APPENDIX 4: BT |
Having been separated from the Post Office in 1981,
BTthen British Telecomwas privatised in 1984, transferring
its business to the newly instituted British Telecom Plc, and
over 50% of its shares to the public.
A second share issue took place in 1991 and a third issue followed
with the Government "selling off virtually all of its remaining
shares" in 1993.
They then relinquished their Special Share in 1997, retained at
the time of flotation which had allowed it to block a take-over
of the company and appoint two non-executive directors to the
board. Since then,
aside from changing its name from British Telecom to plain BT,
the company has undergone a number of significant transformations.
The most striking of these came in 2005. Ofcom had made clear
that: "it has the power to make a reference to the Competition
Commission under Section 131 of the Enterprise Act 2002."
These references can be made where there are:
"reasonable grounds for suspecting that any
feature, or combination of features, of a market in the United
Kingdom for goods or services prevents, restricts or distorts
competition in connection with the supply or acquisition of any
goods or services in the United Kingdom or a part of the United
Pursuant to Section 154 of the same Act, however,
which allows 'undertakings' to be accepted in lieu of such a reference,
in 2005 BT offered and Ofcom accepted a set of such undertakings,
which included the creation of Openreach, the new owner and management
company forwhat wasBT's local access network. The
introduction of Openreach radically altered the organisational
structure of BT, a simplified illustration of which is below:
BT Organisational Structure
In line with its undertakings, Openreach is obliged
"provide the same products and services to ALL
of our customers on the basis of "Equivalence of Inputs",
which means (subject to some limited exceptions): at the same
prices; using the same processes; to the same timescales."
The intention is to ensure that Openreach offers
no unfair advantage in the provision of wholesale products to
the retail ISP of its parent company. As such, even thoughas
discussed in Chapter 4Openreach offer a wholesale product,
GEA, over their FTTC and FTTP PON networks which does not allow
ISPs to tune and differentiate the service they provide to end-users,
there should be a strong enough separation between Openreach and
the rest of BT Group to ensure the wholesale product is not designed
in a way that provides an unfair advantage to its retail arm rather
than serving the wider market on an equal basis.
The separation does not affect investment decisions.
These are made at the level of BT Group. As Sean Williams, Group
Strategy Director, BT Group, told us:
"Openreach is completely separate, but it is
a visible part of the overall capital expenditure envelope that
we manage across the whole group. But Openreach has a very distinct
capital expenditure budget. So does retail, so does wholesale,
so does global services. It is just a very visible choice. It
is not without competing tensions, but we do not think that that
is a barrier in this instance."
One final point of interest in relation to BT is
its pension deficit, which stands, according to BT Group's Annual
Report 2012, at £3.9bn, even after a lump sum payment of
£2bn was made to reduce the figure.
The deficit is significant, not least because it is covered by
Crown Guarantee, which "requires the UK Government to pay
any outstanding liabilities, transferred to BT on privatisation,
for the payment of pensions."
The exact scope and extent of the Crown Guarantee is subject to
a High Court decision.
123 BT, The historical development of BT. Available
BT, Archives Information: Privatisation. Available online:
Ofcom, Undertakings given to Ofcom by BT pursuant to The Enterprise
Act 2002. Available online: http://stakeholders.ofcom.org.uk/binaries/telecoms/policy/bt/consolidated.pdf Back
Enterprise Act 2002, Section 131 (1) Back
BT, Group Businesses. Available online:
Openreach, Equivalence: Ensuring a level playing field for
all. Available online:
Q 508 Back
BT, Annual Report 2012. Available online:
BT Pension Scheme, Crown Guarantee Update. Available online: