Margaret Thatcher’s death marks the passing of the instigator of, in the 1980s and early 1990s, very far reaching and innovative changes to the UK telecoms market, that have not only been replicated worldwide but also laid the groundwork for the multitude of independent competitors to BT that we cover today at Megabuyte.com. We look back at that impressive legacy.
Whilst most of the Megabuyte team were in school shorts/skirts or hadn’t been born when Margaret Thatcher became Prime Minister in 1979, it falls to the oldest member of the team (who was doing his O levels then) to look back at her legacy. O levels led to A levels and studying economics at University, at a time of very interesting and unprecedented economic change. Whilst we all take competitive markets for granted now, and companies grumble when they perceive them not working perfectly (e.g. Talk Talk moaning about BT’s fibre wholesale prices), the early 1980s were dominated by state owned companies in all of the ‘natural monopolies’, telecoms included, which were generally inefficient, offered poor service, and were constrained by strong trade unions.
The first major telecoms-related move of the new Conservative government after coming into power in 1979 was the separation of the General Post Office into separate post and telecoms businesses, followed by the privatisation of BT (then called British Telecom) in 1984. This was accompanied by the introduction of the Duopoly Policy, enabling Cable & Wireless to compete with BT in the UK in the provision of fixed line calls services, which required the establishment of interconnection prices. The sale of 51% of BT was certainly a radical move at the time (and was the world’s then largest share offering), and was accompanied by the removal of many constraints on BT’s actions.
BT (like many of the other privatised UK industries) also became subject to a new form of RPI-X price cap regulation devised in the UK, administered by new independent regulators (Oftel in the case of telecoms), which still forms the basis for much price regulation across the globe. Whereas previously many natural monopolies had to set their prices to generate a certain rate of return, the new price cap regulation was designed both to provide incentives to efficiency as well as providing more certainty on pricing for competitors.
The mid-1980s also marked the granting of the first two mobile phone licences, to Vodafone and BT Cellnet (to become O2), which mandated independent service providers. Although no longer legally required, this model of independent service provision still exists and prospers to this day, to the benefit of retailers such as Carphone Warehouse and the many B2B telecoms resellers that we cover, such as Daisy and Alternative Networks. Licences were also granted in the late 1980s for so-called Personal Communications Networks, operating at 1800MHz, which ultimately became Orange and T Mobile, and then EE. Again, the UK was one of the first, if not the first, country to licence additional mobile operators to the original incumbent(s).
The second major landmark in UK telecoms policy was the Duopoly Review of 1991, published shortly after Margaret Thatcher stepped down from being Prime Minister in 1990, which really laid the groundwork for the telecoms market that we know today. The review opened up the provision of telecoms networks and services to all and sundry, with the early adopters being the multitude of UK cable network franchises. Again, UK cable companies were the first in the world to be able to offer TV and phone services. Some potential competitors came and went, including the Ionica fixed wireless service. However, it was this review that ultimately created today’s situation where we all have multiple choices for our home phone and broadband, and facilitated the creation of the hundreds of business telecoms providers that exist today in the UK, probably far more than any market outside of the US.
There were, of course, policy mistakes. One was pinning hopes on Cable & Wireless providing strong competition to BT, but Mercury failed to set the world alight, and C&W’s UK business (CWW) is now of course part of Vodafone. What a waste of a golden opportunity granted 30 years ago. A second mistake was the granting of so-called Telepoint (CT2) licences, also in the late 1980s; these were very low powered mobile services, requiring the user to be close to a base station to make or receive calls. Offering little more functionality than a phone box (remember them?), they unsurprisingly flopped (another one of Hutchison’s less glorious moments –with its Rabbit service - with Orange also being one of the failed service providers). Somewhat ironically, the Telepoint concept is little different to today being able to make a mobile VOIP call sat in a Starbucks!
A third mistake was the decision to licence as many as 140 or so town-based cable TV franchises in the early 1980s, with the resultant on-going consolidation to two players (Telewest and NTL) and then one (NTL/Virgin Media) significantly detracting from the serious business of running TV and phone services.
Whilst the onset of new mobile telecoms technology would have led to increased competition in any market, the changes driven through by Margaret Thatcher in terms of ownership, competition and regulation have created what is, despite the occasional competitor grumbling, one of the most competitive and open telecoms markets globally today. BT has one of the lowest market shares of any incumbent (but is still thriving), the market supports hundreds of smaller competitors, most of which are profitable and cash generative, whilst the internationally low (and declining) margins of the three main mobile network operators (see our recent UK mobile quarterly review) point to a more competitive mobile market than anywhere apart from perhaps India. Some legacy!
