Don't split up BT, says government advisor

Breaking up the incumbent telco would be a 'high risk gamble', says the man who advised the Government to start radio spectrum trading

There is not enough evidence to justify the upheaval that splitting BT up would bring, according to Professer Martin Cave of the Warwick Business School in Coventry, and an influential authority on the telecoms industry. Speaking on Monday at the FT world Telecommunications Conference in London, Professor Cave said that instead, the government should get tougher on any misbehaviour, and wait for new technologies to erode BT's local loop monopoly. Breaking up BT has been proposed to prevent the company from gaining unfair advantage due to its ownership of the "local loop" (the telephone lines that reach to homes and offices). However, setting up a separate "LoopCo" to manage the local loop would be difficult to manage as technologies such as fibre, mobile and other wireless networks would blur the boundary, and eventually make the monopoly increasingly irrelevant, said the Professor. He was speaking at a debate on "structural separation" at the conference. The new regime would have to be better than the current one, and return the costs involved with making the change, he said, and this would be unlikely to happen. "Instead, we need to develop better remedies against discrimination." These new powers should come through implementing new European Directives, and increasing "deterrence" through third-party actions. Oftel -- or its successor Ofcom -- could be more active in pursuing potential breaches by BT, said Cave. "Oftel has been too cautious," said Cave. "It should lose some cases." Oftel should have taken up more cases, in areas where the law needed clarification, he explained. Others at the conference were less sure that the law was enough: "Remedies do not work," said Phil Evans of the European Competitive Telecommunications Association (ECTA). "We need a technical review of the structural change required to get the industry fit for purpose." "We should construct a regime that would encourage the incumbent to go ahead with structural separation," said Phil Mochan, managing director of consultancy Compere Associates. "It is for the market to decide." "Creating LoopCo as a 19th or 20th century style utility would not be helpful," said Professor Cave. The actual monopoly would be changed by new changes in the market, he explained. "If the cut is made at the switch of MDF [main distribution frame] in the exchange, then future decisions have to be co-ordinated on either side. Any separation made now may become obsolete." When new technologies are introduced, investment would have to be made by different companies on both sides of the boundary, he said. This could lead to problems similar to those created by the privatisation of the railways, he said. Virgin Railways, for example, planned to introduce tilting trains, which required a track upgrade. Then the track upgrade was scaled back, and Virgin's ability to run tilting trains was wasted. The government's difficulty is in trying to achieve competition and promote the roll-out of broadband, said Cave. The government should not make a "Faustian pact" with BT to achieve roll-out, but it also made no sense to break up the company when the roll-out has reached "the upward part of the S-curve". "The government is trying to achieve competition, and broadband roll-out, using only one instrument," Professor Cave explained. He suggested the government should "wait for the cavalry", in the form of competition for the local loop. This would come from the increasing parity of mobile and fixed services, fibre to the consumer and the availability of Wi-Fi services, he said. In March, Professor Cave advised the government to begin trading in wireless spectrum in a report commissioned by the Department of Trade and Industry.

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