bt response v7 clean with sky and vf logo and signatured91a1dab-5232... · title: microsoft word -...

GavinPattersonChiefExecutiveOfficerBTGroupBTCentre,81NewgateStreetLondonEC1A7AJ

12August2016

DearGavin,

Thank you for your letter of 9th August regarding the campaign to “Fix Britain’s Internet”. Wewelcome your commitment to engaging in a debate on broadband, which remains critical to thesuccessandinternationalcompetitivenessofourcountry,bothtodayandinthefuture.

Withinthisdebatethereissomeclearcommonground.Weallagree,andyourletteracknowledges,thattheserviceOpenreachprovidestodayisunacceptableandmust improve.Therearetoomanyfaults,delaysandmissedappointments.Worryingly,Ofcomhas foundthat this isgettingworse insomeareas,notbetter.Consumersacrossthecountryknowthisonlytoowell,andbycreatingthiscampaignwewanttoenabletheirvoicestojointhoseacrossbusiness,otherorganisationsandeventheGovernment,whoaredemandingmeaningfulchange.

Lookingahead,wedonotappeartosharethesame levelofambitionfor thedigital futureof thisnation.We,asacoalitionofOpenreach’slargestcustomers,agreewithOfcom’sassessmentthatanetworkthatstillreliesheavilyoncopper,withlimitedplanstorolloutfibredirecttothepremise,willnotmeetBritain’sneedsinthefuture.WebelievethattheUKiscapableoffunding,buildinganddeployingatrulyworld-classnationalbroadbandnetworkthatcanstandshouldertoshoulderwithotherworldleaders,supportedbystrongretailcompetitiondrivingbetterconsumeroutcomes.

OurconcernisthatnoneofthiswillhappenifOpenreach’sstrategyandbudgetremainscontrolledbyBTGroup.Notonlywillfundamentalchallengestorapidlyimprovingservicetocustomerstodayremain; butwithout reformwewill limit our ambitions andhinder the industry’s ability to play agreaterroleindevelopingthebroadbandinfrastructureweneedforthefuture.

Wehaveseriousconcernsthat,incontrasttoseparation,morecomplexregulatoryinterventionwillnot deliver swift andmeaningful change. In the comingweekswewill be responding to the newOfcomproposalsforOpenreachreform.Butwealsowanttoensurethatourcustomershaveawaytomoredirectlyexpresstheirviews,andwehopethatthecampaigntoFixBritain’sInternetcanplayaroleinhelpingthemdoso.

Inrelationtothecampaignstatementsyouaskustoreconsider,wehavedonesoandaddressyourspecificpointsbelow.

Throughtaxpayermoneyandpartofyourbill,BT ispaidbillionstomaintainthenetworkbut inruralareasnearlyhalfofpremisescan’tgetspeedsabove10Mbps.

WehaveusedseveralOfcomsources,allofwhichreflectthemostrecentOfcomdata.Weconsiderthese the most authoritative sources available, but would review the claim above as and whenOfcompublishesupdatedinformation.

TheoriginalfigureistakenfromtheConnectedNationsReportDecember2015,publishedannually,andhassincebeenrestated inMakingcommunicationsworkforeveryone: InitialconclusionsfromtheStrategicReviewofDigitalCommunications,February2016.Bothsourcesstatethat48%ofruralpremisesreceiveatmost10Mbpsonstandardcopper1.

With specific reference toBT’s figure of ‘roughly 4.2%’ of households unable to achieve 10Mbps,Ofcomstatedthat:“Around2.4million,or8%ofpremisesintheUKareconnectedbylinesthatareunabletoreceivebroadbandspeedsabove10Mbps2”.

It isofcourseBT’sprerogativetodefenditsrole intheBDUKprogramme;howeverourstatementmakesnoreferenceto‘misuseofGovernmentfunds’.

BTisspendingbillionsonbuyingtherightsfortelevisedfootballratherthaninvestinginBritain’sbroadbandinfrastructure

Inthelastauction,BTspent£960monPremierLeaguerightspackages3;and£897monChampionsandEuropaLeaguepackages4.Thissignificantlyincreaseditsannualisedspendonfootballrights,tomorethan£600m.Incontrast,BTGroup’spublicaccountsshowthatoveratenyearperiod–andatimewhentheUK’sdependenceonthenetworkhasclearlyincreased-Openreach’saveragecapexhasbeenheldbroadlyflatat lessthan£1.1bnperannum.Ofcomalsofoundthatoverroughlythesameperiod,Openreach’sregulatedbusinessmadereturnsofaround£17bn,ofwhicharound£4bnwere‘excessreturns5’.

Ourcompanies representOpenreach’s three largest independentpurchasersof theseproducts, sothese costs are borne directly by our customers. If these returns have not been re-invested byOpenreachintoitsnetwork,itfollowsthattheyhavebeenremittedtootherpartsoftheBTGrouporpassedtoshareholders.

Whilstwewelcomethe£1.4bninvestmentcommitmenttoOpenreachforthisfiscalyear,wenotethat such an increase has only occurred in the wake of potential regulatory intervention, closepoliticalscrutinyandsignificantnegativemediacoverage.

BT has kept Openreach reliant on copper rather than investing in state of the art pure fibre.Copperisupto100%slowerandlessreliable

YoustatethatwehaveoverlookedOpenreach’sinvestmentin‘fibrebroadband’,whichweassumetobeareferenceto investment intheFTTCcopper/fibrehybridproduct.ThisgoestotheheartofourdisagreementoverthelevelofambitionweshouldhaveforBritain’sbroadbandinfrastructure.AlthoughBTbelievesG.Fastisfitforthefuture,asyourcustomerswesimplydonot.

Thatiswhyourstatementismadeinspecificreferencetopurefibre(orfibretothepremise).ThisimportantdistinctionisdrawnfrequentlybytheregulatorinitsInitialconclusionsfromtheStrategicReviewofDigitalCommunications,inwhichOfcomconcludes:“Amajorstrategicshiftwillencouragethe roll-outofnew ‘fibre to thepremise’ networks tohomesandbusinesses, as analternative toBT’splannedinnovationincopper-basedtechnologies”6.

Inthesamedocument,Ofcomstates:“TheUK’scommunicationssectorneedssignificantinvestmenttomeet the needs of people and businesses and to avoid being left behind by our internationalcompetitors…Wewanttoseethelarge-scaledeploymentofnewultrafastnetworks,suchasfibre-to-the-premise”7.

Despite this,Ofcomdata shows that deployment of pure fibre in theUK is below that in Turkey,Mexico and Poland (please see Annex)8. This is a wasted opportunity which risks Britain’s futurecompetitiveness,prosperityandqualityoflife.

YoualsoreferenceBT’sFTTPbuildprogrammetodateofaround300,000UKhomes.ComparingthiswithBT’sproposalin2009toservenearly10timesthisnumberwithFTTPby20129illustratesmosteffectivelyourcauseforconcern.BTisnow‘workingup’proposalsforthe‘prospect’of2mhomesby202010.Whilst99%ofUKhouseholdsservedbyOpenreachcontinuetorelyoncopperfortheirbroadband,11 it is not unfair in our view to conclude that ‘BT has kept Openreach reliant uponcopper’.

Finally,thestatementthatFTTPis‘upto100xfaster’thancopperisbasedonexistingmarketfacts.Asabove,Ofcom’sConnectedNationsreportstatesthat48%ofruralpremisesareunabletoreceivespeedsof10Mbpson standardcopper12,100 times less thanGigabit connectionswhicharebeingdeliveredthroughFTTPtoday.

BTispaidtomaintainthenationalnetworkbuteventheregulatorsaysit’snotgoodenough

This statement refers to maintenance of the network, on which there is unfortunately ampleevidence(bothhistoricandcurrent)oftheregulator’sopiniontojustifythestatement.Forexample:

• “Openreach’sperformanceisaparticularsourceofconcern13”• “we[are]concernedaboutthevolumeoffaultsonOpenreach’scoppernetworkandabout

howquicklyOpenreachrepairsthem14.”• “WehaveconcernsaboutOpenreach’scapacitytomanagefaults,asourongoingmonitoring

indicatesthatthenumberof faultsroseby28%from2013to3.2million in2015.This isasignificantcauseforconcernifitreflectsaworseningunderlyingtrendinrecentyears15.”

Inshort,thestatementswehaveusedarebasedonpubliclyavailabledatafrombothOfcomandBT,andwedonotthereforeconsiderthatanyofthemaremisleading.

We have been – and will continue to – engage constructively in the debate about the future ofOpenreach,becausetogetherwecontributethelargestportionofitsrevenue;areactingonbehalfofthemajorityofbroadbandusersintheUK;andareaclearandimportantsourceofcompetitioninthis market. The campaign to “Fix Britain’s Internet” gives millions of Openreach customers anopportunitytoexpresstheirviewsonthiscriticalissue.

StephenvanRooyen DidoHarding JeroenHoencamp

CEO,UKandIreland,SkyCEO,TalkTalk CEO,VodafoneUK

CC:SharonWhite(CEO,Ofcom)KarenBradley(SecretaryofStateforCulture,MediaandSport)

Annex

1ConnectedNations2015,para2.8http://stakeholders.ofcom.org.uk/binaries/research/infrastructure/2015/downloads/connected_nations2015.pdf;andMakingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,para1.4http://stakeholders.ofcom.org.uk/binaries/telecoms/policy/digital-comms-review/DCR-statement.pdf2ConnectedNations2015,para2.73http://www.bbc.co.uk/news/business-313791284http://www.bbc.co.uk/sport/football/248791385“StrategicReviewofDigitalCommunicationsDiscussionDocument2015,paras4.52,4.55and4.70http://stakeholders.ofcom.org.uk/binaries/consultations/dcr_discussion/summary/digital-comms-review.pdf6Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016para1.1andpara2.117Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016para1.18andpara2.238Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016figure7.9Atleast2.5mhomes(25%of10milliontotalrollout)whichBTpredictedin2009itwouldserveviaFTTH,asreportedintheFinancialTimeshttps://www.ft.com/content/e3a70ac6-b441-11de-bec8-00144feab49a10BT’sNotificationtoOfcomundersection89CoftheCommunicationsAct2003of18July2016atp.811ONSreportstotalnumberofpremisesas27million.http://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/familiesandhouseholds/2015-11-05.IfBTpasses300,000premiseswithitsFTTPproduct,itfollowsthat26,700,000households–98.9%-cannotaccessFTTPandarethereforereliantoncopperinsomeway.12ConnectedNations2015,para2.813Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016headingpara5.1214Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016Section5,summarybox15Makingcommunicationsworkforeveryone:InitialconclusionsfromtheStrategicReviewofDigitalCommunications,2016para5.19