BT’s two-headed watchdog must be kept on a short leash

Oftel and the MMC are imposing price controls at BT, but shouldn’t there be more freedom to operate in a so-called free market? George Pitcher is joint managing director of media consultancy Luther Pendragon.

Call me mad (and there is a branch of McDonald’s that I have been known to patronise on Fleet Street) but the future of the British beef industry is a subject that will have to wait, because I want to return to the subject of what the Monopolies & Mergers Commission, despite the millions spent on branding and corporate identity since privatisation, insists on calling British Telecommunications plc.

I know that I addressed the merits or otherwise of BT’s ambitions for Cable & Wireless only last week, concluding that the market that BT is playing for through its C&W aspirations is an international one, in which fixed/mobile networks will enjoy a significant role. But it has been pointed out to me since then that I may have drawn attention unduly to global telecoms matters in the very week when BT was suffering twin price-control pressures from UK regulators.

Given the nature of current UK telecoms regulation, there is a case for BT adopting the attitude that it’s the world today, tomorrow the UK – a curious inversion of the usual principle of ambitious corporate development. But, whatever the relative priority of the domestic market, last week’s events demand examination.

The first point to make is that there were two serious regulatory interventions in the UK telecoms market last week – Oftel’s price-capping manoeuvre on BT and the MMC’s report on classified directory advertising services (Yellow Pages to you and me). Both were duly reported, but not as a double whammy for BT.

Oftel’s consultative document set out what it sees as three options for the next round of retail price control for BT: a conventional four-year price-cap on what are broadly the current services; a control on the same services, but only for residential and small business customers; a conventional, repeated cap for two years, with a review of the market in 1998 to determine what, if any, price control arrangements are necessary beyond August 1999.

Whatever the result of the consultative period, telecoms director general Don Cruickshank has effectively confirmed that BT will be price-controlled until the turn of the millenium. Little wonder BT looks covetously at C&W’s international operations.

As for the MMC report on classified directories, it was ruled that BT’s Yellow Pages acts against the public interest in that prices are higher than would be the case if competition were effective. The MMC declared Yellow Pages should be established as an arm’s-length and transparent entity; that it should be prohibited from publishing or distributing more than one consumer classified directory in any particular area and, yes, that it should be subject to price controls – albeit a rather milder regime than that applied to the telecoms business by Oftel.

All in all, a sorry week for BT in its domestic markets. And, presumably, a triumph for those who wanted to see a firmer line taken with privatised utilities in the best interests of consumers.

It is worth reminding ourselves that a decade has passed since BT was privatised. Yet last week saw two separate sets of price controls imposed on the company. Michael Heseltine, as President of the Board of Trade, memorably promised to intervene in British industry before all sorts of meal times, but is this sort of disruption of the free market really what he had in mind? And, if it is not yet a free market, surely there was either a failure in the original privatisation or a failure in regulation during the decade since.

Returning for a moment to overseas considerations, it is also worth remembering that, during the Eighties, the British system of regulation was perceived as the envy of the industrialised world. I wonder how it now looks in the mid-Nineties, as regulators continue to intervene in what are supposedly free markets. After this passage of time, either privatisation or the system of regulation must have been at fault. You can’t claim both as a success.

Furthermore, there is little or no evidence to my mind that the new competition is encouraged by interventionary regulation. The MMC report on classified directories represents, I believe I am right in saying, the first ever imposition of price controls on advertising rates. That should be frightening for the advertising industry as a whole, not just BT.

As it happens, Thomson Directories, which ought to be the principal beneficiary of regulatory control of Yellow Pages, is said to be wary of any statist encroachment of the free market, even if it is currently directed at its major rival.

Thomson is, these days, a subsidiary of US West, the leading American cable operator. US West acquired the business precisely because it realises that the future action in classified directory markets will be on-line, with global access through superhighways and interactivity provided by burgeoning multimedia technology.

The best hopes for such markets, and for the consumers served within them, are that they are allowed to operate in as an untrammelled a manner as is possible. Regulated, interventionist and price- capping mechanisms have no place in markets that are developing as fast as are those served by the vanguard media.

So we should not only feel sorry for BT after its regulatory experiences of the past week. We should feel apprehensive for anyone trying to enter its markets, which for the time being look over-regulated and constrained.

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