The Labour party’s promise of “free broadband” is the most eye-catching giveaway so far in the general election campaign but consumers may not benefit quite so much from nationalising a core part of BT to achieve that aim.
There is no doubt an instant appeal to people who feel they pay too much for broadband. The prospect of 300Mb plus speeds would resonate in households outside the urban conurbations who pay the same price as everyone else for a service that has hardly improved since the dial-up age.
Anyone who has endured the turmoil of dealing with BT’s customer service department may also feel that the country’s critical digital infrastructure would be better off in public hands.
Yet others argue that the move to nationalise the Openreach engineering arm of BT would undermine the British telecoms market, which is one of the most vibrant in the world. Critics say the move would wipe out competition and return the market to the days of the early 1980s, before BT’s predecessor British Telecom was privatised, when it would sometimes take six months to get a line connected.
Matthew Howett, principal analyst at Assembly Research, said the “wheels would come off” the competitive market if it was replaced by a “bland public owned corporation selling standard connectivity”. That would hit innovation and investment in new services as it is hard to compete with free.
He also asked whether consumers would look forward to dealing with government customer services every time they had a problem with their WiFi. “No one says BT is perfect. It’s excruciating to deal with but dealing with the government would be like pulling teeth. It will be a nightmare,” he said.
John McDonnell, the shadow chancellor, said Labour had pledged to nationalise Openreach because the market had “failed”.
But Ofcom statistics show average broadband speeds tripled between 2013 and 2018, while data usage grew six-fold. Although full fibre coverage has reached only 8 per cent, that number has doubled in the past two years while the number of homes able to connect to an ultrafast line has hit 54 per cent, up from 36 per cent in 2017.
The promise to offer broadband as a free service could undermine the telecoms industry’s move toward bundling products when consumers are offered discounts if they buy pay-TV, mobile and broadband as part of one package.
Labour said companies would be able to continue selling those services but industry executives warned that by pulling Openreach and the core BT network back into public ownership, it would significantly limits the industry’s ability to generate costs savings from combining fixed and mobile networks, which help keep prices down.
The renationalisation of telecoms networks has also proved to be a difficult process in the few countries it has been tried.
Australia, under its Labor party, took the boldest step in global telecoms by rushing to build a full fibre network to 93 per cent of its huge landmass by 2016. It set up a company — National Broadband Network — for the project and bought the network assets of Telstra, the country’s equivalent of BT, to build digital infrastructure at a cost of A$43bn. The project quickly unravelled as the cost jumped to A$73bn and successive governments cut back on the scope of the project and moved away from its full fibre ambition.
Three quarters of Australians can now connect to NBN but, according to its chief executive, average speeds are only on a par with those in the UK.
There is also a lesson to be learnt from the private sector. When Carphone Warehouse launched broadband under the TalkTalk brand in 2006, it made waves in the market with its offer of “free broadband forever” to landline subscribers. Chaos ensued as about 400,000 people signed up immediately but had to wait months in some cases to get connected and the company later admitted that it had struggled to cope.
Labour’s free broadband giveaway could prove equally challenging.
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