FTSE 100 falters as Ofcom orders BT split

Added 29th November 2016

The index dipped by 0.53% to 6763 Tuesday morning as Ofcom launched formal proceedings to legally separate Openreach from BT Group.

FTSE 100 falters as Ofcom orders BT split

Within the first half hour of trading, shares in BT were down 1.5% before rebounding slightly, up 0.2% to 351p at the time of writing.

However, the British telecoms company’s shares have plummeted close to 30% already this year.

In what many are dubbing a bold move, UK communications regulator Ofcom has made good on its threat to force Openreach to become an independent entity due to persistent ‘competition concerns.’ The regulator said it would be “pressing ahead with its plans” to reform Openreach and would be notifying the European Commission.

A subsidiary of BT, Openreach controls the UK’s national broadband infrastructure, which competitors like TalkTalk, Sky and Vodafone also rely upon to provide customers with internet services.

The regulator first proposed reforms to tackle the structural conflict between BT’s retail business and its ownership of Openreach back in July. It argued that “a more independent Openreach would be well placed to invest in full fibre broadband for everyone.”  

As part of the proposal, Openreach would need to become a distinct company with its own board, made up of a majority of non-executive directors, including the chair, with no affiliation to BT.

Although BT announced Monday that former Ofcom regulator and executive Mike McTighe would chair Openreach’s new independent board, starting early 2017, this was not enough to assuage the regulator.

“We are disappointed that BT has not yet come forward with proposals that meet our competition concerns,” Ofcom stated in Tuesday’s press release. “Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.”

Ofcom added that the creation of a “more independent Openreach – which works in the interest of all providers, not just BT” would be instrumental in “pursuing better service quality” for customers and “encouraging greater investment in networks.”

The regulator said it would be open to BT “bridging the gap between its proposal and what is required to address our strong competition concerns” throughout the process.

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