BT Openreach: UK telco market has benefited from functional separation

The British experience of telecommunications separation strongly points to functional, rather than structural separation as the preferred option, according to Mark Shurmer, director of regulatory affairs, Openreach BT.

Speaking at the Telecommunications Reform Forum in Sydney, Shurmer said functional separation had benefited consumers, BT, Openreach and the industry. “I would argue the benefits have been significant and have been built on the success of establishing Openreach as the vehicle for delivering wholesale service in the UK,” he said. “We now have a much more effective wholesale regulatory regime, much greater transparency and confidence for customers.”

In 2004 prior to the separation the UK regime was characterised by confrontation between BT, the industry and the regulator, Shurmer said.

“The product development process was very slow and laborious. BT was often described as having a policy of walking back very slowly with the regulator and fighting every step of the way,” he said. “Roll forward to today and we have a very different engagement process – much less intervention by the regulator and much more collaborative.”

The uptake of broadband had also dramatically increased post separation, Shurmer said, growing from about in 123,000 local loop unbundling (LLU) lines in September 2005 to 6.2 million LLU lines in November 2009.

“Downstream markets are now much more competitive and consumers are really benefiting from that,” he said. “Residential fixed voice costs have fallen by 10 per cent in real terms each year since the establishment of Openreach. For residential broadband an eight Mbit service, if you could get it back in 2005, was about 30 pounds a month – you can now get that for as little as 5.99 pound a month.”

Shurmer said one of the major benefits of having a functional, rather than structural separation of BT was the ability to fine tune regulations as and when needed.

“The UK model is still evolving … there have been some variation to the [regulatory] undertakings to allow Openreach to allow active-based fibre products in the UK,” he said. “Things are still fluid and one of my perceptions about functional separation, rather than structural separation, is that functional separation does give you the ability to... flex the boundaries over time to maintain an optimal regulatory approach”

Shurmer said having regulatory undertakings which could be publicly tracked by both BT and external customers of Openreach was another benefit of the functional separation of the company.

“We were having [external customers] saying you’re clearly favouring downstream BT and we have BT claiming we are clearly favouring external customers,” he said. “Having those undertakings has given us that clarity. You can go on to our or Ofcom’s website and see the key performance indicators; see what your lead times are against downstream BT and see if you are being treated equally. That’s been really key given the industry the confidence that separation and equivalence is working.”

Functional separation had also resulted in a growing source of revenue for Openreach from external customers, Shurmer said.

“In 2009 we had 5.2b pounds in revenue of which almost one billion is now external revenues coming from wholesale customers,” he said. “That’s been growing significantly on the back of increased LLU competition in the UK.”

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