Why has British Telecom lost the plot? When Gordon Brown, the chancellor of the exchequer, called last week for a cut in the cost of internet access, BT reacted like a wounded tiger. Sir Peter Bonfield, chief executive, issued a strongly worded statement warning him to keep off his patch and not to interfere with BT's private business. He told the chancellor that BT's timetable for opening up the local loop to competition - set for July 2001 - could not be changed without BT's permission.
I've got news for BT. It can. It may have escaped the corporation's notice but it still has a virtual monopoly of the "local loop" - the last mile of wire between the telephone exchange and the domestic consumer. The government still has the right, indeed the duty, to make sure that where monopolies are operating against the public interest, they are opened up to competition. If the government threatened to refer BT's monopoly of the local loop to the monopolies commission then you would see it wake up quickly from its digital slumber.
It has already happened in America. The dismantling of the monolithic Bell telephone system into competing "Baby Bells" is one of the reasons why America's cheap phone calls (flat monthly rental and then unlimited free usage) have led to a huge internet take-up rate. This has had a big knock-on effect on the rest of the economy. The more people use the internet cheaply, the more scope there is for faster expansion of e-commerce, and greater incentive for companies to create products to feed the web's booming population (and then export them). Two crucial infrastructural factors determine the future success of the internet economy.
The first is low cost access (to drive demand and increase online usage times) and the second is broadband access to determine supply (or "content"). They go together. The broader the bandwidth and the cheaper the access, the quicker companies will develop innovative broadband content for the mass market and for specialist applications.
The ability, for instance, to transmit high quality television or film instantaneously over the internet (in two directions) will not only open up a consumer market for films, less popular football matches and so forth, but could also radically change health and education. Poor schools could eavesdrop on better schools, medical operations could be done remotely and the relationship between GPs and patients - and consultants and nurses - could be revolutionised.
BT fails on both counts. Its prices are still far too high in general and if you doubt this, look at the advertisements in the Guardian and elsewhere to see competitors undercutting BT on international calls by up to 90%. The fact that there are even worse examples of monopoly behaviour among other European telephone giants doesn't alter the argument, it merely underscores the size of the problem. Monopolies behave the same everywhere.
The availability of broadband raises the uncomfortable question: what should be done when what is best for the shareholders clashes with what is best for the economy as a whole? If BT regards its role as maximising profits for shareholders then it will want to prolong its monopoly and milk it while it is there. Under pressure from the regulatory body, BT has agreed to open up the local loop to competitors. But it won't happen until July 1, 2001, and then will only be the interim technology ADSL (asymmetric digital subscriber line).
This offers fast reception of signals but much slower outward transmission (hence the asymmetry). It will be fine for downloading films and for online shopping - but it won't be powerful enough to take film-quality video in two directions. This is where many of the most exciting applications lie (such as high-speed video conferencing). The alternative (already in use on BT's trunk routes) is fibre optics which have almost unlimited two-way transmission capacity. And why July, 2001? Someone should tell BT that its competitors are living in internet time where things happen next week, not next year. If BT really thinks it can't offer ADSL before July next year then the government should start an instant internet auction to see whether any start-ups could do it quicker.
For 15 years BT has been trying to persuade the government to let it wire Britain with broadband capacity. The proviso was that it would need to pump "entertainment" down the channels (meaning video films) in order to make it commercially worthwhile. The government at first refused BT permission to send entertainment down the wires because it didn't want to upset the cable companies who were laying cables around around the country (albeit cherrypicking the most profitable regions) in order to provide competition for BT. If BT had been allowed to wire the country with fibre optics (each strand of which can carry up to four million phone calls simultaneously) on a "common carrier" basis then there would have been no need to dig up the roads for cable in the first place.
When the government eventually started to think about removing the ban on providing entertainment services, BT seemed to cool on the idea of truly broadband access, unlike online nations like Finland and Singapore. Britain now has a golden opportunity to seize the initiative in the race for broadband access. And this will still be very important during the wireless revolution because even cell phone calls are routed through cabled networks.
BT now looks like a giant that is losing its way in the internet world. It has looked on, embarrassed, while Vodafone (market capitalisation £160bn), a company that barely existed when BT (market cap, £63bn) was privatised, has soared ahead of it to become one of the four most valuable companies in the world. Pundits are beginning to refer to BT as a takeover target. The Lex column of the Financial Times has even suggested it should make a takeover bid for Dixons to get its hands on its Freeserve subsidiary, in order to use Freeserve's management to exploit its own customer base.
BT's problem is not of its own making. It arises from the Conservative government's mistake in privatising it, leaving its domestic monopoly intact. It should have been either split between its "common carrier" obligations and its commercial services or broken up on the Bell model. Now it is facing a fresh crisis because its perceived duty to its shareholders clashes with the national interest which demands that affordable - and that means much lower prices than BT is contemplating - broadband internet access be rolled out as quickly as is humanly possible.
There is still time for BT to realise that a cut-price broadband policy would not only be good for the UK economy but actually good for shareholders as well. Why? Because it would convince the increasingly sceptical City that it knew the direction the internet was going. But it must act fast. It is becoming a question of wake up - or break up.
