Perspective: Why BT should not be given a 'license to steal'

By Michael Potter, Communications Week International, 21 February 2000

As of 1 January 2000, British telephone consumers are spending more on their phone calls than they should be paying, if the Office of Telecommunications and BT had complied with the original timetables established under European law. The European Commission passed legislation requiring Europe's former monopoly phone companies to open their networks in an equal fashion to new competing telephone companies by the first of the year.

Currently, when dialing zero at the beginning of a call, the vast majority of U.K. residential customers are automatically routed to BT. If the customer wishes to take advantage of the lower call charges offered by one of the many new phone companies, they are generally forced to dial a four-digit prefix. Because the extra four digits make it less convenient to use an alternative carrier, the existing system preserves an important competitive advantage for BT, enabling BT to maintain artificially higher prices.

It's a case of gamekeeper turned poacher - Oftel knew that if the EC did not allow the U.K. government to defer its obligation to procure BT's compliance, the government could become liable to consumers for the billions of pounds of lost savings in lower call charges.

In the holiday quiet of the last few days of December 1999 the EC brokered a compromise that gave the U.K. government permission to delay the implementation of the original legal deadlines by three months. The Commission granted this delay based on a commitment from the U.K. government to implement, by 1 April 2000, a temporary solution using automatic dialers that would at least reduce damages to consumers and new entrant phone companies.

The U.K. government spent tremendous resources to legally expropriate ("license to steal") value from consumers. Truly a stealth telecommunications tax. However this "legal" route is really one of the most subversive of all thefts.

If consumers are being ripped off by their phone companies or their regulators at least they can seek legal remedies to recover damages. In the case of a legal expropriation it would be nearly impossible for U.K. consumers to be compensated. Ironically, if you are a consumer, you may be better off being abused in some of the countries that have traditionally not implemented nor enforced EU telecommunications laws such as Belgium, Italy or Spain.

And, what of Oftel's commitment to the EC to remedy the problem as of 1 April? Current Oftel-BT proposals simply add insult to the consumers' injuries. Rather than require BT to compensate consumers for damages, U.K. consumers will be asked to pay most of the cost of installing the auto-dialers. In other words, they would be forced to foot a large part of the bill for BT's poor planning and performance.

Let us not allow BT's recent stock crash to provide the company with the argument that the market needs "regulatory stability," a code word that is often used as a justification for subsidizing incumbents during "transitional" times.

Since there is no realistic solution in sight, the Commission should be preparing to levy compelling penalties to encourage a more consumer-oriented outcome, consistent with European law. And Westminster should also have the chance to accept or reject Oftel's proposals to resolve these issues.

Legislators can either choose to assist BT with its foot dragging, or they can ensure that BT compensates both consumers and new telecoms entrants for damages.

Michael Potter is former vice chairman of ECTA. He is director of Paradigm Ventures, a European-focused venture capital firm specializing in telecommunications and high technology.