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Ofcom: BT agreement on legal separation of Openreach will 'address competition concerns'

Broadband infrastructure operator Openreach will begin the process of becoming a legally separate entity this year, after BT agreed in full to a suite of reforms put forward by telecoms regulator Ofcom.

Once the reforms are fully in force Openreach will become a distinct company with its own staff, management and strategy, and a legal purpose to serve all of its customers equally. This will fully address the regulator's competition concerns about the relationship between BT and Openreach, and avoid the need for regulation, according to Ofcom.

Current and former Openreach employees will remain members of the BT pension scheme (BTPS) under the new structure. This will require changes to the 'Crown Guarantee', the piece of legislation that guarantees the pension rights of BTPS members if the scheme is wound up.

Ofcom said that the new Openreach would have the "greatest degree of independence" possible from the wider BT group without full structural separation or an enforced sale. This would avoid the "delays and disruption" to the industry, consumers and investment plans associated with full separation.

Sharon White, Ofcom's chief executive, said that the deal was "significant".

"The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry - not just BT," she said.

"We welcome BT's decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies," she said.

Openreach is the division of BT that provides network connection and maintenance services to BT and many of its rivals. Ofcom set out its competition concerns as a result of this arrangement and its initial proposals for reform in its 10-year strategic review of UK digital communications.

BT had originally resisted Ofcom's proposals on a number of grounds, including the financial impact on its pension scheme. Last year, it appointed former Ofcom board member Mike McTighe as the first chair of Openreach. It has since established an Openreach board with a majority of independent directors.

The commitments put forward by BT, and accepted by Ofcom, will require Openreach to be incorporated as a legally separate company within the BT Group with its own articles of association. The new company and its board, which will become truly responsible for running the company under a new governance agreement, will be legally required to make decisions in the interests of all of Openreach's customers and to promote the success of the company.

The new Openreach will develop its own strategy and annual operating plans, within an overall budget set by the BT group. It will also have sole responsibility for the management, building, maintenance and operation of the physical network assets, although BT will retain legal ownership.

Around 32,000 Openreach staff will be transferred across from BT, by way of a transfer under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations. This will "allow Openreach to develop its own distinct organisational culture", according to the announcement. The transfer, which will be one of the largest TUPE transfers in UK corporate history, will take place once the agreement has been implemented and the necessary pension arrangements are in place.

The new Openreach will also have its own logo and branding, which will not feature the BT logo.

BT has also committed to introducing similar reforms in Northern Ireland, where Openreach does not currently operate. The changes will include greater independence, confidentiality and independent branding. BT Northern Ireland will also remain able to take account of specific local circumstances and opportunities, as is the case under the current arrangements.

Ofcom will publish its formal response to BT's commitments shortly, which will set out in detail how the agreement discharges its competition concerns. It will also publish its plans to monitor and enforce the new structure for Openreach at the same time.

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