive and risky. Instead, it has advocated building higher walls between Openreach and the rest of the BT Group. Openreach will have its own CEO, who will not report to BT management, for example. And it will have to consult with its wholesale customers about investment plans.
Sky, TalkTalk and Vodafone are evidently unhappy, and yet Ofcom's aversion to structural separation is understandable. In Australia, the creation of a national broadband network (NBN) was meant to curb the power of Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and give the country a world-beating broadband network. Yet the NBN has become a political football that has been kicked out of its original shape. Australia languishes in 48th position in an international ranking based on average broadband speeds, according to cloud company Akamai Technologies Inc. (Nasdaq: AKAM). Telstra's dominance appears to have grown.
Indeed, structural separation is possibly a red herring. On the plus side, it would stop one retailer from controlling the infrastructure used by most of the others. But without more network-based competition, an Openreach that is independent could be just as unwilling to invest in ultra-fast networks as it is right now.
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