BT circles wagons round Openreach as Ofcom mulls forced split-up

Re: Do it!

I don't know how changing the name over the door improves anything. 'New Openreach' would still have the same share of the market and would still have the same pension liabilities as now. Pricing would still be regulated, the economics of reaching rural locations with the latest services would remain unchanged.

The only likely outcome is that another big British company ends up in foreign ownership, using profits from the UK to subsidise domestic operations, as happens with our railways.

My main concern is where the investment would come from for continued improvements.

It comes from retained profits or from additional equity investors. As a standalone infrastructure company (or companies) Openreach should find it easier and cheaper to raise debt or equity than as part of a conglomerate trying to get into high cost, low asset activities like TV.

And that's why BT don't want to split out OR - because the retail business, the vanity TV project, and "Global Services" would suddenly find that their cost of capital had increased, and their exposure to competitive markets was far greater.

>Whatever you might think about connection speeds they are clearly very fit for purpose.

if that purpose is to make profits for BT, then certainly.

If it's to provide world-class broadband to the entire UK - you're havin' a larf, aincha?

Pay TV is very different. There is no natural or legal monopoly. Other companies can and do enter the market, they just don't seem to be able to compete with Sky. Either they enter a niche market that Sky isn't interested in, and that can work, or they sell the channels at a loss which obviously isn't sustainable.

"Whatever comes after it needs to be at least as good and looking at other such 'breakouts' (Network Rail, anyone?)"

Network Rail is different in that it inherited a clusterfuck of regionalisations which itself was a mishmash of dozens of smaller clusterfucks that got nationalised.

Openreach is a uniform company across the country.

"My main concern is where the investment would come from for continued improvements."

From the customers, same as it is now. The difference being that BT is just another customer, not hoovering the profits out via creative account methods.

It's worth reating the NZ Ministry of Commerce reports on the separation there.

http://www.comcom.govt.nz/dmsdocument/11002

"From the moment the government announced the Separation plan on 3 May 2006, Telecom's behaviours in the market place changed. Before separation it viewed its wholesale customers as unwelcome campers on its network. The moment separation became inevitable, it immediately started to recognise them as valued business partners."

> My main concern is where the investment would come from for continued improvements.

Simple.

For "run of the mill" stuff, the expenditure comes out of retailed profits. The equation is fairly simple, it charges "customers" for use of it's infrastructure, it pays out it's running costs (rates, wages, taxes, etc), and what is left over is retained profit. Of course, it'll need to do improvements - add a cabinet here, add more cable there, upgrade some old kit, and so on. For most of these, it's just another operating expense.

Now for "big ticket" items (like a fast and nationwide rollout of FTTC) it goes out to the money markets with a business proposal along the lines of : "we need £X to fund this project, as a result of this project, we'll be able to take in £Y, and projected return on investment will be Z%. Who's up for a share of that ?"

If the figures stack up, investors (who may include the ISPs who'll get to sell the services) will put their hands in their pockets and the capital will be raised that way - by either selling bonds or more shares. Behind the scenes, that's what BT will have been doing for their multi-billion investments - except that instead of selling bonds, they've sold shares.

Where the figures don't stack up, they'll do exactly what BT did - and go to the government/councils/whoever and blackmail them. "If you want <spiffing new service> in these unprofitable areas, then you'll have to pay for it". Where someone will pay for, or at least adequately subsidise, it - then they'll install it.

Where I'd see the biggest benefit is the removal of the political restraints. Those of us with an involvement in telecoms for long enough will know that pretty well every new service BT has done has been in some way crippled in order to protect their existing cash-cows.

For example, ISDN2 never caught on in the UK because it was expensive and crippled. In some countries it flourished because it wasn't and wasn't. How and why was it crippled ?

Well in Germany, you could send low speed data via the D channel without dialling up a B channel. This meant that for WAN applications you could handle low speed data without racking up the call charges, and then fire up one or more B channels when the link got busy. Over here you couldn't, except in certain expensive and crippled ways designed to make sure few actually did it.

And why was it crippled like this ? Well of course you could never prove it, but had it been as full featured as Germany's ISDN2 then it would have slashed income from leased lines - BT's then cash cow. It was in BT's interest not to allow something that could harm that cash cow.

And I can't help thinking that BT's lethargy in rolling out ADSL initially was a further attempt to stave off the further butchery of it's cash cows. Why pay £6k/year (at a previous employer, we had two lines that cost £8k/year each to give us 64k to a couple of remote sites) for a Kilostream when for many applications a couple of ADSL circuits and VPN capable routers would do the job for a fraction of the price ?

I can believe the comments about NZ having a boom in services once the lines business was split from the services business. Over here we don't have dark fibre - much better to rent a lit fibre and screw the customer for speed related charges. You can't (other than very limited options) buy a circuit from A to B that doesn't go via the exchange. It's "very difficult" to rent duct space. And so the list goes on.

Split off BTOR and the political pressure to not allow various services has gone. Yes I'd expect BT to squeal - it would remove some very real and very significant advantages it has (specifically being able to tailor available products to suit it's own requirements) and force it to compete on a more level playing field.

Leaving aside some fairly light regulation ... Remember that **NOTHING** BTOR do at the moment is specifically to give "us" something better. **EVERYTHING** they do is designed to give BTOR (and therefore it's sole owner, BT) the best return possible.

Split BTOR away from the controlling influence of BT and I'd expect to very quickly start seeing some new and "interesting" products and services.