Devil's Advocate: The worst of both worlds

Straddling the public and private realms is bad news for consumers

The opening up of the telecoms market highlights the deficiencies of economies run by bean counters, says Martin Brampton.

The unbundling of the local loop is gathering pace. AOL has now joined other high-profile ISPs who want to put their own equipment into telephone exchanges. These moves are sparking competition with BT at a level not seen before. But they also raise some darker issues.

It was the privatisation of BT that set us off down this route. The decision owed more to dogma than to any genuine economic argument. The old state-run telephone system was plainly a monopoly but as with the railways, no thought was given to the feasibility of creating genuine competition in such a system.

Since one article of faith was that competition was a critical benefit of privatisation, it was essential to either introduce some element of competition or rely on a regulator. In fact, in most of the privatised sectors both solutions have been applied - an outcome that might be described as giving us the worst of all worlds.

Critical economic decisions have had to be made by government functionaries, working within more or less arbitrary guidelines as regulators of a vital utility. A few outright competitors came and went but most of the activity has been in reselling BT services. The cynical would suppose that BT welcomes the appearance of competition as it counts the revenues from its wholesale operations.

Indeed, there is precious little to discriminate between the various competing offerings, so that for many consumers making a choice is not worth the effort required to attempt comparison. Rivals tout figures for reductions in the price of landline calls but fail to mention that they have priced up the pernicious non-geographic numbers.

For a good number of years, BT staved off most of the competition in the final provision to the consumer. Recently, for good or ill, the regulator has forced BT to offer better terms for rivals wanting to take control of that last link. This coincides with a belief by the likes of AOL and Wanadoo that the value of the local link is about to rise sharply with the introduction to the medium of a wider range of entertainment and other services.

But no sooner do we overcome the problem of lack of competition, than we expose fresh problems with supposedly free markets. Neither AOL nor Wanadoo has the slightest intention of providing for the entire population. Their choice of where to offer services is geared to financial considerations.

This has two effects. The immediately obvious conclusion is it will exacerbate the situation of those people who are already aggrieved because they live in areas where modern communications services have been slow to arrive or have yet to arrive. They will continue to be unable to access a wide range of services and will be cut off from the vaunted competitive market.

Moreover, as with the banks removing services from economically disadvantaged communities, the choice of exchanges to be adopted by BT's rivals is likely to be affected by the financial clout of the population served by them. This is complicated by different propensities of economic groups to choose to spend money on entertainment but is likely nonetheless to leave a lot of people dissatisfied.

Yet again, we are forced to the conclusion that the naïve assumption that markets can solve every problem is working against our wider economic interests. Our world is far too complicated for accountants to be able to determine what is really of economic value to the country. With companies basing their decisions on pure finance, we are left to wonder how our real economic interests can be served.