Split BT, Competitor Tells Parliamentary Panel
LONDON -- British Telecom (BT) should be split up to end the “fundamental” conflict between its duty to its shareholders and its obligation to give rivals access to its network, a competitor said Tues. The Office of Communications (Ofcom), nearing the end of a strategic review of Britain’s telecom sector, has proposed requiring BT to provide “equivalence of access” and make drastic changes in its corporate behavior. But Energis CEO John Pluthero said efforts to resolve BT’s commercial dilemma could end up with the telco owning an entity opposed to its own goals and objectives. At that point, it might as well be severed, Pluthero told the parliamentary Trade & Industry Select Committee.
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Pluthero, whose company provides data, voice, Internet and other services, dismissed a suggestion by committee Chmn. Martin O'Neill that a “Chinese wall” akin to one that separated British Gas’s wholesale and retail arms would work in the telecom sector. What’s needed is true equivalence across relevant services, he said, and not -- as BT has proposed -- creation of a new division to manage access services overseen by a board made up entirely of BT members. Energis realizes Ofcom’s June report won’t order BT’s break-up, Pluthero said, but letting BT police its own compliance won’t be good enough. Whatever the conclusion, he said, Ofcom should set measures to be monitored by a 3rd party the next 2-3 years.
Ofcom is trying to inject greater competition into the telecom market by pressing BT on local loop unbundling (LLU), but Pluthero said BT’s counterproposal doesn’t provide true equivalence of access. LLU is “the gate to the crown jewels,” Pluthero said. Given the “attack on BT’s cash cow,” it’s not surprising the incumbent is reluctant to move quickly to open access, he said. The current LLU enforcement scheme isn’t strong enough to change BT’s behavior, he said.
Pluthero’s call for a break-up runs counter to views of other telcos and ISPs. At last week’s Trade & Industry Committee hearing, alternative telcos told lawmakers they prefer Ofcom’s proposed solution, with a BT split occurring only if ordered after a Competition Commission investigation (CD March 2 p13).
A BT break-up would be a “disaster,” said CEO Ben Verwaayen. No one he’s talked to at the policy level thinks it’s a good idea, and separating end-to-end services could prove harmful to customers, he said. Verwaayen praised Ofcom’s “very methodical and very professional job” in reviewing a sector undergoing tremendous change. While BT may not agree with Ofcom’s take, it must deal with the perception that it’s the great beast -- a clear incentive to make bold proposals, he said.
Verwaayen defended BT’s actions on LLU. The telco now has one of the lowest LLU prices in Europe, he said, though he acknowledged it’s not meeting its customers demands in some areas.
Asked to define “equivalence,” BT Dir.-Equivalence Peter McCarthy-Ward said it includes both input, such as LLU, and outcome -- carrier preselection -- as well as governance of access services. One MP asked whether splitting BT’s retail and wholesale businesses would provide full equivalence of access. No, said Verwaayen; structural separation will just drive the bottleneck into its own business objectives, which may or may not be linked with networks’ and end users’ needs.
Reaching equivalence will be a “truly monumental task,” Verwaayen said. It requires changes to systems, regulation and, sometimes, attitude and culture. Another problem is that the system that delivers core services has become jury-rigged, with new technologies bolted on to systems from as far back as the 1930s, McCarthy-Ward said. Equivalence of outcome can be delivered quickly, he said; equivalence of input will take a little time.
But some people are less worried about BT’s overall compliance than its vertical integration and market dominance, O'Neill said. Verwaayen said he can accept that, but he said the reality is that the U.K. is a scale market in which competition depends on access to the full broadband market and giving investors a return on their funds. The U.S., which stresses competition, has acknowledged changing technology and the resulting change of scale in approving reintegration of formerly severed telcos. The reconstituted companies may be vertically integrated, he said, but there’s competition among platforms.
BT has already changed dramatically, Verwaayen said. Ofcom’s review has given the company a unique opportunity to “reset the clock and start fresh.” The mood appears to be changing, he said, with some recognizing that even large organizations can change. What BT has proposed is “appealing enough to carry the day,” Verwaayen said. “Only time will tell.”
Lawmakers gave BT a fair hearing, Verwaayen told us later. He said he’s sure Ofcom will come to the right decision.