Will Ofcom break up BT? Probably not - but it must enable fibre broadband fit for the future

Next week sees an announcement that will set the scene for the next 20 years of the UK’s digital infrastructure.

Ofcom’s review of the communications market is due out within days and its potential impact spreads well beyond the telecoms companies affected by the watchdog’s regulatory canvas.

The UK broadband market is largely a success – competitive for the consumer, with widespread adoption that puts us ahead of most of our European rivals. But it has serious flaws too – a lack of support for rural and hard-to-reach areas, and the natural tendency of a former telecoms monopoly to want to sweat its copper assets instead of investing in a fibre infrastructure fit for the next 50 years.

The big question that has dominated the headlines since the review was announced is the future of Openreach, BT’s “last mile” infrastructure provider, and whether it should be split from its parent.

I’ve written here before the reason why I feel BT should divest Openreach and allow it to become the Network Rail of broadband Britain (although hopefully rather more effective). But it’s a complicated situation and there are equally strong arguments against – Ofcom will know that forcing BT to sell off Openreach will be hugely controversial and lead to years of legal debate.

However, Ofcom and its regulatory predecessors have been the catalyst for the growth of broadband in the UK. First, Oftel forced local-loop unbundling (LLU) on BT in 2001, delivering competition and price cutting in the consumer market. Then in 2005 Ofcom forced the structural separation of Openreach within BT Group to level the playing field for its emerging rivals.

For all the investment BT has made in broadband, it has to be remembered that those significant steps were taken through regulatory pressure, not BT’s altruism. For all BT’s resistance, Ofcom may yet feel that the logical next step in that process is full separation of Openreach. The regulator doesn’t have the power to make that happen, but it can refer the issue to the competitions watchdog, which does.

In reality, I suspect Ofcom will not force the issue yet. Instead, it will give BT a final opportunity to prove that that a wholly owned Openreach can deliver better customer service, full rural coverage, and investment in a fully fibred future.

For a start, Ofcom might push for full unbundling of BT’s fibre to the cabinet (FTTC) services – there are complex technical considerations to doing so, but such a move is likely to generate more competition in FTTC than the current “virtual unbundling” offered to the likes of Sky and TalkTalk.

For all the government’s boasts around the roll-out of superfast broadband, adoption of FTTC still lags behind and more competition and price pressure will grow its take-up in the same way that LLU boosted ADSL broadband use.

Ofcom also must find a way to force Openreach to provide better support for smaller fibre broadband firms – the so-called altnets – as well as local community initiatives such as B4RN. These innovative providers should not feel like they are fighting BT at every step in areas that BT has deemed economically unviable for itself.

The regulator also needs to create an environment where telecoms companies are encouraged to invest in fibre to the premises knowing that the return on that investment may be very long term. Let BT sweat its copper for as long as it likes – but we need a long-term plan to replace that copper last mile with fibre, whether BT wants to do so or not.

The Ofcom review will only be the start of a process and its recommendations will be analysed and picked over for many months. But the importance of getting this right cannot be underestimated – Britain’s digital future is at stake.