When the UK government started selling off its shares in BT they were over-subscribed three to one. This contradicts some of the theories in South Africa that competition will harm Telkom’s IPO
Gary Shepherd
Liberalisation of the United Kingdom’s telecommunications industry has been used as a benchmark or referred to as “Best International Practice” by many countries wishing to remodel their own monopolistic market.
There are clearly many benefits to liberalising a monopolistic industry, especially and most importantly, for the consumer.
The UK model, without a doubt, significantly increased teledensity, lowered call charges and significantly improved customer service.
Many homes in the UK now have more than one telephone line compared with one line per three households in the early 1980s. In addition, many children now have cellular phones.
A call to the United States now can be as low as 3p a minute. This is R0,48 which is significantly lower than Telkom’s new reduced rate of R3,19, even taking into consideration the fall of the rand.
BT (the old British Telecom) now installs new lines within days instead of months and gives clients specific times for installations or fault fixing. There is a feeling of dj vu when looking at Telkom in South Africa.
However, many mistakes and challenges have had to be overcome to develop the model in the UK to it’s current standard. The UK government had no choice but to liberalise the UK market.
Poor and inadequate telecommunications was seriously affecting its ability to trade with other first world countries and the UK had seriously fallen behind countries such as the US. This was because much of the subscriber equipment (PABX and telephones) and public exchange switches installed by BT were very old electro-mechanical equipment (between 30 and in some extreme cases over 100 years old). There was also no incentive for BT or its suppliers to improve service, or become more competitive or competent. The UK, like South Africa, liberalised the supply of subscriber equipment first. This was only after BT was given an unfair advantage to sell, lease or rent new equipment for two years prior to this liberalisation taking place. Even with years of notice some major manufacturers such as GEC failed to react and finished up making tens of thousands of workers redundant and closing many factories that failed to convert to the solid state or SPC (Stored Programme Controlled) technology.
Unfortunately the UK government did not appoint a regulator to police this stage of the liberalisation process. Although equipment had to go through stringent British Standard Institute approval taking up to two years at significant costs of up to 100 000 (this approval process has now been scraped) BT played a number of “dirty tricks” in the market in an attempt to stop the sale of private system in the UK.
BT insisted and the government allowed them to carry a Pre-Connection Inspection of all private systems installed. However, most of these inspections were a farce as the rules were being dictated and interpreted by BT and its employees. Initially both BT and the workers union refused either to carry out the inspection or connect BT lines to the system. Mostly due to pressure brought on by the UK press, BT had to relent and connected privately supplied systems. BT also indulged in a smear marketing campaign (albeit not officially) telling prospective customers that new private systems would not be connected or attacking the credibility of companies (especially smaller ones) selling private equipment. They also cross-subsidised the sale, lease or rental of their own telecommunication equipment from the revenue they received from fixed and call charges. Of course they were not duty bound to properly divisionalise their accounts and blamed the very low rental charges on an accountancy error.
Many consumers and private suppliers wrote to their MP who took nearly a year to reply in the usual bland and non-committal terms while acknowledging nothing in regards to the complaint.
Then the UK government introduced the duopoly (known as the SNO or Second Network Operator here in South Africa) and the hopes of the consumer rose once more only to be trashed again.
Mercury, a subsidiary of Cable and Wireless, failed to meet the expectation of many consumers. Instead of providing faster installation of lines in effect they took longer as they were starting from scratch with no infrastructure. BT on the other hand had over a 100-year start, so the Office of Telecommunications the regulator and equivalent to Independent Communications Authority of South Africa forced BT to allow Mercury to install equipment in BT’s public exchanges. BT again applied its “dirty tricks” and either slowed down the process or provided inefficient capacity for Mercury therefore causing bottlenecks in Mercury’s network leading to congestion. This type of connection allowed both private and business subscribers to access Mercury by piggybacking off of the existing BT local loop and is called “indirect access”.
The Office of Telecommunications laid down in the BT and Mercury interconnect agreement a 25% discount between the parties (and sub- sequent interconnect agreements), this type of connection is still used extensively in the UK by the now many available network providers and is also used throughout Europe and North America. Strangely enough there is no mention of it in the current South African telecommunication policy.
While Mercury was cheaper than BT on call charges it only under-cut BT by about 15%. The authority did apply another very useful piece of legislation. They put a formula together whereby BT had to reduce call charges by a certain percentage each year. Both the introduction of Mercury and the forced formula on BT did in effect lower call charges and force BT to be more competitive by reducing its overheads and streamlining its very old work practices. This led to BT slimming its workforce most of whom found employment either with Mercury or the private equipment suppliers.
During the duopoly the government started selling off its shares, which were over-subscribed three to one. This, however, contradicts some of the South African theories that competition will harm Telkom’s IPO.
Interestingly enough until the 3G licence issues, most UK telecommunication network providers’ shares were reasonable buoyant. It was only after the market was truly liberalised and a number of telecommunication network providers were granted licences that call costs almost halved and true customer service was provided as the norm and not the exception.
In conclusion, when the history books are written about the UK in the second half of the twentieth century the telecommunication revolution will be seen in the same light as the agricultural and industrial revolutions in the previous centuries. The telecommunication revolution is the one single factor that has had the most effect on the GDP of the UK.