Crumbling Britain: telecoms

Telecoms is a British success story. In the early 1980s we were way behind the USA, with an old fashioned system with too little capacity, run by a nationalised monopoly. It charged too much and delivered too little, like most monopolies. Working in the City of London I could not get a phone line that would take data from the Stock exchange to my office, a journey of less than a quarter of a mile, without data degradation when it rained, for water got into the cables according to the engineers. At home in Oxfordshire, living a couple of miles from the centre of Oxford, it took months to be supplied a phone as the monopolist couldn’t be bothered to put the cable in to my house.

It was this kind of nonsense that persuaded me to argue the case for a deregulated competitive telephone system capable of offering a competitive challenge to the Americans. The first round saw the sale of BT and the licensing of a single business competitor, cable and Wireless. The second round saw massive new investment in mobile networks, and the third more competition across the board. Over a ten year period we narrowed and removed the gap between UK and US telephony, and created a telephone infrastructure that could support the flowering of financial and business services in the City of London. If we had stuck with the monopoly and all those tedious debates about capital and investment rationing in the public sector London would not have sustained so much successful business.

Today we can still take some pleasure from the huge expansion of mobile telephony, the relatively rapid take up of the internet and the expansion of transmission capacity for data and pictures. We should not, however, be complacent. BT still has a strong market position in the last mile of cable into people’s homes, and at the local exchange. These still restrict line speeds and capacity in some cases. Meanwhile BT is excluded from mobile telephony and feels hard done by on some of the regulation it still faces.

The government and regulator need to consult further on how they could allow or encourage more rapid investment in more capacity into homes and businesses, as the demands for more data, film and picture transmission at higher speeds are growing daily. The internet is the new highway of world trade, the new digital railway network for commerce and communication. Britain has done well, but could do better. The public sector could improve its use of internet technology, websites and web communication. The providers need to work harder to ensure the UK is wired for success.

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11 Comments

  1. Neil Craig
    Posted August 7, 2008 at 12:43 pm | Permalink

    A good personal anecdote John. Without these improvements it would have been impossible for the UK's financial services industry to have maintained its position let alone grown to be pretty much world leader, to the very considerable disadvantage to the UK economy.

    A good example of how progress in one industry not merely benefits that industry but has spin offs to many others. Or how preventing progress in one industry has the opposite effect.

  2. Freeborn John
    Posted August 7, 2008 at 8:09 pm | Permalink

    Service providers (e.g. Vodafone, rather than BT) in countries like the UK which were towards the head of the liberalisation trend benefited by applying the early experience they gained in the liberalised UK market to outwit incumbents in late-to-deregulate overseas markets and rise to become global players. However the story for British equipment suppliers (e.g. GEC & Plessey) that were dependent on BT is less rosy as they suffered badly when the new service providers looked to overseas companies (e.g. Ericsson, etc.) to provide their equipment needs for new mobile and data services. Equipment suppliers in late to de-regulate countries (e.g. France, Japan) had more time to adjust but in many cases it did not prevent them losing international market share either as a few companies in dynamic sectors (e.g. Ericsson, Nokia, Cisco, Nortel etc.) emerged as genuine global players in advanced equipment for mobile and data networks. The former suppliers to the ex-monopoly phone companies (e.g. Alcatel to FT, Siemens to DT, Fujistu & NEC to NTT, etc.) have struggled badly to keep any business other than the basic ‘bit-carrying’ transport products. The only new player on the scene is Huawei (from China) which competes on price. This transformation of telecoms means that the state regulator should arguably be more concerned now about possible monopoly formation in telecoms equipment supply than in service provision as each new generation of technology seems to involve fewer players competing for a worldwide market. Arguably Skype or Yahoo/Microsoft Instant Messenger are better placed to dominate the future of telephony than BT is. The ability of individual state regulators to prevent the emergence of Microsoft-style monopolies in new technologies seems doubtful. However, for the time being, I would say that telecoms really is a free market with carriers able to count on multiple suppliers in all parts of their networks and not much need for state regulation other than of the BT local loop.

    The fate of GEC & Plessey should however provide lessons to be applied when liberalising other sectors (defence? broadcasting?) in the future. Alcatel expanded internationally before de-regulation in France through acquisition of similar companies in Europe and the USA (e.g. Lucent in the US, ITT in Germany and many others). This gave it a larger market for its products and was I feel important in Alcatel (in stark contrast to its British peers) surviving and prospering despite its home market being neither a technology nor liberalisation trend-setter. We are seeing French suppliers of nuclear technology following the same strategy today. One lesson from telecoms should be that British suppliers to UK state-owned defence, broadcasting, energy, water, etc. industries should be encouraged by the state to aggressively broaden their customer base internationally before having to face de-regulation at home. Otherwise liberalisation is likely to see our services improve but our technology base erode.

  3. Wrinlkled Weasel
    Posted August 7, 2008 at 9:35 pm | Permalink

    Spot on with the "crumbling" series. Telecoms? mmm. BT is one of the slowest Broadband providers in Europe. You get nowhere near their published speeds, which are crap anyway compared to anywhere else. And they spy on you with "Phorm", which they don't tell you about but which nevertheless monitors your surfing habits in order to direct advertising to you. So you be getting some interesting spam soon if you are with BT.

  4. mikestallard
    Posted August 7, 2008 at 10:29 pm | Permalink

    My mother of 97 couldn't believe that she was actually talking to her granddaughter in Australia on Skype. She spoke loudly as if on long distance and kept trying to end the converstation because she thought that calling that long distance "was costing you a packet." That shows how much things have got better in our lifetime.
    You are quite right about better telecommunications being necessary, though. The internet reminds me of the motorways when they began to clog up.
    The big question is this: is the fantastic improvement in telecommunications simply due to the government leaving it alone to prosper?

  5. no one
    Posted August 7, 2008 at 10:37 pm | Permalink

    yes

    BT is still too big, and should have been split into smaller chunks

    Openreach should be forced to demerge from BT

    BT should not be allowed to cross subsidise its IT services business (and other businesses) with bank roll from telco

    BT should not be allowed to offshore so much of its work to India stopping the training of UK junior tech staff, In fact BT should be smashed into a 100 smaller companies

    Yes the UK needs fibre optic cables to homes, copper wire will never be able to cope with the ongoing expansion of bandwidth demands, we are already pushing the boundary of copper to the limit

    In the same way we need mechanisms to force 3G mobile data comms prices down, the current price per unit of data is nonsense, and does not reflect the cost structure of the industry, we need real mechanisms to force 3G data providers to offer unlimited data volumes for a realistic and ever downwards monthly fee

    Public sector use of internet? depends what you mean? more centralised mao china style IT projects like the NHS is not the way to build proper incentives and balances into the system

    Neither is the stuff the BBC is allowed to do with the internet riding rough shod through private sector education and journalistic providers, subsidised by the tax payer, I dont actually believe the BBC has any role providing web based education matierial to schools wiping out good competition from the free market

    Oh yea and Vodafone et al are not really the best mobile telcos by world standards, clever business decisions, pretty bad technical decisions
    Notice John you never seem to mention the amount of over staffing in the public sector, and the appauling service the people get, the NHS really is so sub standard compared to the rest of the developed world the conservatives really need to set the staff and patients free
    http://notdrrant.blogspot.com/

  6. no one
    Posted August 7, 2008 at 10:43 pm | Permalink

    oh and

    "Meanwhile BT is excluded from mobile telephony" hey they sold O2, their business decisions their problem

    over regulated? poorly regulated more like, and too many incestious relationships where many of the regulator staff are ex-BT and too many BT staff are ex-regulator, etc, much of the stuff imposed by the regulator is not really checked in the detailed substance of how it is implemented in the network and IT as the regulator just doesnt have the tech staff to do sensible audits – they by and large trust BTs word, and there are many interpretations of the ever changing rules possible

  7. Johnny Norfolk
    Posted August 8, 2008 at 12:05 am | Permalink

    I still think BT still acts like it used to, It is high handed and should not have any monoply anywhere, its the only way to change their attitude.

  8. BrianSJ
    Posted August 8, 2008 at 8:22 am | Permalink

    Usual excellent material.
    Freeborn John forgot to include the word google in his discussion of global scale monopoly. They really do appear to own an awful lot of the infrastructure, and to have done so very quietly.
    The regulator does need a look; UK ISPs have got themselves into a very unenviable position, which is to BTs long term advantage. The decision by Ofcom not to consider quality of service, but to leave it to the market was a mistake.

  9. Alfred T Mahan
    Posted August 8, 2008 at 10:28 am | Permalink

    The one aspect of the old system you've tactfully not commented on was its corruption. Like you, I was in the City before BT was privatised. My firm (with about 200 staff) moved offices by about 150 yards, and the week before the move the BT engineer in charge told us it was out of the question for the lines to be in place in time. He was after some "extra overtime payments", otherwise it would be six weeks before the work could be scheduled. We depended entirely on telephones and telex lines for our business, so this was alarming. Over the next weekend, a junior BT technician who clearly wasn't in the gang happened to be on site, saw two wires disconnected, and voila! Two minutes later, everything worked.

    With no incentive as a monopolist to provide a competitive service, BT and its staff looked after themselves first.

  10. Jock
    Posted August 8, 2008 at 3:53 pm | Permalink

    …or even "unwired for success" John!

  11. DiscoveredJoys
    Posted August 8, 2008 at 8:33 pm | Permalink

    It's always good fun to prod and pick at BT, but you should ask yourself how much of their energy is sapped by having to maintain legacy systems and provide universal access. I don't see Virgin laying co-ax to remote villages or the poorest areas of town.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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