Diversified Telecommunication Services

UK Minister delivers blow to rivals’ hopes of BT broadband split

Daniel Thomas
Ed Vaizey, Minister for Culture and the Digital Economy appears on stage at the 2014 TechCrunch Disrupt Europe/London, at The Old Billingsgate on October 21, 2014 in London, England.
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The UK minister overseeing the telecoms sector has poured cold water on the idea of separating BT from its broadband network, dismaying rival companies who want to break up the former national monopoly.

BT has come under attack from competitors such as Sky, Vodafone and TalkTalk over its ownership of the Openreach network, whose fleet of vans and engineers most internet providers use to deliver broadband. They want the competition authority to investigate the market arguing broadband would be better if run as a separate entity.

Ofcom, the telecoms regulator, has indicated that splitting off Openreach is among options in a once-in-a-decade review of the telecoms market. Its recommendations will be published in the new year, although submissions close next week.

But Ed Vaizey, minister for the digital economy, said he was "a sceptic" about the need to split BT from Openreach. "I think full separation would be an enormous undertaking, incredibly time consuming [and have] lots of potential to backfire," he told the Financial Times. "Ofcom is looking at it, I am a sceptic but we will have to see what Ofcom comes out with."

He added "We would go with the trend of the [Ofcom] review," but "regulations have proved very effective" so far.

BT is fighting for its future as rival companies have ramped up calls for the split of its fixed line network, which they argue causes a conflict of interest given its own retail internet business.

BT, they warn, is empire-building given its return to the mobile market with the £12.5 billion acquisition of EE and its aggressive drive into pay-TV with the purchase of Premier League and Champions League football rights.

BT plans ‘ultra-fast’ internet across UK

However, analysts say Ofcom is more likely to be swayed by evidence of widespread dissatisfaction among internet users in the UK in spite of steady improvements in coverage and speeds.

Mr Vaizey said he was happy with the progress made on BT's subsidised rollout of broadband in the UK. He added the company was on track to help deliver superfast connections — that is, speeds of more than 24 megabits per second — to 95 per cent of the country by 2017.

"If broadband is so terrible, why are we the leading ecommerce nation in the world?" Mr Vaizey said.

This month a group of telecoms and media companies wrote to the FT to raise what they said were serious problems with the ownership of the national telecoms network by BT, including "a conflict of interest in the role of BT, poor quality of customer service and difficulties in enforcing the existing regulatory regime".

But Mr Vaizey said they needed to point out specific problems if they were to convince him. "The[ir] calls are pretty standard play," he said. "We have heard it many times in the last few years."

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Plans were being drawn up to take superfast internet to the remaining parts of the country, he said, and he was also to advise cities on securing better broadband infrastructure, with additional funds potentially available for individual communities. "We want to sit down city by city, work out why they haven't got broadband and work out a programme to cut the red tape and reduce the costs."

The government is also considering whether to set an obligation for telecoms groups to provide a minimum broadband speed for the country of between 5 mbps and 10 mbps.

He played down the need in the short term to upgrade the UK's broadband networks to provide fibre lines directly to the home, which companies such as TalkTalk argue will be needed to provide speeds of up to 1gbps given projected demand for online services and entertainment.

TalkTalk and Sky are building a fibre-to-the-premises network in York as a trial, while companies such as Gigaclear and Hyperoptic are providing similar services to rural areas and city tower blocks.

Mr Vaizey made it clear that a national FTTP scheme would have been difficult, however." Google has been rolling out fibre-to-the-premises to Kansas and its taken five years to do it. In Australia . . . it arguably cost the government the last election, is mired in massive controversy and is massively over budget," he said.

"My job is to deliver workable broadband to as many people as possible. I am not getting it in the neck for fibre-to-the-premises, I am getting it in the neck for the last 5-10 per cent [of the country]."

He was also cool on demands for broadband speeds of up to 1 gigabit per second. "Most people regard 24 mbps as the kind of broadband speeds they need. In reality, most people can live with 6-8 mbps."

Read MoreBT profits beat expectations as EE deal eyed

Mr Vaizey said the government was still working with mobile groups to help them cover 90 per cent of the UK with a signal, although he admitted frustration with the parliamentary timetable for a promised revision to a code that would help operators build extra masts.

He also stressed the need to protect the consumer in the forthcoming round of proposed mergers. BT has agreed to acquire mobile group EE, while Three will be merged with O2, reducing the number of mobile groups to just three in the UK.

"There is a balance to be struck. Competition is a good thing but we have seen how a lack of capacity to invest can affect networks. If we felt there was too much consolidation we would look at what consumer friendly regulations we could bring in." Any such regulation would be overseen by Ofcom.

Five years after David Cameron, prime minister, had called for the organisation to be stripped back in the so-called "bonfire of the quangos", Mr Vaizey said he would not "have a problem" should Ofcom be handed the extra responsibility of regulation of the BBC.

"Sharon White [Ofcom chief executive] is absolutely brilliant," he said. "It's a really effective organisation. I would not have a problem with Ofcom regulating the BBC but we want an independent review that sets out the various options."