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BT could be broken up to improve Britain's broadband networks

[LONDON] Britain's dominant telecoms provider BT could be broken up under a proposal from the regulator, after rivals accused it of abusing its market position and failing to invest in the broadband networks they rely on.

Regulator Ofcom floated the idea of a forced separation of BT's Openreach network after rivals Sky and TalkTalk stepped up pressure for the national copper and fibre broadband networks to be run by an independent operator.

BT said customers of all telecoms providers had enjoyed higher speeds and lower prices due to its investment in a new fibre network, which would not have been possible if BT had been split in two a decade ago following a similar industry review. "Ofcom have overseen a regime that has balanced investment with competition and we hope they will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages," it said.

The latest review of the British communications sector concluded that the current system, whereby the 169-year-old BT operates Openreach as a separate unit, providing network access to rivals, had delivered choice, quality and value for phone and broadband customers over many years.

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But Ofcom said that although the incentive for BT to discriminate against competing providers could be limited by regulation, it could not be removed entirely.

As a result, forcing BT to divest Openreach is one option being considered but before such a drastic measure the regulator would need to believe that any lesser proposals, such as using new or existing market powers, had failed.

It suggested that a full separation may also not result in improved investment and analysts said on balance they did not expect the regulator to go that far. "While Ofcom recognises there are challenges with Openreach, in particular in relation to service quality, it heavily suggests that further separation will not address these, and could ultimately be disproportionate," said Ovum analyst Matthew Howett. "That's not to say that tweaks to the Openreach model aren't likely." Shares in BT were flat.

BT's main rivals said they welcomed the focus on Openreach, and called for radical thinking. "For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need," said Mai Fyfield, Sky's chief strategy officer.

TalkTalk has said the current market structure was not fit for purpose, and BT's proposed acquisition of leading mobile operator EE would only increase its dominance.