Anthony Hilton: Feeble Ofcom fails to end BT broadband farce

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A few days ago, the BT press office sent me an invitation, shared no doubt with several hundred other journalists and hangers-on, to spend the evening with its chief executive Gavin Patterson at the annual media party.

Nothing unusual in this, but what was symbolic was the chosen location. The party will take place in the BT Sport studio in the former Olympic Park in Stratford. It is a strong hint that even if BT does not see its future solely as a content provider, that is where its heart now is.

People who have been trying to get decent broadband may have suspected for years that BT’s mind was on other things.

At the risk of having my invitation to the party rescinded, there can be few more lamentable examples of failure in corporate Britain than BT’s farcical attempt to provide the kind of reliable, reasonably priced high-speed broadband they take for granted in countries like Lithuania, Portugal and Korea.

These all have more than 60% of high-speed broadband coverage. In the UK, the figure is 2%.

It is a national disgrace twice over — first that it has been allowed to happen by the succession of regulators charged with ensuring BT met its public service obligations in return for being privatised without being broken up; second that, although everyone has been complaining for years about BT failing to deliver, nothing ever gets done.

BT argues that it is not the only broadband supplier, and it operates in a competitive market — so clearly everything is working for the best in the best of all possible worlds.

It may believe that but there is little reason for the rest of us to.

BT was a monopoly when it was privatised in 1984 and, although various bites have since been taken out of its market share, it is effectively a monopoly now. It exerts a stranglehold on the pace and direction of industry development by having effective control of the last mile — the link that takes the service into people’s homes and businesses from the local exchange. 

Fast broadband rollout in this country has been lamentably slow. Large tracts of the country still lack basic coverage and much of the rest has an inferior service (even in remote places like West Kensington, as one irate reader emailed yesterday). This can be blamed on no other organisation.

Cheap, fast reliable broadband should play the role today that canals, railways, roads and air transport have each done in their turn in securing Britain’s prosperity by providing the essential logistical infrastructure to enable business to happen.

So how did the last government show its disappointment at BT’s poor performance? Not perhaps as you would expect. David Cameron and George Osborne decided to reward then chief executive Ian Livingston with a peerage — and once he was in the Lords, they made him minister in charge of trade policy.

He has since moved on although unfortunately the trade deficit has not; we now have the worst balance of payments deficit since 1948. 

Yesterday came more bad news. Ofcom, the current BT regulator, has been wondering for months whether the national interest would be better-served if BT was forced to sell off Openreach, the key broadband division, so it could operate as a standalone company and might then do the job properly.

But the hopes not just of its rivals but of consumers everywhere were dashed yet again when a craven Ofcom failed to deliver, saying that forcing a sale would crystallise problems in BT’s pension fund and would take too long to put in place. Instead, it came up with proposals to drive a partial wedge between BT and its Openreach subsidiary in the hope that something miraculous will happen if it is a bit more independent than before.

There is not a shred of evidence to suggest this exciting new approach will work but perhaps we should not be surprised. BT has been running rings round the regulator for 30 years, so anyone who thinks it will be different this time is putting hope before experience. And credit where it is due: BT managed to keep a straight face when it was told of the new deal.

But what feeble excuses there were from the regulator to cover up its failure of nerve. Companies including BT have no difficulty selling off even unattractive businesses in a hurry when it suits them or if they are advised to do so by Goldman Sachs — witness BT’s fire sale of Cellnet, its one-time mobile business which flourished as O2 once freed from the dead hand of head office. And the pension deficit is what it is; the complex accounting that has to accompany a disposal is absolutely no excuse for failing to do the right thing.

Theresa May rashly hinted we might have an industrial policy when she took office the other day. Since then, we have seen Arm, one of the few still-independent world-leading British technology companies, agree to a bid from SoftBank, a Japanese company that knows a bargain when it sees one but has no serious credentials as a buyer — other than its chief executive’s ego and an ability to borrow lots of money. 

Far from seeing how this deal could be deflected, the Government in the form of Chancellor Philip Hammond came up with the truly crass comment that it showed Britain was still open for business. Anyone with half a brain knows the sale of Arm is a tragedy for British technology, coming as it does after the mopping up by the Americans and others of every other potential world-beater we have produced in this sector. 

We now have no independent British tech companies of scale.

Actually, that’s not quite true — BT still has a huge research park at Martlesham in Suffolk — where it invented one of the key things that made the internet possible,.

However, in true BT style, it did not realise what it had — so let the Americans have it. What Hammond should have done is use his guile to persuade SoftBank to go instead for BT. Then we could all have rejoiced.

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July 27, 2016 |
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