So, when will competition arrive in the U.K.? - telecom market - Industry Trend or Event

CommunicationsWeek International, March 20, 2000 by Maev Sullivan

Price caps were originally intended as temporary protection against BT's dominance. But why are they still being used?

In 1983 Professor Littlechild invented the retail "price cap" and coined the phrase: "Regulation is a means of holding the fort until the competition arrives." He intended the price cap to be a temporary measure, designed to protect domestic and small business customers against BT's dominance. He envisaged that competition would emerge soon after the market was opened up and replace the price cap. How sorely disappointed he must be by developments since 1983.

Don Cruickshank, the former head of U.K. telecoms regulator Oftel, took the view in 1996 that the fourth U.K. price cap on BT's retail prices should be the final one. Last week his successor, David Edmonds, published a magnum opus of a consultative document reviewing the United Kingdom's retail and interconnection price controls.

It is a rip-roaring 45-page read that on balance seems to favor the continuation of retail price cap regulation until 2005.

So why is it that after more than 16 years of competition (21 by 2005) U.K. domestic and small-business customers are still waiting for the competition to arrive? What's gone wrong?

Is the problem BT or BT's competitors? After all, there can be no "effective competition" without "effective competitors," but where are they after 16 years? Or heresy of heresies, is the regulator himself the problem? What's more, is the price cap the best mechanism to "imitate" competition? Maybe we need something more radical. Perhaps the competition commission should investigate the whole sector to see if the structure needs to be overhauled rather than let Oftel tinier around with yet another price cap.

Better still, maybe BT should take a good hard look at itself and see whether it should break itself up into more adventurous bits than "mobile," "Internet," "Concert" and the rest. After all chancellor of the Exchequer Gordon Brown, Oftel and the European commission are all so keen to separate out BT's local loop from the rest of its business by means of local loop unbundling.

Perhaps BT should turn this threat into an opportunity. Perhaps it should strike out independently and separate its network business from its retail business (as well as the other bits and pieces). Arguably, the former is being constrained by the latter, which has never been renowned for its innovation. Paradoxically, this might be because "retail" is replete with "network," supply-side thinking people. What "retail" needs is customer-centric people blessed with imagination and creativity and capable of thinking "outside the box."

The BT network is one of the jewels in the crown. It might not begin with an "e" or end in a ".com" but, released from BT retail, it would have every incentive to attract as much traffic as it could carry. On the other hand, BT retail would be free to buy its network services from BT network and any other U.K. network and think far more creatively.

Incumbents around the world are being handicapped by regulators and by their own lack of imagination. They are trapped by their past, and by their belief that they are infallible and enduring. Worst of all, most of them are burdened with risk-averse top management that is incapable of thinking boldly. They can either watch the regulator continue to cut them into little pieces. Or they can seize the initiative and break free, giving their competitors a good run for their money in a market free of price caps and, perhaps, free of sector-specific regulators.

Maev Sullivan is an independent telecoms consultant based in London.