Greater competition in the telecoms market could boost the UK economy by as much as £430bn over 25 years, according to a report from Spectrum Strategy Consultants and Indepen Business Consultants.
"In the same way that IT investment increases economic productivity, there is also a strong link between investment in telecoms innovation and business productivity," the report said.
"However, without decisive regulatory change to foster a more competitive market, a similar dividend from telecoms innovation for British business will not be realised."
The report, commissioned by Cable & Wireless, urged telecoms and media regulator Ofcom to address four key deficiencies in current regulation, including price-based discrimination against BT's competitors and lack of incentives to innovate.
When the UK's gas, electricity and mobile telecoms markets were deregulated, they took between five and nine years to achieve the same level of market competition as the fixed-line telecoms market managed in 19 years, the report said.
Despite an ongoing process of deregulation over the past two decades, the report said BT retains 60% of the UK retail telecoms market and 80% to 90% of the wholesale telecoms market.
The report said the slow roll-out of broadband was further evidence of the failure of the market. It suggested that this was partly due to a lack of "equivalent" access to BT's network assets being available to its competitors - that is, a lack of non-preferential treatment of BT Retail by BT Wholesale.
In December, Ofcom announced a consultation period for its Strategic Review of Telecoms, the first review of its kind in the UK for 13 years.
Four key principles for regulation
- Introduce regulation to provide incentives to innovate and ensure adequate returns to facilitate efficient investment in new services, wherever prices are regulated.
- Prevent price-based discrimination against BT's downstream competitors and innovation caused by restrictive pricing structures or loading of costs onto certain products.
- Adjust the style of regulation to encourage innovation through commercial incentives, not regulatory intervention or penalties. Regulatory uncertainty should be minimised to encourage investment.
- Ensure "equivalence" of access to BT's upstream network assets for all operators by introducing a standard set of non-preferential systems and processes that are common to all operators. The relatively small set-up costs should be borne by all operators, not just BT.