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Telecoms giant BT should be forced to split off its Openreach network arm unless it addresses significant under-investment and poor service, a report by MPs has warned.

The Culture, Media and Sport Select Committee said BT is failing to invest in Openreach to the tune of potentially hundreds of millions of pounds a year.

MPs on the committee said they supported Ofcom’s proposals for greater separation between BT and Openreach, but warned it should be forced into a full split if it fails to “offer the reforms and investment assurances necessary to satisfy our concerns”.

The report said: “BT Group is exploiting the position of vertical integration to make strategic decisions that favour the group’s priorities and interests, at the expense of its access infrastructure business.”

The scathing report found that BT is “significantly under-investing” in Openreach, which is responsible for rolling out super-fast broadband across the UK. It said BT “appears to be deliberately investing in higher-risk, higher-return assets such as media properties, and not investing in profitable lower-risk infrastructure and services through Openreach”.

The report said BT has not brought its service levels up to scratch in recent years. Regulator Ofcom also came under fire in the report, with MPs saying it was “slow to introduce minimum service standards with financial penalties for Openreach, some nine years after its creation”.

MPs said tougher penalties for poor service would encourage BT to invest more in Openreach.The report also claimed that BT had “stifled local competition and thwarted other network providers’ planning” through its lack of transparency on Openreach costs.

Labour MP Ian Lucas, a member of the committee, told the BBC Radio 4 Today programme there were “strong arguments” for BT to be broken up.

He said: “The system to date has worked very, very well for BT and Openreach, but less well for customers, in particular business customers on small industrial parks who have a desperate need for super-fast broadband.”

Rival companies such as Sky, Vodafone and TalkTalk have long called for a split between BT and Openreach.

They pay to use the network and have previously complained over poor service and urged the group to replace its ageing network of copper wire.

BT – which now owns mobile phone group EE – recently pledged to spend £6 billion over the next three years to see off the threat of a forced split of Openreach.

It outlined in May the first phase under plans to extend ultrafast broadband to 12 million homes and businesses by 2020 and lay fibre optic lines to around two million premises, while also improving coverage of 4G mobile services.

It is hoping the plans will appease regulator Ofcom, which has threatened to break up BT if it does not open up its Openreach fixed-line network arm.

Under the three-year initiative, BT said it would look to lessen its reliance on copper wire with aims to roll out fibre optics direct to two million homes and businesses – mainly in new housing developments, high streets and business parks.

It also announced a raft of customer service improvements across the group to reduce the standard time to fix line faults by 24 hours as well as pledging to handle 90% of customer calls in the UK by March next year.

A spokesman for BT agreed that service levels needed to improve at Openreach, but said splitting it off would “fatally undermine” the aims of the committee, claiming it would lead to “less investment, not more”.

He said BT’s investment in Openreach was now 30% higher than it was two years ago and would increase further following recent pledges to pump in cash.

“We are in discussions with Ofcom about increasing the autonomy of Openreach and are hopeful that a settlement is possible that will meet the concerns of the committee,” he added.

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