BT Group could be forced to spin off its Openreach division after Ofcom completed the initial phase of its review into the country's digital communications market.

The UK regulator suggested separating Openreach may be necessary in order to “remove BT’s underlying incentive to discriminate against competitors”, which rivals claim have led to poorer performances for those leasing its infrastructure on a wholesale basis.

Additionally, Ofcom suggested that breaking up BT would simplify regulation. While it said current policies could limit any potential discrimination against competing providers by BT, it could not abolish it entirely.

It added “new models of competition” may also be required for advances in network construction since Ofcom’s 2005 review, particularly fibre-to-the-x technologies.

The regulator said in a statement: “Ofcom has been concerned that Openreach’s performance on behalf of providers has too often been poor, requiring the introduction of rules for faster line installations and fault repairs.

“The review will address these issues, and Ofcom is today seeking views and evidence on future regulatory approaches."

BT pointed out that separation is just one of several options outlined by Ofcom, adding that the regulator would need proof to demonstrate that a split would be the preferential chose.

A BT spokesperson said: “There has been huge progress this past ten years with an explosion in competition and broadband usage. Consumers are getting more for less and the UK has outpaced its European peers in terms of superfast broadband.

“Much of that progress is down to BT investing billions of pounds in fibre at the height of the recession. That investment wouldn't have occurred had BT been split in two a decade ago and our ambitious plans for ultrafast broadband also depend on BT remaining intact.

“Ofcom have overseen a regime that has balanced investment with competition and we hope they will once again put the needs of the UK and its consumers ahead of those who have tried to keep the UK in the digital dark ages."

Last month, Sky cited a “history of underinvestment” by BT in its Openreach division and called on Ofcom to launch a full investigation, claiming it had consistently failed to deliver an adequate standard of service.

In response, BT claimed that Sky’s appeal was an attempt by the company to deflect attention away from its own dominance in the pay TV market, which BT labelled “an overall market failure entrenching the dominance of Sky.”

Following Ofcom’s proposal this week, Mai Fyfield, CSO of Sky, said: “It is welcome news that Ofcom is putting the future of Openreach at the centre of its review. For too long, consumers and businesses have been suffering because the existing structure does not deliver the innovation, competition and quality of service that they need.

“We believe Ofcom should now move quickly to ask the Competition and Markets Authority (CMA) to undertake a full competition inquiry. In a rapidly changing sector, it is vital for the UK that the national telecoms network delivers a service fit for the 21st century.”

Nevertheless, analysts have cast doubt on the scenario of Ofcom breaking up the UK incumbent.

Paolo Pescatore, Director of Multiplay and Video at CCS Insight, said: “Many of [BT’s] rivals have been lobbying hard for this for some time and they’ve clearly mounted enough pressure to raise concerns.

“The major focus of the latest strategic review of the digital communications market is all about how well competition is delivering benefits to consumers and businesses. With this in mind, it seems that a full separation is unlikely as stated by Ofcom.

“Furthermore, Ofcom has acknowledged that the current system, whereby BT operates Openreach as a separate unit, has provided choice.

“It is especially interesting that Ofcom has chosen to conduct this review as we move towards two major acquisitions that will change the UK multiplay market. Only time will tell, but it is clear that Ofcom is sticking to its guns”.

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