The regulator Ofcom has decided to force a legal separation of Openreach from BT, after the former broadband monopoly failed to offer voluntary proposals that addressed its competition concerns.
Ofcom fell short of recommending a full structural separation earlier this year, citing pensions and properties costs as the main obstacle in a full separation of Openreach.
It said a legal separation, whereby Openreach has its own independent board, would help the broadband body act more in the interests of the market and less in those of BT.
Openreach is the division of BT Group that develops and maintains the UK’s main telecoms network used by providers such as Sky, TalkTalk, Vodafone and BT’s retail business.
In a statement Ofcom said it was "disappointed" that BT had not yet come forward with proposals that meet its competition concerns.
"Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users," it said.
In findings that surprised few, the regulator found that BT has the incentive and ability to favour its own retail business when making strategic decisions about new network investments by Openreach.
"This concern arises because BT runs the national network, Openreach, as well as its own retail business," said Ofcom.
But critics have claimed the only way to address BT's monopoly would be via a full separation.
Ofcom hopes a more independent Openreach "would be well placed" to invest in "full fibre" broadband for everyone. Both Ofcom head Sharon White and the digital minister Matt Hancock have said fibre is the future.
Blighty currently has around around a 2 per cent fibre-to-the-premise penetration.
Ofcom found that BT’s voluntary proposals still fell short in important areas. These include the transfer of people and assets, and the level of influence that BT Group executives could exert over the management of Openreach.
Under the legal separation, Openreach will become a distinct company with its own board, with a majority of non-executive directors, including the chair not affiliated with BT. Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally.
Ofcom will now notify the European Commission of its intention to implement these plans, requiring the legal separation of Openreach to make it more independent.
BT commented: "We note Ofcom’s announcement this morning, updating on the next steps of the Digital Communications Review.
"We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom’s objectives without disproportionate costs. We are implementing these proposals, and have just appointed Mike McTighe to be the first chairman of Openreach. We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach CEO and the form of legal incorporation.
"We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the UK’s digital future.” ®