Home Latin America I 1997 UK Telecommunications: The Triumph of Competition over Regulation?

UK Telecommunications: The Triumph of Competition over Regulation?

by david.nunes
Dr. Peter BouldingIssue:Latin America I 1997
Article no.:10
Topic:UK Telecommunications: The Triumph of Competition over Regulation?
Author:Dr. Peter Boulding
Title:Development Manager
Organisation:CRI, UK
PDF size:32KB

About author

Not available

Article abstract

This article charts the development of telecommunications regulation in the UK from privatisation to the present day. Here, Dr Peter Boulding of the CRI examines the developments in the associated field of broadcasting regulation and concludes with some thoughts on the future.

Full Article

Telecommunications regulation is especially important to the followers of regulatory developments because British Telecom (BT) was the first major UK firm to be privatised. Many of the features of that privatisation and regulatory structure have since been imitated and the rapid technological change in the industry has allowed several other countries to begin their privatisation programmes with this sector. Privatisation of BT and the introduction of competition British Telecommunications plc (BT) was privatised in 1984. The UK market was the first European telecommunications market to be opened up to competition, albeit limited to begin with. For the first seven years BT’s only competitor was Mercury (owned by Cable & Wireless and BCE of Canada). The intention behind this regulatory experiment was to achieve the following objectives: . the protection of BT’s profits in the post privatisation period; . the provision of incentives for Mercury to invest; and . the introduction of competition on long distance and international calls. Mercury now operates a separate network for long distance and international calls but is linked to customers using the national BT network. It was considered too expensive for Mercury to establish a local network to rival BT. Mercury has to pay a charge to BT for the interconnection facility. The charge and its method of calculation is regulated by the Director General of Telecommunications, Mr Don Cruickshank, supported by the Office of Telecommunications (Oftel). The other significant feature of the duopoly period was the development of mobile (as opposed to traditional fixed link) telephone networks, based on two cellular companies: Cellnet and Vodaphone. There was substantial growth with nearly 2 million subscribers joining these two companies by 1991. The extension of competition The duopoly was lifted in 1991 following a review by the regulator and the market took another step towards full liberalisation. The main elements of the review were to: Ÿ terminate the duopoly policy; Ÿ consider new licenses for telecommunications services; Ÿ allow cable television companies to offer telecommunications services; Ÿ allow mobile operators to provide fixed link services; and Ÿ allow other infrastructure owners (e.g. British Rail and the National Grid Company) to provide telecommunications services using their existing assets. Over 60 new licences have been granted with more than 90 cable franchises being authorised. The main players in the UK market are now: Ÿ BT, which retains dominance of local, national and international telecom service provision (overall average market share of 87%), apart from in Hull where Kingston Communications (a municipal company established before privatisation) operates a local service. Ÿ Mercury, most active in the long distance (it had a 12.5% market share in 1993/94) and international (24% market share in 1993/94) markets. Mercury’s share of the domestic market was only 4.25% in 1993/94. Mercury has been selective in its building of local, particularly business, networks where it can make small scale entry. For instance it has built a specialised commercial network in the City of London. Ÿ Six new network owning companies, which were licensed in April 1994, including Energis, utilising power lines (owned by National Grid Holdings), and Ionica, utilising radio technology. Ÿ Cable operators offering telecommunications and television services on local networks which were relatively inexpensive to build given the dual attraction of providing both services. Current issues Access to the network (interconnection) remains an important issue for the UK incumbent and competitors alike. Without access to all consumers new entrants find it impossible to sell telecommunications services. Interconnection charges levied by BT are regulated to prevent potential monopolistic abuses such as anti-competitive charging, unfair protection of market share and delaying interconnection for competitive advantage. There are also regulatory issues emerging between BT and the regulator over competition policy areas. In December 1996 the English High Court ruled that the Fair Trading condition which Oftel had introduced into BT’s telecommunications licence was lawful. This condition prohibits any abuse by a dominant operator or the making of any agreements which restrict, distort or prevent competition. This is a landmark decision because it allows the regulator to relax price controls yet retain a degree of vigilance on BT. Price controls for much of the domestic market will disappear in the wake of growing competitive forces. BT will face continued price controls for the foreseeable future on charges for the regulated networks upon which new entrants rely. Broadcasting and telecommunications: a false distinction? The telecommunications sector is subject to considerable technological change, which has enhanced competition in certain parts of the market and blurred the definitions between telecommunications and broadcasting. This blurring, exemplified by developments in optical fibre cable technology, has led to calls from some parties for a new, all-embracing regulatory body: Ofcom, The Office of Communications. This would be expected to combine the telecommunications and television broadcasting regulatory structures into a single entity. In principal this idea has some desirable attributes but there would be problems untangling the diversity of broadcasting structures if a comprehensive body were to emerge. The British Broadcasting Corporation (BBC) is a self-regulating public corporation financed by a licence fee and governed by a Royal Charter. It is difficult to envisage this status being voluntarily surrendered in order to accommodate a new regulatory structure. Commercial television is regulated by the Independent Television Commission (ITC) which would more easily be absorbed into any new Ofcom identity. BT continues to be excluded from providing television services (at least until 1998, by the present UK government). The cable companies offer both television and telephone services thus providing the main competition to BT in the domestic (particularly local) market. In October 1996 the cable industry consolidated its position when Cable and Wireless announced the merger of its subsidiary Mercury with three of the main cable operators: Nynex, Bell Cablemania and Videotron. Future issues The international market will continue to be important for major players as other countries prepare for liberalisation (the European Union 1998 is the target date). International alliances are increasingly important for those businesses which rely less and less on local and national markets. The recent World Trade Organisation agreement on telecommunications liberalisation will emphasise the role of major international carriers particularly US and UK companies with experience of competitive markets. The importance of EU and US competition regulation is already evident in the prospective merger of BT and MCI (of the USA) to form a global telecommunications player: Concert. Concert, if given the regulatory green light on both sides of the Atlantic, would provide some very serious competition for AT&T, the world’s largest telecommunications company. It would appear that the future of the global telecommunications business will be dominated by a few very substantial international players supported by much smaller niche players at national or sub-national levels. There will be no diminution of effort in the quest for technological advances. Radio technology, in particular, offers very substantial cost advantages over fixed networks. Regulators will, inevitably, struggle to keep abreast of change in this most dynamic of sectors. Conclusion However, if the evidence of the UK experience is a worthwhile model, direct regulatory intervention will fade away as competition develops. In Don Cruickshank’s words: “Competition defines the extent of the role of the regulator. As the tide of competition advances, the shore line of regulation can recede. And the regulator can take his detailed rules with him.” (12 February 1997).

Related Articles

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More