(Adds response from BT and share price.)

By Ian Walker

LONDON--Ofcom said Tuesday it plans to proceed with a formal notification requiring BT Group PLC (BT.A.LN) to separate its infrastructure arm Openreach, after the telecommunications company failed to offer voluntary proposals that addressed its competition concerns.

Earlier this year the U.K's telecom regulator called for BT's network business to become a distinct company with its own board, but stopped short of calling for a full separation of the businesses at the time.

The move was rejected by BT, but it said it would make "significant governance changes" to Openreach, including forming a new board and greater budget independence. BT said legal separation would be step too far and it also disagreed with Ofcom's proposals for Openreach to have its own network assets and staff.

BT, a 170-year-old former state-run monopoly known as British Telecom, lays down most of the U.K.'s telecom lines and makes a hefty chunk of its revenue through its Openreach division by connecting up the country's copper wire and high-speed fiber-optic cable network.

Ofcom said Tuesday it was now preparing to notify the European Commission of its intention to implement plans requiring the legal separation of Openreach to make it more independent.

"Throughout this process, we remain open to BT bridging the gap between its proposal and what is required to address our strong competition concerns," it said.

Ofcom is calling for Openreach to become a distinct company with its own board comprised mainly of non-executive directors, including the chair, who would not be affiliated with BT.

"Openreach would be guaranteed greater independence to make decisions on strategic investments, with a duty to treat all of its customers equally," the regulator said.

BT said Tuesday it is implementing proposals put forward in July, and in doing so has appointed Mike McTighe as chairman of the network busines from January.

It added that it is in talks with Ofcom on two outstanding issues--the reporting line of the Openreach chief executive and the form of legal incorporation.

"We will continue to work with Ofcom to reach a voluntary settlement that is good for customers, shareholders, employees, pensioners and investment in the U.K.'s digital future," BT said.

BT shares at 0910 GMT are up 2.8 pence, or 0.8%, at 353.1 pence.

Simon Zekaria contributed to this article.

Write to Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

November 29, 2016 04:42 ET (09:42 GMT)

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