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10|12|07

BT makes good progress with undertakings but incentives must change to improve service, says Ofcom

Ofcom published today its annual report into BT Group plc (BT)’s compliance with the Undertakings it agreed with the regulator in 2005 and the wider impact of the Telecoms Strategic Review.

The report highlights the real progress that has been made to date but also the areas where further action can offer benefits to UK consumers. In particular, Ofcom is now proposing new incentives for Openreach to improve the quality of the service that it gives to other communications providers.

Impact of the Telecoms Strategic Review

Ofcom’s report shows that the regulatory approach set by the Telecoms Strategic Review (completed in 2005) has contributed to significant changes in the UK telecoms market since then. For example:

• Lower prices: average broadband prices in 2006 were down by two thirds on 2005;
• More choice: 60% of UK consumers can choose between four or more providers and more than 10m use a telecoms provider other than BT, and
• More switching: in 2006, 8% more customers switched fixed telephone line and 5% more customers switched broadband provider than in 2005.

BT’s progress with the Undertakings

BT has made very significant progress in implementing the Undertakings and has committed considerable resources to meeting its obligations, including the creation of Openreach as an independent business unit in January 2006. These changes have benefited competition and end consumers.

Openreach sells and rents access to those parts of the BT network which give it market power. Openreach offers a range of products to other communications providers (including BT’s retail businesses) who then use these products to offer their own retail services to consumers.

BT’s Undertakings require Openreach to provide wholesale products – which include basic telephony and broadband services – on an equivalent basis, delivering the same prices, products and processes to the entire telecoms industry.

Openreach has established:

• A recognisable brand with resources ring-fenced from the rest of BT (including separate corporate governance, financial incentives and operating plan);
• A new single sales system from which products and services can be provided, maintained and supported, with key products integrated into this system including basic telephony and broadband products and
• Improved processes which enable communications providers to access its local exchanges and deploy their own equipment deeper into the network (Local Loop Unbundling or LLU). This allows them to offer more effective competition and more tailored services to consumers than would be possible by buying a conventional wholesale product;

Setting incentives for Openreach to improve service

To complement these changes Ofcom now wants to ensure that Openreach has clear incentives to improve its performance levels to deliver better products and service to its own retail business and to other communications providers and their customers.

Ofcom is therefore proposing new requirements on Openreach to compensate all communications providers (including BT’s retail divisions) where it fails to provide and repair services according to agreed targets. Ofcom also proposes simplification of the process for claiming such compensation. The new measures would require Openreach to:

• Pay out compensation proactively without any need for Openreach customers to make a claim;
• Pay out every time service or quality falls below the contractual threshold instead of paying out against performance stated as an average over time;
• Continue to pay compensation each time problems persist with no upper limit to the amount which must be paid; and
• Pay additional levels of compensation for failure to activate ‘live’ lines which is double the amount that it presently pays.

The deadline for responses to Ofcom’s consultation on Openreach service performance is 25th January 2008 and the full consultation is published at:

http://www.ofcom.org.uk/consult/condocs/slg/

Work with Openreach and OTA2

In addition, Ofcom will continue to work closely with Openreach, via the Office of the Telecommunications Adjudicator (OTA2), to ensure that:

• Openreach is focused on making it easier and quicker to reconnect and provide telephone lines and switch consumers between providers.
• Openreach product development delivers fit-for-purpose wholesale products that meet industry’s requirements.

Ofcom Chief Executive, Ed Richards, said:

“BT’s progress in implementing the Undertakings has made a very real contribution to the development of the UK telecoms market. The UK now has one of the most competitive markets anywhere in the world. To build on this progress, we want to ensure that Openreach has very clear incentives to deliver consistently high quality service to all of its customers. These measures will benefit all business and residential consumers and all competitive communications providers that use BT’s network.”

The full report into the impact of the Telecoms Review can be found at:

http://www.ofcom.org.uk/telecoms/btundertakings/tsr_statement/

Ends.

NOTES FOR EDITORS AND CSEs

1. BT’s Undertakings: Ofcom accepted a series of Undertakings from BT Group plc in 2005. These were accepted following full consultation on behalf of industry and consumers, instead of referring BT Group plc to the Competition Commission. Central to the Undertakings is an obligation for BT Group plc to create Openreach as an independent organisation with its own corporate governance, financial accounting and operating plan. The Undertakings constrain BT’s ability to behave in a way which restricts competition and against the best interests of consumers and are pivotal to Ofcom’s regulatory approach in this sector.

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