Poor telecoms regulation 'costing UK £20bn'

Britain's BT-dominated telecoms industry needs a regulatory overhaul if it is to compete in the world market, argues a Cable and Wireless-sponsored study

British businesses and the UK economy could gain £20bn if Ofcom improves the way it regulates the telecommunications sector, including the ADSL broadband industry, according to a study published on Thursday.

The wide-ranging study, called "Reaping the telecoms dividend -- our opportunity for telecoms to drive innovation and productivity in British business and the economy", was carried out by Spectrum Strategy Consultants and fellow consultancy firm Indepen on behalf of UK telco Cable and Wireless. Cable and Wireless said it hopes to influence a review of telecoms regulation announced last month by Ofcom, which is the new telecoms and media regulator.

The study is highly critical of the current regulatory regime, arguing that it has allowed BT to retain its grip on the wholesale telecoms market, slowing innovation and costing the economy billions in potential growth.

"The new regulator has a key role to play in closing the productivity gap in the UK," said Cable and Wireless chief executive Francesco Caio in a statement. "Without decisive change, there will continue to be a drag from stifled telecoms innovation in this country."

The study's key argument, backed by a review of economic evidence from the UK, the US and other countries, is that a strong link exists between telecommunications investment and productivity gains. The report compares the benefits of telecoms investment to those of investment in ICT (information and communications technology), implying that the lack of telecoms investment means a drag on productivity and economic growth.

More competition in Britain's ADSL market, for example, could have pumped £100bn into the UK economy by encouraging earlier broadband take up, the report argues. The spread of broadband -- now generally seen to be moving at a healthy clip -- was delayed by at least three years due to the lack of "equivalent" access to BT's network assets by competitors, the report claims.

BT Wholesale controls nearly all of the wholesale ADSL market, with ADSL resellers competing with BT Retail. Efforts to "unbundle" telephone network exchanges, allowing competitors direct access and thus relieve their dependence on BT Wholesale, have made slow progress.

More generally, fixed-line telecoms suffer from failing competition and delayed innovation, the report claims, with BT retaining 60 percent of the UK's retail telecoms sector and 80 percent to 90 percent of the wholesale market. The report singles out the slow appearance of Carrier Pre-Selection (CPS), a technology allowing customers to easily switch telecommunications providers, which it says took four years to come to market.

Among the specific sectors that would benefit from better telecoms regulation are large retailers, the finance industry, local authorities, the manufacturing sector and creative and media companies, the report says. All are currently heavy users of telecoms services, are rapidly increasing their telecoms spending, or are sectors in which the quality of access to ICT affects their choice of country location, the report says.

Regulation should be restructured based on the principles of equivalent access to BT's network by competitors, prevention of price-based discrimination, and price incentives rather than penalties, the report argues.