BT is the blue-chip winner this morning, its shares +4% on headlines news that it has bowed to regulatory pressure and competitor criticism, agreeing to legally separate Openreach, its network that serves as the backbone of the UK’s physical telecommunications network. The deal gives Openreach its own board (majority independent) and control of assets, and it is free to explore business avenues with third parties. BT, however, retains legal ownership of assets and Openreach remains within the BT Group. This is likely due to its sheer size, with 32,000 employees and of course a mammoth pension deficit, making it impossible to hive off fully.

Where it gets rather more interesting, however, is all the focus on ‘legal separation’ rather than genuine independence. The Openreach board’s plans must fall within the strategic and financial framework of BT. And while Openreach’s CEO reports to the Openreach Chairman and board he also also has secondary accountability to BT CEO Gavin Patterson, albeit limited to necessary legal, fiduciary or regulatory obligations.*

However, Mr Patterson can veto the appointment of the Openreach CEO, simply by notifying regulator OFCOM. This veto is only mentioned in the OFCOM statement. Does its absence from BT’s own release say something about independence? OFCOM saying the deal seeks the “greatest deal of independence” also suggest it doesn’t quite fully deliver in terms of true autonomy.

All this begs the question whether Openreach will have the true independence being demanded by customers and competitors to foster real competition on the UK network. Is this simply a legal fudge on an existing subsidiary to get everyone off its back? Was OFCOM so tired of it all that even it thought ‘that’ll do’? Does the fact that shares in competitors SKY, VOD and TALK have barely moved suggest doubts there too?

Mike van Dulken, Head of Research, 10 Mar

*Sentence corrected after clarification regarding secondary accountability