Friday, March 31, 2006

Peter Griffin: UK where we should be - but it took 22 years

Six years ago when I lived in Britain, the incumbent telephone operator, British Telecom, was perceived much as Telecom New Zealand now is - a nasty, big monopolist.

BT was fighting to retain its fixed-line hegemony and while legislation had opened up its network to competitors, it was frustrating the process all the way, arguing the details of access with rivals and dragging the chain on granting physical access to its telephone exchanges.

I remember Oftel, the regulator of the time, had its hands full dealing with disputes between BT and its competitors - much like our telecommunications commissioner, Douglas Webb, now does.

Returning to Britain today, I find BT a lot less menacing. Competition has taken to the giant operator like a swarm of ants, leading to the shocking news last week, shocking to me anyway, that the regulator (Ofcom) is proposing removing price controls on BT.

Twenty-two years after price controls were first imposed on BT, Britain's telecoms market has finally come to be deemed competitive enough that the prospect of BT upping its prices isn't all that scary.

There's a keen awareness that BT is no longer the only game in town, whether you're talking about phone services or internet packages. The billboards in the tube stations and full-page adverts in the newspapers announce the latest voice and broadband deals from a myriad of competitors.

About 10 million British homes are now provided with fixed-line services by operators other than BT, many of them using the same copper wires BT once kept greedily to itself.

When cable operator NTL completes its acquisition of Telewest, it will have five million clients buying phone, internet and pay TV services.

BT still has the lion's share of fixed-line residential connections - 17.5 million - and 58 per cent of local calls are made on BT lines. But switching provider doesn't take much these days when you can take your phone number with you and consumers are well aware of who has the best deals.

It's for that reason that the proposal to scrap the price controls, which could be acted on by August, has barely created a ripple. A few consumer groups grumbled that the poor and elderly, less likely to switch operators to find the best deals, would bear the brunt of any price rises.

But by and large, no one believes BT would be stupid enough to raise its prices in the face of the current competition. Price controls have been made irrelevant by the downward pressure of the market. Fixed-line phone prices have already fallen 50 per cent in the past decade thanks to increased competition. Broadband prices have also fallen substantially.

In the mobile phone industry, the competition is fierce with heavy subsidisation of handsets. There are now 62.5 million mobile phone subscribers in Britain, more than the population of the country. Seeing what was coming in the mobile sector, BT spun off its mobile arm, BT Cellnet, which is now called O2 and competes with Vodafone, Orange, T-Mobile and several more operators.

In effect, Britain has arrived in a roundabout way at where we want our telecoms market to be - healthily competitive. Sadly, it looks as if we're in for a similarly long and tortuous route. At least the greater population density and spending power of the Brits encouraged companies to build their own networks there.

But the big thing that Britain did that we have yet to do is unbundle the local loop - open up the incumbent's network to competitors at a fundamental level. Unbundling was a debacle to begin with in Britain, but now, directly and indirectly, it is stimulating competition. The reality is, we should have chosen to unbundle when the issue was considered five years ago and the fact that we didn't will make Britain's 22-year pursuit of a competitive telecoms industry look relatively speedy compared with ours.

Telecom, for its part, is still restricted to monthly rental price increases that are in line with consumer price index rises. In the past few years it has take every opportunity to raise those line rentals, usually trying to sneak out the price rise in the holiday season dead zone.

Its broadband prices are dropping as it tries to keep up with smaller competitors, and a bruising battle with Vodafone in the mobile market has cut prices.

But frankly, it's not enough. A further shake-up of the regulatory regime is needed before Telecom's competitors make the inroads BT's have.

While a shadow of its former self, BT has done what any sensible incumbent with stacks of money but eroding power would do: get innovative.

It was one of the first with a major internet telephony service - BT Broadtalk, which allows consumers to cheaply and easily make calls over the internet, in competition with BT's regular phone business.

BT, in conjunction with Vodafone, also offers a service letting your mobile phone double as your home phone, a service Vodafone is seeking approval to introduce here.

Last week, BT revealed BT Vision, a service that will see it deliver internet television over regular phone lines. It has sewn up deals with the likes of Paramount Pictures, BBC Worldwide and National Geographic to deliver pay TV services in competition with Sky TV.

Less obsessed with fending off competitors than it was just six years ago, BT has begun to respond to competition by becoming more competitive itself through the use of new technology.

Telecom is no technical laggard, it's developing all the things BT is. But without the hot breath of intense competition on its neck, there's little reason for haste on its part. The rest of us sit, wait, pay through the nose and shake our heads in wonder at the good phone and internet deals consumers in other countries take for granted.

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