The telecoms giant has faced growing calls from rivals to hive off Openreach, and in November the communications regulator ordered a legal separation of the firm.
Yesterday, the pair said they have reached agreement on a “long-term regulatory settlement that will see Openreach become a distinct, legally separate company with its own board, within the BT Group”.
Around 32,000 employees will transfer to the newly formed Openreach Limited following TUPE consultation and after pension arrangements are in place.
Openreach Limited will have its own branding that will not feature the BT logo.
Ofcom said, since BT has agreed to all of the changes needed to address its competition concerns, it will no longer need to impose these changes through regulation.
Openreach builds and maintains the tens of millions of copper and fibre lines that run from telephone exchanges to homes and businesses across the UK.
Ofcom boss Sharon White called it a “significant day” for phone and broadband users and pledged to “carefully monitor” how the new Openreach performs. Under the agreement, the Openreach chief executive will report to the Openreach chairman, with accountability to the BT Group chief executive.
Gavin Patterson, BT chief executive, said: “I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure.
“It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.
“We have 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.” Andy Kerr, deputy general secretary of the Communication Workers Union, said: “We are pleased that the uncertainty for our members in BT, and particularly those in Openreach, has now come to an end.
“However, nothing will happen straight away for our members, and there are a number of pre-conditions that need to be agreed before our members transfer, which might take some time.
“It is vitally important that our members in the BT pension scheme are fully protected and their pension benefits are not affected.
“In addition, we will be doing all we can to ensure that our Openreach members’ terms and conditions and job security are fully protected.”
Yesterday Sky welcomed the announcement: “A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs.
“It’s important that today’s agreement is now implemented by BT in good faith and without delay.”
Dido Harding, chief executive of TalkTalk, said: “We hope this is the start of a new deal for Britain’s broadband customers, who will be keen to see a clear timetable from Openreach.”