Ofcom got it right: BT is likely to give better service whole but scared of being broken up

The hints that BT is to restart investment in fibre to premises and to upgrade services to premises previously deemed uneconomic indicates that the Ofcom Strategic Review almost certainly reached the right conclusions.

Back in the early 1970s Michael Beesley told his students at London Business School, of whom I was one, that the best way to get good service from a monopoly was to keep it scared of being broken up. He also told us they should be regulated on price, quality of service and behaviour towards would-be competitors, NOT on margins on costs, including of capital. One of my classmates became a multi-millionaire during the privatisation of British Rail because HM Treasury and its advisors did not understand the difference between risk finance and a set of leasing deals: “if looks like a duck, swims, waddles and quacks …”  Another of our lecturers began his accounting classes by making us chant the mantra “Price is not a function of cost” for five minutes – before he would say: “Price is what the market will bear. If you cannot make it for less you should not be in business. If you can make it for a lot less – keep quiet, lest others find out.”

I am delighted to see that Ofcom, under new management, has re-learned what Bryan Carsberg practised from the start.

But now it has to follow through as Britain begins the uncertain transition from a hodgepodge of obsolescent 20th century telecommunications networks, many still running over 40 and 50 year old copper cabling, through an internet age network of networks (with inter-operability devolved from LINX to internet exchanges serving every smart city) to secure, resilient and locally interconnected wireless and fibre meshes, capable of supporting a smart world: from smart phones, household appliances, consumer goods and toys, through smart cars, medical and telecare devices and buildings to ….        

The “Digital Vision for London” for London published by Atos last week, is interesting because it says nothing about the infrastructure needed. Meanwhile the members of the Westminster Property Association and the City Property Association are looking twenty years ahead,and supporting an exercise on common agreements for access and wayleaves to ensure their tenants have “future proof” access to world class services. I have already blogged on an exercise to use a similar approach to turn sink estates into smart estates at little or no cost to the housing association or local authority.

I am now looking to organise, hopefully via the Digital Policy Alliance, an all-party exercise to get the London Mayoral candidates on board, because fibre to the flat will do more to help improve inner city life chances than almost any of the policies currently being touted. Meanwhile fibre to the office and the eradication of mobile not-spots appear essential to London’s survival as a global Fintech hub, with all the concomitant wealth creating jobs.

In parallel I am looking at how to help politicians around the country to look beyond the current controversies. As Sir Joseph Bazalgette said when planning London’s sewerage network after “The Great Stink” had made Parliament uninhabitable “Well, we are only going to this once and there is always the unforeseen” – so he went for the highest possible estimates of need … and then doubled the diameter of the pipes (enabling more than four times the throughput).

We know that G-fast is good for 300 Mbps over 300 metres provided the copper is good, but copper now costs more than fibre to manufacture. Demand has fallen to such a degree that there is now only one UK manufacturer left (owned by BT!) while property developers are wanting to build fibre only buildings and remove unused copper during renovations, because no new tenant is likely to prefer it. Hence the BT decision to standardise on fibre to the premises for developments of more than a couple of hundred properties. I expect we will hear more over the next few days and weeks as BT responds to the knowledge that it once again faced a robust competition regulator, not an ersatz nation strategy planner. As Michael Beesley did not say: “Industry strategy is for investors, for regulators”.  And I remind those who think HMG should have a strategy that it has one – announced almost exactly a year ago