Vodafone claims BT has profited to the tune of £1.1 billion as the UK telecoms industry began to respond to Ofcom’s push to legally separate Openreach from its parent.

The UK regulator said it was proceeding with a formal notification after failing to gain assurances from BT about the competition concerns it raised in July.

Vodafone commissioned a report from Frontier Economics to tie-in with Ofcom’s announcement.

It found that BT made “excess profits” from regulated wholesale broadband services of £1.1 billion in last financial year ended March 2016.

Further, it claimed that BT made returns of 70 percent from 1.8 million customers living in rural parts of the country, “where it faces little or no network-based competition”.

Vodafone UK’s Director of External Affairs Helen Lamprell said: “It beggars belief that BT felt it could increase its excess profits at this time and further underlines the need for an independent Openreach.”

Reacting to the Ofcom ruling, Lamprell said: “We, along with broadband customers across the country, share Ofcom’s disappointment at BT’s performance and at its reluctance to undertake the transformation necessary to ensure the UK has the competitive fibre networks it needs for the future.

“We will analyse the detail of what Ofcom proposes – and BT’s response to those details – very carefully.

“We believe Openreach should be separated from BT as soon as possible, so BT’s customers and other providers can be better protected from the excessive charges highlighted in this Frontier report.”

Vodafone, Sky and TalkTalk have been vociferously calling for a total separation of BT and Openreach.

TalkTalk CEO Dido Harding said: “We welcome the fact that the regulator has finally made a decision, and while we do not think legal separation goes far enough to deliver the broadband consumers deserve, they are at least a step in the right direction.

“Consumers will be keen to understand how these changes will improve their service and by when.

“We will continue to push Ofcom to ensure the plans deliver real, meaningful improvements quickly, and if major changes cannot be delivered, then they should move to structurally separate Openreach once and for all."

A Sky spokesperson added: "Let's not forget why we are here - BT Openreach has continued to fail consumers.

“This is why we have always said that we want a solution that is clear and executable and in the best interests of consumers and industry.”

The three companies have an ally in Mark Skilton, a Professor of Practice at Warwick Business School.

He said: "The Internet of Things, super fast broadband, 5G and other types of networks may be better delivered and served with having multiple large scale companies in a more devolved network. 

"This requires a huge investment to build fibre networks, but also a willingness to experiment and develop a full range of services that digitise and enable multiple networks and providers to give not just access but also high performing data and network speeds. 

"Separating the BT and Openreach monopoly will in my view help this move towards a faster network of providers and hence one that is not driven at the speed of one large operator's priorities.

“This has counter arguments of reliability and avoiding vested interests in zoning in on specific cities and regions for preferential treatment.

“But with Ofcom and government leadership now so critical in the Brexit era we now find ourselves in, we need to think faster and more nationally and internationally in how we connect to the wider world.”

Nevertheless, CCS Insight analyst Kester Mann said Sky, TalkTalk and Vodafone should regard the ruling as a partial victory.

He said: “Steering clear of a structural split is unsurprising.

“This would have been the most controversial and costly action Ofcom could have taken, but would still not have offered guaranteed improvements for customers.

“No doubt, BT’s rivals will criticise Ofcom for not being brave enough to push for structural separation.

“But after many months of campaigning, they should see the regulator’s efforts to engage with Brussels as a partial victory.

“The move toward legal separation and greater independence will bring important benefits to companies like Sky and TalkTalk in the long-term.”

Ovum analyst Matthew Howett focused on the impact on BT itself.

He said: “This announcement will undoubtedly come as a blow to BT, which thought it was making progress with Ofcom; however, the door remains open for both sides to reach a voluntary agreement.

“In many ways, a voluntary agreement remains a better outcome than a forced legal separation, not least because the EU route is uncertain, untested, and likely to take much longer to achieve.

“It is also made more complex by the decision from the UK to leave the EU.”

BT is yet to formally comment on Ofcom's ruling.

 

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