Openreach hints at fibre network strategy rethink

Chief exec says 'significant chunk' of job cuts to come from Global Services

Analysis "Collaboration" was the watchword from Openreach chief exec Clive Selley during BT's results this morning. An interesting expression given accusations it previously used its market heft to the disadvantage of its communications providers.

Of course, that was before British telco BT finally agreed to a legal separation of its broadband division in March.

One could also be forgiven for thinking Openreach has had a Damascene conversion to fibre in those interim months, too. Although Selley stressed the business was still committed to "mixed technology", he said it was also achieving "much better cost points" with pure than it had historically thought.

"Also once it is in and running for a customer were are seeing materially lower cost rates," he said.

"The service is able to achieve much higher bandwidths and achieve a much better guarantee of bandwidth throughout the day. So we are liking FTTP even more.

"That is why we are consulting with our customers - the CPs - to understand their view on what will drive demand for customers onto those higher products. And together, their inputs in order I can crate a business case that will set a higher ambition than the existing 2 million by 2020. That is what the process of consultation is about."

According to Selley, BT faces a very competitive infrastructure market in the UK, with Virgin Media deploying an additional fibre footprint at pace. "So it is my job to collaborate closely with all the other CPs to figure out at what pace we roll out the ultrafast platforms. And we are going to do that hand in glove with the CPs, because ultimately they are the ones that are going to have to compete and beat the alt-nets in the market place."

Dario Talmesio, principal analyst at Ovum, said the message from Selley is that Openreach has underestimated importance of full-fibre.

"They are re-considering their network technology strategy. Although they have stressed they are technology agnostic, the reality is the ecosystem isn’t. They made an interesting comment about reliability. I think they've had a reality check on the superiority of fibre and the consistency of the experience."

However, he added given the planning required in order to lay fibre, it is unlikely the business will "drastically" increase its existing target of two million pure fibre connections by 2020.

Independent analyst Matt Howett said it will be important to establish the nature of fibre demand "and the commitments downstream BT other providers are willing to put behind it".

Global Services

Elsewhere, the fate of BT's Global Services business dominated the question and answers session - and the 4,000 jobs cuts across BT.

Gavin Patterson, chief exec said BT, said the business has recognised the market is changing. "It is increasingly moving to cloud based delivery, software-defined networks and we need to adapt and move with our customers s they make that change.

"We are well-positioned to do that because the network itself remains very important. But as a consequence of that, the domestic networks we have around the world, particularly in Europe, become less important to us. We don’t rely on them as much to deliver a competitive advantage. So you will see us de-prioritise those over time.

He declined to break out where the 4,000 cuts would fall but said "a significant chunk" will be from Global Services."

Neither would he rule out a sale. "Over time, in terms of disposals we look at all parts of our business to understand whether or not the assets are better had by us or other people.

Ovum's Talmesio said: "Global Services is where it wants to make most of the savings, they are essentially pointing the finger to the unit that is troubled."

On the subject of the accounting scandal in Global Services in Italy, which resulted in a £530m write-down, the company said review of practices outside Italy did not identify any similar issues or areas of concern elsewhere "giving us comfort that the inappropriate behaviours were isolated to Italy".

However, Patterson said he wants to encourage a culture within the company of "speaking truth to power".

Following the group’s announcement with respect to its investigation into our Italian business in January, three purported securities class action complaints were filed against the company and certain current and former officers in United States courts.

The company's share price has yet to recover from the revelations, which wiped £8bn off its value. It will of course hope that some of the measures announced today will go some way to recovering its share price.

But much like building fibre networks, regaining trust can take time. ®

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