Why we should add Ofcom and OfGEM to David Davis's list of watchdogs in need of a good kicking.

David Davis has said, in the Sunday Times, that “our bloated, toothless regulators must be leaner and tougher“. He referred particularly to the Care Quality Commission, the Food Standards Agency and the Financial Services Authority as responsible, in no small part, for helping bring about the scandals they were supposedly there to help prevent.

Quis custodiet ipsos custodes. The elections for the Aediles, who regulated markets and entertainment were the most corrupt in ancient Rome. The regulatory “corruption” of modern Britain may be more intellectual than financial, but David Davis is almost certainly right in condemning the call for more regulation as the answer to everything.

So how do we get more “intelligent and independent regulators who are relentless in their drive to expose failings and put the consumer first”? 

I should, however, ask whether that is the right question, because of the damage that bad regulation is also doing to business and economy. I would also ask whether he has the right list of regulators.

Ofcom is quite good at putting the short term interests of consumers first, but has ignored the needs of business users, large and small. It has also not only ignored but actively damaged the case for investing in competitive networks to those of BT and Virgin – by its promotion of local loop unbundling instead of encouraging the constuction of alternative infrastructures. BDUK has colluded in the continuation of that policy. Meanwhile Ofgem has destroyed the case for investing in alternative energy supplies or efficiency measures – except when encouraged by green taxes and government bribes, as for windmills.  

Perhaps the greatest “political” scandal in the telecommunications world is the way BT and Virgin blocked the move by Birmingham City Council to try to give world class broadband to businesses stuck with slow and expensive leased lines in what used to be the workshop of the world. They achieved this by challenging the Commission’s verdict that the Council’s initiative did not constitute state aid. It will now be years before the case between BT, Virgin and the Commission is heard. By that time BT and Virgin may have got round to upgrading their networks serving central Birmingham but businesses in the areas affected will have moved away and other councils will have been discouraged from doing what is commonplace in other parts of the world where the incumbent operators are dragging their feet. 

The “cleverness” is that the case is between BT, Virgin and the Commission. In consequence there is supposedly nothing that Birmingham, DCMS or Ofcom can do to expedite matters. in fact there is plenty that a vigorous regulator could do – but do not hold your breath. 

Meanwhile the market for business  broadband gets no mention in the Ofcom Annual plan. Perhaps worse, the Ofcom proposals for the review of leased line charges in 2012 , where Ofcom acknowledge that BT had a dominant position, were for an increase of 3.5% above the rate of inflation for non-fibre links and 3.5% – 10% for rental analogues and for RPI minus 12% for gagabit (alias fibre links). Thus giving an incentive to BT to milk its obsolescent city centre leased line businesses for as long as possible.

This is exactly the opposite of the principles of good regulatory practice that David Davis and myself were taught at London Business School 45 year ago. The class reunion for MSc06, which included lectures on regulatory economics (I can remember some of the case studies but not the precise title of the module), is later this year.  

The actuals approved by the European Commission which come into force today are little different to the orginal Ofcom proposal: RPI + 2.5% for slow speed, RPI – 11% for gigabit and 2.5 – 10% for rental analogues. The non-fibre links should also have a similar, “technology neutral” below inflation cap to encourage their replacement as soon as practical.

The combined effect is an increased incentive for those needing fibre to the premises to relocate, along with the jobs they will create, to where they can get it – all too often outside the UK. The recent paper by Digital Britain First calling for Highspeed Broadband for all of Britain makes its points well but pulls its punches. The fact that businesses in the prosperous Thames Valley, including Oxfordshire and Buckinghamshire cannot get decent business broadband and have to relocate if they are to stay in business is truly shocking. How much worse is the situation in less advantaged parts of the UK where those would like to invest in alternative infrastructures are also being blocked?

But it is not just Ofcom and DCMS that have so spectacularly failed in their respective duties as regulator and sponsoring department. Ofgem and DECC have similarly brought about a situation where it is no longer possible to locate a big data centre in the UK as a whole, (not just within the M25), because of the rising probability, not just risk, of power rationing in the near future. Meanwhile US operators are pointing out that cheap energy in the US means we should migrate our data processing to where it will be outside UK/EU Data Protection law and our personal information can all be sold “for marketing purposes” or monitored under the Patriot Act, as part of our cost cutting operations 

Hence my “modest ” suggestion to David Davis that he should add to his list of failed regulators.