* Resolves 2-year regulatory battle with Ofcom
* Will legally separate Openreach unit
* Avoids full break up of the group
* Shares rise 4 percent
(Add White comments)
By Kate Holton and Paul Sandle
LONDON, March 10 Britain's biggest telecoms
group BT has bowed to industry and regulatory pressure
and agreed to legally separate its national network, as the
government seeks to deliver faster broadband speeds for
After a bitter two-year regulatory battle, the former state
monopoly struck a deal that avoids a full breakup, providing
greater clarity for BT investors. It comes just days after the
group struck a multi-year deal to retain key sports rights and
named a new chairman.
The agreement also paves the way for BT and rivals including
Sky, TalkTalk and Vodafone to invest
more in the national network, Openreach, which determines mobile
and fixed-line speeds and is key to Britain's economic growth as
the country gears up to leave the European Union.
Under the agreement with regulator Ofcom, announced on
Friday, BT said it will transfer 32,000 staff into a new legally
separate company which will report to an independent board
responsible for setting its strategy and operations.
"A giant shadow has been removed from our business, our
staff, our pensioners and our investors," BT Chief Executive
Gavin Patterson said.
BT shares rose 4 percent as analysts and BT's rivals
welcomed the move and urged BT to press ahead with the changes.
Ofcom Chief Executive Sharon White told Reuters she had not
expected the standoff to be resolved so quickly, but the path
was now clear for a reformed Openreach, and the country's
smaller providers, to improve Britain's infrastructure.
"I hope and expect that we will see some co-investment," she
said of the different providers. "This gives us the best
possible chance of improving broadband more quickly."
In a bid to boost Britain's economy through Brexit, Prime
Minister Theresa May's government has said it wants to address
business concerns and replace an ageing copper network with the
"gold standard" common across Asia and parts of Europe.
The speeds Britons currently receive for fixed-line services
are largely in line with European peers, but the country ranks
27th out of 28 in Europe when it comes to connecting fibre to
the home or business, the technology that will deliver ultra
fast speeds in the future.
BT has spent the last two years battling criticism from
rivals and politicians, who accused it of not investing enough
in the network and running it to serve BT's bottom line rather
than the interests of Britain's broadband needs.
One of the challenges facing the company was its pension
deficit, valued at 9.2 billion pounds net of tax at the end of
2016, which limited BT's ability to spin off assets.
Ofcom said the reforms should be in place this year but
would require the government to extend to the new company the
crown guarantee that protects the former state monopoly's
Crucially, the BT Group will retain ownership of Openreach's
network, which is required to underpin the pension scheme, one
of the biggest in Britain.
Analysts said BT had avoided a tougher settlement, where it
had to completely spin off Openreach and increase its investment
levels in fibre. Bernstein analysts said any resolution was
better than no resolution.
"This phrase reflects the sentiment echoed by most investors
skirting around BT's stock over the last 15 months and deeming
it to be "uninvestible", they said, adding that "we consider
(the agreement) to be a good and entirely acceptable outcome for
Ofcom hopes that the creation of a more independent network
will improve transparency around how Openreach is run, and
encourage the management team to invest for the long-term good
of the country.
The regulator, which had threatened to go to the European
Commission to try to force its case, will monitor how the new
BT said Openreach's board would set the medium term and
annual operating plans and determine which technologies were
deployed, within a strategic and financial framework defined by
BT. Openreach will also be free to explore alternative
co-investment models in private with third parties.
Ofcom said on Friday that the proposals put forward by BT
meant it would no longer need to impose these changes through
(Editing by James Davey and Susan Fenton)