Telecoms regulator Ofcom has ordered BT to legally separate from Openreach, its division dedicated to maintaining and operating the UK's broadband infrastructure.
Earlier this year, Ofcom laid out concerns it had about BT's control of Openreach and its impact on competition among broadband providers. BT has failed to voluntarily respond to these concerns, so now the regulator is preparing a formal notification to the European Commission to start the process of separation.
Ofcom has said that Openreach should become a distinct company operating within the BT group, but legally independent and focusing purely on the operation of the UK's broadband networks.
"Ofcom is pressing ahead with its plans to improve broadband and telephone services for people across the country, pursuing better service quality and encouraging greater investment in networks," said an Ofcom spokesperson in the regulator's statement.
"Craeting a more independent Openreach – which works in the interest of all providers, not just BT – is an important part of achieving this."
Openreach has a duty to treat all of its customers equally, according to Ofcom. The change will see the firm establish its own board, with non-executive members and a chairperson not affiliated with BT. It will also give Openreach control over its branding and budget allocation.
Even this is a compromise with BT; telecoms rivals have called for Openreach to be split off entirely from BT and become completely independent.
"We put forward proposals in July that we believe are fair and sustainable, and that meet Ofcom's objectives without disproportionate costs," said a BT spokesperson in a statement on the decision. "We are implementing these proposals, and have just appointed Mike McTighe to be the first chairman of Openreach.
"We are in discussions with Ofcom on two outstanding issues, the reporting line of the Openreach chief executive and the form of legal incorporation. We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, penioners and investment in the UK's digital future."
The View From the Industry
"It's tough to read whether BT's heel-dragging is a result of a tactic with the intention to deliberately delay and undermine the process, or whether, rather like Brexit, the process of separating Openreach is simply too vast and complex to be fully planned out in such a short period of time," said Dan Howdle, director of communications at Cable.co.uk.
"That Ofcom has had to speak out of its 'frustration' suggests to me there is more to this delay than bureaucracy and red tape – that unwillingness to comply is also playing some part."
Andy Hollingworth, former director of wholesale at TalkTalk and CEO of Toople has said that the decision to separate Openreach was "long overdue" and "can only be good news for UK small business".
"Going forward, it will give transparency for infrastructure investment, R&D and a cost base equitable to all service providers. Sadly, the UK broadband speeds lag behind the majority of Europe."
However, Jaime Fink, co-founder of Mimosa Networks, argues that simply separating out Openreach will only be the first step in updating the UK's broadband networks.
"Despite Ofcom's proposal, the infrastructure problems facing the UK market that prevent the rollout of a nationwide next-generation broadband network still remain," said Fink. "The DSL foundations that underpin much of the UK's broadband network simply do not offer the bandwidth and reliability to support today's internet applications and meet the demands of tomorrow's increasingly data rich services.
"Openreach and other UK service providers must change their approach and look at new technologies that can profitably deliver a superfast sustainable broadband network. Lessons can be taken from the US, where new broadband market entrants such as Google and Facebook are turning to fibre alternatives in the form of fixed wireless, in order to better connect their customers."
One of the UK's other service providers, Sky, welcomed the news and the era of fairer competition among broadband providers it promised.
"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. We will now watch closely as to how Ofcom executes its proposals."