Steve Robertson: Openreach is a very healthy business. We
generate cash. We've got very good cashflow
Steve Robertson is engaging and loquacious. It's still less
than a year since BT outsourced its local network to Openreach,
which he heads. The purpose is to operate them, in the old
cliché, with a level playing field.
The official term is "equivalence of input". It means that no
carrier, not even BT itself, has preferential access to
Openreach's services or its 30,000 staff. It's a bold move,
carried out by BT in the face of a threat by Ofcom, the UK
regulator, to refer the incumbent to the competition
Almost all the 30,000 staff used to work for BT: just a few of
the most senior have been hired from other companies in the
industry. Now they've been trained to say "Openreach" when a
customer answers the door — a customer, that is, of BT
or any one of a number of competitors. Openreach's aim is to
work for all telecoms operators equally.
It's a move that seems to have the support of Europe's
über-regulator, Viviane Reding, the European Commissioner
responsible for telecoms and the media. She and Robertson will
share a platform at a Global Telecoms Business conference in
They — and other industry leaders — will be
talking about broadband in the access market. Throughout the
world users are demanding more bandwidth. Fibre will be key.
According to this interview, Robertson and his team at
Openreach are now developing a business plan to build fibre
into the UK access network.
There's been no formal announcement yet, and the business plan
is still embryonic. But they're working on it. You can read it
Openreach will be a year old in January 2007 and already
questions are starting to form. How is it performing —
and are all operators in the competitive market getting equal
Most operators say yes, though there are some exceptions
— notably Cable & Wireless. Most appear to be
pleased with the access they're getting, though it's been a
difficult year. Openreach has been focussed on separating out
its systems from BT's, so that no customer-facing BT executive
can see what Openreach is installing for a rival telco, for
example, and building an Openreach corporate culture.
Rebranding the vans
When engineers knock on doors, to install services for
customers of any number of companies — Colt, Tiscali,
Easynet, BT and the others — they announce themselves
as Openreach. The vans are all being rebranded with the
And it's been a busy year for local loop unbundling and for
the broadband market generally. Openreach's staff in the
telephone exchanges have been kept busy disconnecting
— with wire, not software — customers from
the BT network and connecting them to the systems of other
There's a shortage of people to do it and, say some, a lack of
physical space in the exchanges at times to do the job.
Robertson has set up Openreach's headquarters in one of those
telephone exchanges, at a respectable distance from the rest of
BT's corporate headquarters: there can be no suspicion that
staff can meet old BT mates around the watercooler or in the
local pub or in Starbuck's and accidentally drop information
about competitors. Openreach is being ultra-scrupulous and
wants to be seen to be ultra-scupulous.
He was appointed to be chief executive of Openreach after a
spell as managing director of operations at BT Wholesale, where
he was responsible for the overall performance and operation of
BT's network in the UK. At 48, he's spent most of his career in
BT, but he had an extended spell with rival pan-European
operator Colt Telecom.
We talk at first about the nuts and bolts — plugs and
sockets might be a better term — of what Openreach has
been doing since it was formally set up in January.
Local loop unbundling has boomed, though "personally I would
like to have seen even faster take-up of LLU", says Robertson.
"The take-up in wholesale line rental has been really brilliant
— I'm delighted about that."
And the wholesale line rental figures imply there's a filling
reservoir which indicates that LLU is going to speed up, he
says. "I don't think we've seen the peak of this. The quicker
the better, because the process of migrating customers into the
LLU environment helps us to bulk up the infrastructure. I would
like to look back in six months time and see it accelerate even
His customers have changed in the same period. Orange, owned
by France Telecom, has launched a converged service of mobile
and broadband. Carphone Warehouse, a mobile service reseller,
launched spectacularly into broadband. O2, the mobile operator
owned by Telefónica, has bought a broadband company, Be.
Tiscali has bought IPTV operator Video Networks to create a
converged offering. Vodafone is to offer home broadband
services to customers. Satellite TV company Sky has bought
Easynet and is now offering broadband services. BT Retail, for
it is just one among many customers now, is launching IPTV
later in 2006.
And Robertson is pleased that Openreach hit a significant
target on June 30, when BT Wholesale also became an LLU
customer. Equivalence of input means that the unit of BT, run
by Paul Reynolds, that is running the 21st Century Network
project must now use the same systems to get local loops as the
rest of the industry.
"We can say we have an equivalence of input system. That was
really hard work. It was really, really, really hard work. We
consulted with industry. We did the development at breakneck
speed. It was a massive effort. And we hit the date. It helps
us build confidence in ourselves."
Executives in the market suggest the initial impact of
Openreach's arrival has been a levelling down of the service.
In other words BT customers got preferential access in the past
and now all are waiting a similar period: another pressure on
Twin market dynamics
He describes convergence and consolidation as "the twin market
dynamics". There will be more mergers, and more companies will
extend their range of services, he thinks.
"I haven't spoken to any directly, but it wouldn't surprise me
because everyone's looking for a competitive edge.
Infrastructure players can move aggressively into service
provider spaces where they can start looking at content
players. Content players can think of getting into this world
too. You'll probably have to think of changing the name of your
magazine, won't you?"
Interesting idea, but we leave it well alone. But what's all
this consolidation doing to the market? "When you've got lots
of businesses moving into new spaces some will be successful
and some will not be successful, for all sorts of reasons, and
that can be everything from operational issues to changes in
company strategy. It's far too young to expect stability. It's
not something that particularly bothers me."
Look at the big picture, he says, and some characteristics are
beginning to emerge. "There are some service providers moving
into the content world. There are other service providers which
are expanding a converged connectivity portfolio —
like Carphone Warehouse. There are other service providers with
an existing media business looking in the opposite direction.
You can see these emergent models starting to happen."
People are dipping their toe into the water, he says. "Some
things are going to fly. Some things will be more
And all of them want to use Openreach — or most,
because Virgin Media, the new name for the merged cable
operations NTL and Telewest following its takeover of Virgin
Mobile UK, owns its own local broadband infrastructure, built
at great cost in the 1980s and 1990s.
The state of the copper
So what's the physical state of the local loop network that
Openreach has, and on which so many businesses are depending?
How much of it is up to the job of being able to deliver the
real super-broadband services that people are talking about and
how much will need renewing over the next few years?
Robertson looks a tad uncomfortable. This is where we're
getting to the heart of what Openreach is all about. Officially
the company is responsible for the copper — well,
pedants say "metal", because a percentage of it is
aluminium-cored cable laid in the 1970s as a cost-cutting move
and now turning to aluminium oxide — between the main
distribution frame in the exchange and the customers' junction
boxes. Not optical fibre, just metal.
Yet just as Openreach has been created half the telecoms world
is looking for ways to move fibre deeper into the local access
infrastructure, and the other half is thinking that maybe
wireless — either cellular, mobile technology or new
fixed technologies such as WiMax — might replace
copper in the "last mile".
So is Robertson merely the custodian of an obsolescent
distribution system, the rutted cart tracks or overgrown canals
of the information age, while all around its customers are
planning new superhighways with broadband local networks based
on fibre and wireless? These are thorny questions, and
Robertson recognises that.
"It depends on the thresholds," he says in answer to the
question about the current state of the network. "It's a
multi-dimensional issue because it isn't just an issue of the
copper, but of what technology do you put on it? It's not just
an issue of what technology you put on it but of the tolerance
of the applications that you put over that technology."
Deep breath. "And it's there's also a huge variation depending
on the type of modems, the customer equipment, at the end of
this. It's a very multi-faceted issue."
But ... ? "At the moment it's still best endeavours, so you
get the copper that you get. As long as it can support a basic
voice service then you add what you can add and you get what
you can get from it."
That's the broadband environment that we've grown up with, he
says. "I think you have to question whether that is always
going to be the situation."
But presumably people are questioning it and are starting to
look at the alternatives? "To be honest, in terms of my
customers talking to me right now it's not a big issue. It's
not a big issue." People are not worrying about the state of
the copper, he says.
He is, though, looking over the horizon. "It's an inevitable
consequence of the evolution of the market. If we are moving
into a converged marketplace the characteristics of the bearer
are very important."
Higher broadband speeds
Let's push a bit harder here. A decade ago everyone was
thrilled to get speeds of 56k. Now many think one megabit is
slow. "Yes, it is slow," he agrees. "So from 56k to a meg, to
two megs." The dynamics are "largely going to be driven by the
end user", he says. He accepts that users will want higher and
higher broadband speeds from their providers.
"Right now I think the state of the basic infrastructure in
general, in general, if you take a snapshot, is probably
adequate for what's being used."
In many cases applications to consume all this bandwidth need
to catch up, he suggests. "We know what human psychology is
like. I drive a car that is capable of going much faster than I
ever really want to go, but that's the car I want. I think
there is a state of the market now where I would like to have a
very fast broadband link but I might not be entirely sure what
I want to do with it," says Robertson.
So the real pressure is not necessarily there at the moment,
he suggests, "but that will come along". And that means "if
we're not having the discussions just now, it's only because
we've postponed them for a while", he says. "The discussions
will happen, without any shadow of a doubt."
And then? "When we get to that discussion it is going to be
about the combination of technologies that allow things to
operate effectively," he says. "In the mean time, there are a
lot of very basic things that we're doing."
In the first six months of Openreach, "we've been looking very
heavily at basic network reliability", he says. "If we open up
the network, let's make sure we always close it up again
The development of LLU and the demand for broadband does mean
that there is more work going on in the network than before.
"If we look at some of this infrastructure that has been around
for a long time, there are certain types of joints that are
sealed with resin. Let's reseal them with a modern compound
that doesn't deteriorate and doesn't leak. There has been a lot
of stuff like that, which is basically groundwork preparation.
There are some housekeeping things we've been able to address
much more effectively as part of Openreach than we could do
when we were all separate parts of BT."
Is he doing that progressively through the network? "We're
doing it every time we touch the network," says Robertson. "We
are looking for opportunities to improve the quality of the
But he then introduces the big question: "Do we run out of
road in terms of the existing infrastructure? We have to think
There are questions Openreach needs to look at: "Things like:
are we going to take fibre to the cabinet? As an example.
That's potentially a huge investment. Are we going to have
active MDFs? If we take fibre to the cabinet, do you still do
An active MDF? What's that? "It turns the main distribution
frame into an active network component. In this market, where
we have lots of service providers that are LLU operators, and
customers want to change services and service providers, the
systems are there to do that on a zero-touch basis," he
Up to a point. "But at the heart of this, there is physical
intervention, because you take a pair of wires from one place
and put it somewhere else."
The main distribution frame inside a telephone exchange has
historically been quite a static thing, he explains. "Because
you were connected, and you were connected, and you didn't
change service provider every five minutes."
Systems to handle churn
But now there's a market. "Consumers will have options and
smart companies with lots of great ideas will be selling them
things, and they will want to change from one company to
That means Openreach has to have a means of handling the
churn, migrating customers from one service provider to another
"as efficiently, effectively, seamlessly as possible". Maybe
Openreach can continue to do this manually, but clearly
Robertson is doubtful. "These are the sort of technology
And that means Openreach has to create a business facilitating
operators' churn. How much does it charge for the service? "Of
course, of course," Robertson agrees.
So what are the conclusions so far? "It looks like, pretty
much, if we invest money in Openreach we get a pretty decent
rate of return."
Openreach's figures are identified clearly in BT's accounts.
"It is a profitable business," says Robertson. "They're
published as a separate line of business."
Figures published after our interview for the six months
ending September 30 2006 show that Openreach generated total
revenue of £2.53 billion and earned an operating profit
of £577 million. Its capital expenditure was £550
million in the same period.
"It is a very, very healthy business," says Robertson. "We
generate cash — we've got very good cashflow
— and we're more or less in the right ballpark for a
regulated rate of return, which is 10% return on capital
employed. The regulatory accounts are based on current cost
accounting. If you value our assets at the current value, we're
making a healthy return."
So when he and his colleagues start to think about investment
strategies, in active MDFs or anything else that they might
want to do to the network, would Openreach be able to do that
from the existing revenue? And would Openreach be able to go to
different sources, outside BT?
"Our funding is always going to be part of the BT group
funding," says Robertson. "I'm not going to set up a treasury
department or anything like that. It will be part of the BT
New capex strategy
That means the assessment of Openreach's capex strategy would
be by the BT board? "By the BT board," agrees Robertson. "The
process for this is quite transparent." He develops the
business plan with his executive team. "It has to be agreed by
the main BT board."
However it also is shown in its entirety to the equality of
access board. This is a committee of the BT board but one that
has responsibilities to the industry and to Ofcom to ensure
that all parts of BT are abiding by the terms of the settlement
of the strategic review which led to the creation of
"Everything that the BT board sees, the equal access board
sees too," says Robertson about his business plan.
The EAB doesn't have authority to change the plan, "but it is
visible, the investment levels are visible, what we need to do
to succeed as a business is visible".
The board is chaired by a non-executive director of the BT
group — currently Carl Symon, formerly a senior IBM
executive. There is one other BT person, Sally Davis, who has
worked in the cable industry and in Cable & Wireless's
former unit, Mercury Communications, in the UK as well as in
Bell Atlantic — now Verizon — in the US,
before joining BT in 1999.
And there are three independent members: Bryan Carsberg, the
UK's first telecommunications regulator from 1984 and now a
professor of accounting; Stephen Pettit, who has worked at
Cable & Wireless; and Peter Radley, formerly a senior
executive with Alcatel.
Robertson makes the point that "the things that we will need
to do to support industry as a whole are clearly essential for
the success of other bits of the BT group as well". He
recognises that the BT group, like any other business, has to
make decisions about priorities. "As long as we run Openreach
successfully and sensibly, there is no reason for it to be
disadvantaged compared to any other line of business in BT in
terms." It's part of his job to ensure that continues to be
He didn't say so, but it must be in his mind that at some
future date there might arise conflicts about BT's spending
plans. How will the BT main board determine its
responsibilities to shareholders when it has to allocate capex
between customer-facing parts of BT, such as BT Global Services
or BT Retail, versus Openreach, whose activities provide
infrastructure for BT's competitors. It almost inevitably will
become a difficult question. The implications must be that the
current status of Openreach as an integral part of BT will be
But that's in the future. Let's get to specifics about the
business plan that Openreach is developing. There is continued
pressure, we have agreed, for higher and higher bandwidth. Does
Openreach have a plan that by, say 2008, or 2009, or 2010 some
homes in the UK would want a certain bandwidth, in terms of
megabits, and how is Openreach going to provide that to its own
customers, the service providers? And what are the technical
Critical decisions on fibre
"I think that one of the critical decisions is, how deep do
you take fibre?" says Robertson. "Do you take fibre to the
kerb, do you take fibre to the home? Or do you not? Do you bond
copper, and all that malarkey? That's one of the critical
At the same time there's a race between the amount of capacity
"and the efficiency with which end user equipment can use that
capacity", he notes. Developments in codec technology means
that high quality video needs less capacity than it would have
needed five or 10 years ago. "How much capacity do you need to
achieve a given task? That's changing all the time. The tasks
that have got to be achieved are changing all the time."
So on the one hand there's a move for more and more bandwidth,
while on the other hand there is better and better compression,
so it's possible to do more with the bandwidth that's
available. "That dynamic has to be taken into consideration as
well," he says.
Where does that leave us? "Having said all that, fibre has to
come into this picture," says Robertson. "That's my opinion.
Fibre has to come into this picture in some shape or form. That
is one of our critical strategic issues."
The two big operators in the US are doing fibre in quite
different ways. Verizon is building fibre into every customer's
premises, at great expense. AT&T is planning fibre to the
kerb, "to the nearest flexibility point in the network to
customers", says Robertson. "Then they're reconditioning
copper, or whatever they need, to offer 20 megabits, 24
megabits, something like that."
And, at last, he volunteers a number, a target for Openreach's
bandwidth, though by indicating agreement with AT&T.
"That's the ballpark that, you know, roughly speaking, I think
you have to expect to be in that space. How we get there is
something we're going to have to resolve fairly quickly."
That will lead to questions about the reliability of equipment
on the kerb. "There are a number of technological options we'll
need to look at," he says. "There's a whole bunch of stuff that
needs to be put into this."
One thing is for sure, he says: "We are an infrastructure
business." He hesitates. He's choosing his words very carefully
at this point. "The investment we make, the investment
decisions we make, it's very important we get right. It isn't a
business that is short term and you make all your money back in
six months, so it doesn't really matter. This matters a
It's clearly important. Let's try to get an idea of the
timescale of all this. When will he have a firmer idea of how
Openreach will go ahead?
"I think it's the next couple of months," he says. Oh, that
quickly? After all those comments earlier in the interview
about postponing decisions on faster broadband "for a while"
and his remark that this is "something that we have yet to
explore properly", such a short timescale comes as a
He fills in a bit of detail about this schedule. "By the time
we get to the end of this calendar year we have to start
firming up our view. We have to be in that position."
And, he points out, Openreach is already running trials of
fibre to the cabinet. "There are various other initiatives
we're looking at, commercial initiatives — fibre to
the premises. We're not starting with a blank sheet of paper on
this at all."
A lot of people have suggested that Openreach would be a model
to export to other parts of the world. It's widely believed
that Commissioner Reding in Brussels favours the idea. "We've
heard various noises" from the Commission, he admits.
"Just as we are looking out, others are looking in, and we've
had a lot of interest from other parts of the world. My
reaction is the same as when I look at them: it's horses for
courses." But there are some principles — higher
bandwidth for one. "And if you truly have got an economic
bottleneck and you want to encourage sustained
infrastructure-based competition, then in terms of the
Openreach model, so far so good." It's not that the job is
done, he concedes.
It is a very different model from that which still applies in
much of the world. In many countries the incumbent —
whether it is privatised or still state-owned — tends
to be regarded as a national treasure to be protected against
competition. In Germany, Deutsche Telekom wants a regulatory
holiday before it will invest in broadband, and in Australia
there are similar requests from Telstra. Maybe Openreach is a
way of keeping the local loop as a national resource while
allowing competition at the services level?
"Across the world people still have their national airlines
and there's a big emotional attachment. British Telecom is
British Telecom. You can expect an element of that. But you
have to ask if true open, competitive markets end up delivering
something better for the health of economies. If they do, you
know what? It happens. It does take a lot of time, and
sometimes it's painful. Sometimes it needs legislation, but
breakthroughs happen, and they happen in unusual ways."
It is within living memory that people got their black
Bakelite telephone from the telephone company. "It's not that
long ago. But markets will continue to open up. It's not a
smooth process." The underlying economic imperatives will
prevail, he believes.
There's something else that has changed in the past six
months, says Robertson, speaking "from Openreach's point of
view, the worm's eye view if you like."
Does he feel that Openreach has established its credibility in
terms of equivalence and being separate from BT? Do they share
things with the unit?
"I think it's a journey that we have now moved a few stops
down," says Robertson. "We're not in any way near the end of
that journey, but if I compare the quality of our relationship
six months ago, it's a much higher quality now. I use the words
carefully, because that doesn't mean it's a less tense
relationship. As you get to know each other better, and you get
more interdependent, then you become more intimate. The depth
and quality of the relationships, I believe, in general, are
much better. I'm probably the wrong one to judge."
One of the things he's most pleased about, since Openreach was
set up, is that it has identifiable figures in the BT results.
"One of the ways of giving confidence that we will continue to
invest is to be able to say we are a viable business. We are
not a drain on the rest of the group or a poor relation."
It is, says Robertson, "a business in transition". When it was
set up in January "it was only the start". It is "the
vertically integrated telco" — BT, in other words
— "taking itself into its constituent parts to ensure
that there is a level playing field".
The next target date is at the end of December 2006, when BT
Retail itself starts taking wholesale line rental directly from
"They will be buying the same lines product as everybody else.
There won't be PSTN and wholesale line rental, where your
wholesale line rental is what you sell to other service
providers, and PSTN is BT gets. There'll be wholesale line
rental, and that's what everybody in the UK will be consuming.
It's a huge thing for us. You just cannot overestimate what
we're doing here. It's a huge thing."
What are the parameters for judging performance in three or
four years' time? Is it number of broadband connections, the
economy of the country, or the value of Openreach in BT?
"I would like to see a thriving service provider industry
which is delivering a full set of converged services to
consumers and to businesses. That's why we're here. If we don't
do the right thing we are capable of screwing it up. We can't
guarantee success but we can guarantee failure if we screw it
up. So far, so good, but it is only so far."
And if he does screw it up he'll have Viviane Reding to
contend with. GTB
Latest Openreach results
Second quarter ended September 30 2006
Half year ended September 30 2006
Revenue from other BT lines of business
Operating costs before leaver costs
EBITDA before leaver costs
Depreciation and amortisation
*Restated to reflect changes in intra-group trading
Source: BT Group results