Broadband for all - an alternative vision - Communications Committee Contents


APPENDIX 4: BT


Having been separated from the Post Office in 1981, BT—then British Telecom—was privatised in 1984, transferring its business to the newly instituted British Telecom Plc, and over 50% of its shares to the public.[123] 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.[124] 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.[125] 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."[126] 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 Kingdom." [127]

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 for—what was—BT's local access network. The introduction of Openreach radically altered the organisational structure of BT, a simplified illustration of which is below:[128]

FIGURE 3

BT Organisational Structure

In line with its undertakings, Openreach is obliged to:

"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."[129]

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 though—as discussed in Chapter 4—Openreach 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."[130]

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.[131] 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."[132] The exact scope and extent of the Crown Guarantee is subject to a High Court decision.[133]


123   BT, The historical development of BT. Available online:
http://www.btplc.com/Thegroup/BTsHistory/History.htm 
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124   BT, Archives Information: Privatisation. Available online:
http://www.btplc.com/Thegroup/BTsHistory/Privatisationinfosheetissue2.pdf 
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125   ibid. Back

126   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

127   Enterprise Act 2002, Section 131 (1) Back

128   BT, Group Businesses. Available online:
http://www.btplc.com/Thegroup/Ourcompany/Groupbusinesses/index.htm 
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129   Openreach, Equivalence: Ensuring a level playing field for all. Available online:
http://www.openreach.co.uk/orpg/home/aboutus/equivalence/equivalence.do 
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130   Q 508 Back

131   BT, Annual Report 2012. Available online:
http://www.btplc.com/Sharesandperformance/Annualreportandreview/pdf/BTAnnualReport2012_smart.pdf 
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132   BT Pension Scheme, Crown Guarantee Update. Available online:
http://www.btpensions.net/56/277/crown-guarantee-update 
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133   ibid. Back


 
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