Britain loses out as Draconian regulation pushes BT overseas

I despair of regulators in this country. Having created a circumstance in which BT, as a privatised monopoly, could not use its monopoly status to provide a range of services in the domestic market that would have been the envy of the world – and having contributed in part to the frustration of talks between Cable & Wireless and BT that would have created a British telecoms conglomerate to compete with the world’s best – they have effectively sent BT abroad to seek its future with the American MCI.

Well done British regulation. And well done the British Government that created it. I was talking to a friend in Blackpool recently who writes trade and industry policy for the Labour Party. He was eminently sympathetic towards British utilities that have been privatised in order to raise private-sector capital for investment in infrastructure and services, which then find that they are barred from so doing by over-zealous regulatory structures.

He was not so sympathetic, of course, that he would oppose the imposition of a windfall tax that will swipe large tranches of that very investment capital that supports improvements in infrastructure and services. But no matter – it is interesting that New Labour acknowledges British industry is handicapped by intrusive and heavy-handed regulation. It is as though the Government has given with the privatisation right hand, only to take away with the regulatory left hand.

It is difficult to imagine what a Labour Government might have done with a privatised BT, because it wouldn’t have privatised it in the first place, but it is a reasonable hypothesis that its regulation would have concentrated on prices, rather than the obsession with competition that we have witnessed over the past decade.

The theory is that if you look after competition, then prices will look after themselves. This is nonsense. We have a free market in retail in the UK, yet Marks & Spencer is able effectively to set the prices on a variety of product lines that its competitors are obliged to follow. In UK telecoms, it is nonsense because BT’s quasi-monopoly status has, until very recently, kept domestic competitors at the margin. The result is that we have been both denied choice and the benefits of services that a monopoly supplier could have provided, as BT has been barred in the medium term from providing entertainment services through its lines.

Merger talks between BT and C&W foundered earlier this year for a variety of reasons. There was the question of management – there is still a sense of direction to be established at C&W in the wake of the Lord Young and James Ross debacle – and the question of price. Then there was the potential sale of Mercury to satisfy regulatory demands.

As it has turned out, C&W’s Mercury acquired three cable operators the other day and BT has sought its future as a mega-conglomerate on foreign shores with MCI. As I say, it would have been interesting to see what a British conglomeration of BT and C&W could have done in foreign markets, up against international rivals such as AT&T and Deutsche Telekom.

But, as matters stand, I have three observations to make about the prospects of a BT/MCI deal. The first relates to the real state of telecoms competition in the UK. AT&T, as you would expect, has called for the strictest examination of the anti-trust implications of such a deal by the US Department of Justice and the Federal Communications Commission (none stricter). American regulations insist that foreign acquirers of US telecoms companies must have untrammeled competition in their home markets and AT&T insists that the BT/MCI merger would have to be dependent “on the complete and unqualified opening of the UK telecoms market”.

Now, if US regulators clear the deal, it means they are satisfied that the UK telecoms market is fully competitive. So why is BT still restricted, into the new millennium, from the provision of online entertainment and other services?

Which brings me to my second observation. Since BT has been barred from sending broadcast signals down its lines, it has been forced to seek partnerships elsewhere for expansion. In the digital, online revolution, content is poised to become a valuable commodity. Rupert Murdoch knows that – in May last year, News Corporation signed a $2.4bn (1.5bn) deal to create a global entertainment and information joint venture with MCI. Content, or software, will explode in value and BT has been barred from exploiting it in the UK. The revenue will consequently go abroad.

My third observation is also connected with potential revenue streams. The telecoms markets of Eastern Europe, the Third World and the Pacific basin offer immense development potential. Revenues from those markets are as likely to be bound for the US as for Britain as a direct result of BT having to look to the States for expansionary opportunities.

It would have been good if BT and C&W could have got together to secure these revenues for Britain. And, with that in mind, it is worth asking in whose best interests British regulators have been acting in restricting BT’s operations in the UK. Not in the best interests of the UK consumer, I would say, nor in the best interests of the stakeholders in UK plc.