« Are you “easy to do business with”? | Main | Rave Wireless at the Digital Youth Summit »

Making Structural Separation Work: Interview with Steve Robertson, CEO, Openreach

Readers of Telco 2.0 are probably well aware that we like the British model of structural separation, where the local loop is controlled by a specially-created company with a duty to provide nondiscriminatory access to all-comers, a lot. This approach helps to mitigate risk across the BT Group and, theoretically at least, liberates the individual units (Retail, Wholesale, Access) to be more innovative and responsive to customer needs (levelling the playing field a little with internet players like Google). (More on the benefits of this here).

Naturally, we jumped at the chance to interview the good people at Openreach, the BT access division. Especially in the light of rumours that BT might be considering a KPN-like deployment of fibre to the street cabinets; which would make the Local Loop Unbundling model Openreach was formed to defend partly obsolete.

Our interview with Steve Robertson, CEO of Openreach, (who will also be a stimulus speaker at the Telco 2.0 Executive Brainstorm in October) is below the fold…

Steve - Sir Christopher Bland, the BT Group Chairman, has recently been reported as suggesting that there might be a deployment of fibre to the street cabinets in the UK. This might be a big change in the firm’s strategy. We’d like to explore more about how Openreach’s product line and business model might evolve in the long run and its impact on the communications market structure.

1. You have described the Openreach model as intended to stimulate investment in infrastructure. Profit margins are tiny and falling across the ISP industry. Yet your balance sheet and cash flow remain strong. How might Openreach help to resolve this apparent contradiction in the health of the different parts of the value chain?

It is Openreach’s responsibility to keep the access network infrastructure healthy and to make sure that it is made available fairly and equally to all Communications Providers - leaving industry free to compete on equal terms. Like any well managed business we monitor our working capital closely to ensure that we use our cash wisely and have good cash flow performance. Openreach is closely regulated and our Return on Capital Employed (ROCE) is monitored by OFCOM to ensure that our financial returns are in line with expectations. So far, I am really encouraged by the results of Openreach’s focus on giving the market every chance of prosperity. Openreach is open to the possibility of fibre to the cabinet, but only where it makes economic sense for the company. Fibre to the cabinet is definitely an option for us, but a decision has not yet been taken.

2. Given the context of falling industry margins, and the shift in ISPs’ cost base from OPEX to CAPEX (as local-loop unbundling, electronics upgrades, and peering replace IPStream and transit), how do you expect Openreach’s business model to evolve?

I don’t agree that industry margins are falling. Following the landmark changes to its structure in 2006, the industry is still redefining itself. How can such a market be easily defined when new, unexpected things are happening every day; for example, players like Sky are taking the bold move of bundling their entire product set? Underpinning the Openreach business model is our fundamental responsibility to look after what was identified as an economic bottleneck and make access to it fair and equal for everyone - this is not going to change, regardless of the environment around us. However, it is clear that there are lots of questions to be resolved over the coming year or so with regards to the future shape of the access network.

3.In five or ten years’ time, how likely do you see these different scenarios: Openreach as a BT division; an independent business, a publicly-owned enterprise (whether classical or Network Rail-type); or something else, for example a company jointly owned by all ISPs?

The priority for Openreach is to deliver a great service and to continue to fulfil our promises made to Ofcom and the industry as part of the Undertakings. Anything, including speculation of this type, which distracts us from this, can only be detrimental to the health of our business and the industry we support.

4. Can you envisage a scenario where BT Group and Openreach might become competitors? Could pressures possibly develop within BT to get its own, competing access network?

Openreach was established to run the access network - it was thought not viable to replicate it and so I can’t envisage a situation where anyone would try to build a second one in the UK - including BT.

5. How do you expect Openreach to fit into BT’s 21CN plans? At what level of the network architecture are Openreach customers who are non-BT likely to get access to it? (DSLAM/MSAN/iNode/router?)
Others within the BT Group are better placed than me to comment on the 21CN plans, but Openreach is a big supplier to the 21CN programme - every customer will be switched from the existing platforms to the 21CN that involves manual jumpering in every case. The 21CN programme has a lot of detailed engagement with customers and I know that there has been some high quality dialogue both through 21Consult and NGNUK ( a href=”http://www.ngnuk.org.uk/”>NGN UK) about the right place for network interconnection and access.

6. [A question on unbundling at layer zero (below the physical layer; the right-of-way and trunking infrastructure).] Openreach’s mission is to preserve access for all-comers to the existing national local loop. What about operators who wish to move on to fibre? Should the concept of open access extend to the dig as well as the installed wire?
I think that this would be unwise. The existing infrastructure recognises where the real economic bottleneck lies, and therefore the boundary is in the right place, in my view. Not to mention the issues that duct unbundling would undoubtedly throw up, for example, space limitations, the risk of first mover advantage, and should that mean that ducts other than Openreach’s would be considered too?

7. As we understand it, the 21CN plans foresee three access methods: xDSL, WiMAX and WLAN. Will these new BT radio access networks be part of Openreach, or parallel to it? If parallel to it, what does this say about BT and the scope of the open-access model?

We see radio access networks as part of the competitive access infrastructure - there are many players, in these markets, most of whom are Openreach customers, including parts of BT which are downstream from Openreach. We see our role as offering fixed access and backhaul propositions. We provide open access under equivalence of input terms to all of our products, access and backhaul. But the real point is that end users want the access methodology they need, depending on what service they want to access, where they are accessing it from and when they’re doing it. This means the availability of a portfolio of access technologies being available to give the customer choice and flexibility. That’s part of the promise of 21CN, although no firm decision has been taken on the overall mix of access technologies.

8. What would be the pros and cons of expanding Openreach’s activities in terms of network reach? For instance, upwards, into the long lines or downwards, into home networking?

To an extent, Openreach already has long lines if you consider our backhaul product set. Home networking is not something we are considering in the short term while we maintain our focus on making the existing infrastructure work as hard as it can for UK plc.

9. Does the open-access model mean that boxes in the home - for example, routers, media centres, external hard drives, and VoIP appliances - are purely a field of competition? Or would the UK be better off with Openreach providing a common home hub platform?

I don’t see Openreach’s role being as a provider of such ubiquitous equipment. The CPE will continue in my view to be an area where differentiation and innovation helps to keep the market healthy and vibrant. Therefore it wouldn’t be appropriate to impose a standardised equipment set in that arena. However, early work on the evaluation of VDSL2 suggests that there will probably be a need to manage the DSLAM and the Modem as a matched pair in an NGA environment with an Ethernet port. That will have implications on network boundaries.

10. Can you envisage your business model including open-access to other network functions, for example content-delivery networking? If so, how might this work?

I can’t envisage this happening in the near future, no.

Thank you very much, and see you in October!

Ed - Next week we’ll publish a televised debate on this topic and talk more about how we think BT Group can take better advantage of its functional separation.

To share this article easily, please click:

Post a comment

(To prevent spam, all comments need to be approved by the Telco 2.0 team before appearing. Thanks for waiting.)

Telco 2.0 Strategy Report Out Now: Telco Strategy in the Cloud

Subscribe to this blog

To get blog posts delivered to your inbox, enter your email address:

How we respect your privacy

Subscribe via RSS

Telco 2.0™ Email Newsletter

The free Telco 2.0™ newsletter is published every second week. To subscribe, enter your email address:

Telco 2.0™ is produced by: