Oftel takes a back seat in drive towards competitive telecoms

In 1984, Prime Minister Margaret Thatcher had other things on her mind than the telephone industry: the National Union of Mineworkers, for one. But somewhere in there, she decided to tackle another of the UK's great monoliths, British Telecommunications.

Her chosen device was telecoms watchdog Oftel, set up as a government department that year under the Telecoms Act. Sixteen years later, the decision to force open BT's local access networks to its competitors is seen as the most potent single action the 190-strong organisation has made since the first wave of privatisation of BT.

Oftel seems to have decided that the battle is won, and has effectively voted itself out of a job. It has announced a sweeping examination of the role of regulation in the market, and signalled its intention to cut back on its activities as much as possible over the next five years.

This surprise decision has re-opened the debate about the nature of competitiveness in the UK telecoms market, worth £23.8 billion in 1997-8 as a whole. But while Arthur Scargill has been vanquished, is BT really house-trained enough to require no further adult supervision?

Mission accomplished
The watchdog now argues that its original goal - it was designed to promote competition in a market noticeably skewed towards the incumbent, dominant carrier, BT - has been achieved, and that a different model is called for.

"Where there is not yet effective competition or where customers need more protection, then we will regulate, with as light a touch as possible," says its director general, David Edmonds.

Oftel believes that unnecessary regulation can distort or undermine competition. This is because it can encourage inefficient suppliers to enter the market, pushing costs up for customers, and reducing the incentive for players to differentiate by providing innovative services.

Oftel points to statistics that it says show growing consumer choice - about 50 per cent of UK households (12 million homes) have the option of an alternative service provider.

Similarly, businesses in major city centres are likely to have a choice of three or more carriers offering direct connections. New technologies such as fixed wireless access, announced by the Department of Trade and Industry as part of the 'third generation' mobile networks bid process, will increase this further.

Ringing the changes
Put it all together and you have to say the time for change has come, Oftel believes. "The outcome sought is the benefits of effective competition - lower prices, higher quality, more choice of services for consumers - rather than competition for its own sake," it says.

From next month Oftel will start reviewing new market sectors, including Internet access and mobile and leased lines, to determine just how much supervision is necessary.

Analysts aren't surprised at the abdication. "The signals have been there for the last two or three years," says Tony Lavender, principal consultant at telecoms analysts Ovum. "What is interesting is that it is going to decide the level of competition on a sector-by-sector basis."

According to figures from telecoms consultancy Analysys, competition has indeed pushed down prices. The average cost per line per year for a medium-sized business has fallen from about e800 (£486) in 1985 to e400 in 1999.

Unsurprisingly, BT, the subject of nearly all Oftel's efforts in all its years of existence, favours less regulation as soon as possible. It argues that the playing field is level enough already, and that regulation is "unwarranted and stifling".

All well and good? Maybe not. Oftel says that newer entrants are concerned that slackening regulation could allow BT to flex its muscles and crush them.

Consumer concerns
Oftel acknowledges that consumer groups are stubbornly unconvinced that the industry can effectively police itself.

Between April and the end of September last year, 32,350 consumers made complaints to Oftel about a variety of problems with carriers, showing that the industry is some way from putting its house in order.

"There is a worrying focus on self-regulation and co-regulation, which are firm items of government policy. If the industry could self-regulate, then Oftel wouldn't have to issue as many notices as it does now," says David Harrington, director general of the Telecommunications Managers Association (TMA). The TMA is a user group made up of 1800 individual members from the top 1000 business telecoms consumers, who spend £9 billion per year in the UK telecoms market.

Critics also say that despite all this competition, BT still has a virtual stranglehold on some markets: 85 per cent of the residential market, 50 per cent of business telecoms traffic.

New carriers, same old prices
Even where there is competition, user groups such as the TMA argue that alternative carriers merely hide underneath BT's pricing umbrella, offering slightly lower prices that still assure them a fat margin, without really offering effective customer choice.

So if 'the free hand of the market' isn't working all that well, what hope for self-policing? Harrington also casts doubt on Oftel's ability to identify areas where there is not enough competition - leased lines, for example.

Until the middle of last year, the watchdog insisted that leased lines in the UK were no more expensive than in other countries, only for the European Commission to announce in November that some BT leased lines cost three times the recommended European levels. Oftel is taking a back seat too soon, perhaps.