UK: THE LINE TO FUTURE GROWTH - TELECOMS INDUSTRY. - Britain's telecoms industry can match the world's best, largely due to privatisation.

by Roger Eglin.
Last Updated: 31 Aug 2010

Britain's telecoms industry can match the world's best, largely due to privatisation.

BT was not the first stock market privatisation. There had already been flotations involving British Aerospace, Cable and Wireless, BP, Amersham and Associated British Ports. But none of these sales could match the resonance of the BT share sale 10 years ago. BAe had been in and out of the public sector and Amersham's state ownership seemed an oddity. But BT was BT, a massive state industry and the all-powerful monopoly centrepiece of Britain's telecommunications industry. It seemed bold at the time when the then industry secretary, Patrick Jenkin, began to talk about the Buzby bond, a sort of trial run for privatisation, that was planned to raise about £150-200 million of private capital for BT's much-needed infrastructure investment. When Jenkin decided to ditch poor old Buzby and go for privatisation, it was a daring move. There were many worries. Could the market handle a share sale of this size? How was it to be regulated? How was effective competition to be created?

In retrospect, Jenkin's decision to go the whole hog proved inspired. BT broke the ice for a whole series of large-scale privatisations in this country and elsewhere. Even in conservative Germany where the state telecommunications monopoly continues to reign long after BT's has begun to fray, the government has finally acted and Deutsche Telekom is coming to market.

The antics of the water companies and doubts about the practicality of selling off British Rail have blurred the image of privatisation. But 10 years on, the progress of the telecommunications industry in this country owes much to the sale. In today's digital world, it is easy to overlook just how primitive British telecommunications were a decade ago. Computerised telephone exchanges were a rarity. Many users still suffered the appalling service provided by old-fashioned electromechanical exchanges. Fax was in its infancy. Optical fibre was an innovation. Business was ruled by old-fashioned black phones and telex. The notion that companies would have networks of computers talking to each other over the telephone was just beginning to creep out of the pages of Jules Verne.

Compare this with what we have today: a fax by every phone (or very nearly); cheaper calls for businesses and private consumers; better line quality; computerised, digital networks; business users who routinely hook up their laptops to the phone and send (or retrieve) information from their offices and databanks; the mobile phone revolution; and the development of cheaper videophones.

Arguably this might all have come about without privatisation. But anyone who can recall how the remorseless parsimony of the Treasury stifled the capital spending needed to modernise what was then the Post Office's antiquated network would have found it hard to believe that a modern telecommunications system could ever have been produced.

Yet telecommunications is of basic importance to a modern economy. An inadequate network will stifle growth and divert foreign investment to other countries. A recent London Business School survey of the telecoms systems of the world's leading financial centres, carried out on behalf of the City corporation, showed that modern infrastructure offering good services at competitive prices was an essential ingredient in a centre's growth and success.

There is still a tendency in the media to decry the scale of BT's profits and to focus on trivial service failures. All this overlooks the impressive network that 10 years of massive investment and hard work has created. It may surprise the critics to discover that the British network can hold its own with the world's best. 'This generally encouraging picture of the UK is not always reflected in the perceptions held by the community at large,' concluded a recent, independent study prepared by PA Consulting Group's Robert Harrison.

This study in fact is a timely reminder that, measured by cost and technology, the British network is very good indeed. Unlike many of our industries, levels of investment in the British telecommunications industry can match the world's best. In 1990 the report shows that it was running ahead of France, Japan and Germany and only marginally behind the US in investment per line. Only France has a higher percentage of digital lines than Britain, which is ahead of Japan, Germany and America. By 1995 Britain should have a world lead in the number of homes and small businesses with access to fibre optic cables. Nor has this technical advance been purchased at excessive cost. 'The UK has a relatively low tariff level,' says the report, noting that high tariff levels elsewhere in Europe discourage businesses from carrying out particular activities in these European countries. A leased line from France to the UK costs nearly nine times as much as a 200-kilometre leased line within the UK, underlining that two of the least competitive telecommunications industries, France and Germany, have some of the highest tariffs. The determination to promote competition for BT has been fundamental to the success of this privatisation from the point of view of the consumer.

BT is still dominant but the threat of competition and the presence of Mercury, as well as a steadily growing band of service providers, means that business in particular is getting the sort of services at the sort of competitive prices it wants.

Roger Eglin is associate business editor of the Sunday Times.

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