BT bowed to pressure from UK regulator Ofcom and rival operators to legally separate its Openreach infrastructure division from its service provider business.

In a statement, the company explained the decision will see around 32,000 employees transferred to the new business following consultation with unions and pending arrangements covering pensions. Openreach’s CEO will report to the company’s chairperson, who will report to BT Group CEO Gavin Patterson (pictured, above), and the BT logo will be removed from Openreach’s branding.

Patterson said the decision came after a “long and challenging review where we have been balancing a number of competing interests.”

BT Group “listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future,” Patterson added.

In a statement, Ofcom said BT’s agreement means it will not have to push through changes via regulation.

Ofcom chief executive Sharon White (pictured, left), said 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.”

Perhaps crucially, Ofcom said the agreement to legally separate Openreach will avoid the delays and disruption of a full structural separation or sale of the business to new shareholders. While Openreach will still be a BT Group company, it will face legal obligations to act in the best interests of its customers – namely, BT’s competitors.

White said Ofcom will “carefully monitor how the new Openreach performs”.

History and reaction
The commitment to closely scrutinise Openreach’s performance addresses a key concern of service providers.

A Sky company representative told Mobile World Live it welcomed the decision to legally split Openreach, but said it is important the agreement “is now implemented by BT in good faith and without delay.”

A Vodafone representative said the decision was “encouraging” and welcomed Ofcom’s decisive action, but also noted the onus is now on the regulator to properly enforce the new structure “to ensure the UK gets the ultrafast fibre networks it will need to compete effectively in the global gigabit economy.”

TalkTalk CEO Dido Harding also said Ofcom would need to robustly enforce the split, in a Tweet to BBC News technology correspondent Rory Cellan-Jones.

Ofcom announced in mid-2016 a legal separation was one of several options it was considering to improve the access Openreach offered rival operators, amid concerns the current functional separation of the business left room for BT to discriminate against its competitors.

In November, the regulator drew criticism from BT shareholder Deutsche Telekom after announcing it was pressing ahead with the plan to legally separate Openreach. Deutsche Telekom acquired a 12 per cent stake in BT as part of the sale of its share of EE to the UK incumbent in January 2016. Ofcom latterly proposed barring BT and EE from bidding in a forthcoming auction of 40MHz of spectrum in the 2.3GHz band amid concerns over BT’s growing dominance.

Ovum analyst Matthew Howett said a voluntary agreement was always the preferred outcome. In an emailed statement he added the deal “will provide BT with the regulatory certainty and clarity required to look at its investment programme, particularly in terms of extending the fibre footprint.”

However, Howett said questions remain “around how Ofcom proposes to monitor and enforce the change.”

Mobile World Live will update you with the latest reaction from other UK service providers as they become available.