Liberal telecoms regimes are vital for UK competitiveness

Liberalisation of telecommunications and the introduction of competition have dramatically improved services in the UK telecoms market over the last twenty years. The CBI is an ardent supporter of such liberalisation, and firmly believes that effective competition in the sector promotes and rewards efficiency. It is also essential if we are to achieve long-term international competitiveness in our economy.

We are now at a crucial new stage in the process of service development and growth. Information and communications are at the heart of economic and social activity, and the new relationships being formed between governments, businesses and individuals both as citizens and consumers are broadening and deepening all the time.

Convergence of telecommunications, broadcasting, entertainment and information production and processing means that the regulatory structures designed for these industries when they were distinct and discrete sectors are now out-dated. It is good to see that the UK is taking the lead internationally to build a new set of institutions that are more appropriate for this Information Age.

The CBI sees significant gains for UK business in developments currently taking place in telecommunications and its associated sectors. The European Union is driving towards full liberalisation, offering opportunities for UK firms to enter EU markets with a high growth potential. The electronic communications industry is also highly dynamic, with attractive prospects in markets for emerging technologies like broadband Internet. And the more competitive the domestic market environment, the better placed UK telecoms firms will be to take advantage of all these opportunities. Nowhere is the need for a level playing field more keenly demonstrated than in this sector. Many EU member states think they are the aggrieved party, or are the EU leader - every nation has more to do and more to learn.

We would really like to see a number of measures taken to stimulate further investment and to increase the pace of domestic competition in telecommunications. Oftel has continued to play an important role in this, and will doubtless do so until the formation of OFCOM. But the CBI itself also has a role to play. While Oftel looks at issues from a technical regulatory perspective, we believe there is a similar need to look at them from the perspective of how they contribute positively to the wider economic and social agenda. We are championing the telecoms industry's role, by highlighting the contribution industry makes - both as telecoms providers and users - to economic and social progress. That is why we see a number of issues as important at the domestic and international level.

The UK agenda

The CBI wants telecommunications in the UK to develop by optimising an array of market-based incentives, rather than focusing narrowly on regulatory penalties. Although we believe there will be a continued need to regulate dominant operators, an increasingly light touch is needed - both to take into account heightening competitive forces, and to provide incentives for further liberalisation. We believe liberalisation needs to be developed in such a way that it provides incentives not just to market entrants but also to dominant operators if they are not to hamper competition at every turn.

One example where this approach has worked is in flat rate Internet access. BT's requirement to offer flat rate access has obliged it to continue to invest in the narrowband market - one of the areas where the UK is a world leader. There are also ranges of other measures, which encourage people to take up narrowband access, and support flat rate access.

In contrast, the UK lags behind a number of other European and OECD countries in the development of broadband access through local loop unbundling. We believe, in time, that LLU should stimulate investment in the forthcoming broadband market. But it should be just one of many policies supporting broadband take-up. The Broadband Stakeholders Group has also identified ways to drive forward broadband development, and the CBI hopes the Government will support private sector investment in this area by adopting the group's proposals.

Allocation of spectrum is another important issue for service development, which must be handled carefully to avoid a stalemate situation, which risks pitting certain sections of industry against others. The establishment of a broad spectrum trading market through abolition of artificial and anachronistic, technologically-defined barriers to use should result in more efficient and wider service markets at lower prices. However, it has yet to be determined how best to achieve this. Companies who have paid very large amounts in auctions based on today's restricted forms of supply should not be penalised. Not surprisingly, those that participated don't want to see their assets devalued. Perhaps more could be done to support the development of applications for 3G markets by Government with the industry, making reform more acceptable.

With the convergence of the communications markets, telecommunications companies are entering new markets. The Government needs to support cross-sector investment and media ownership if new and enhanced services are to be developed which will foster and stimulate new areas of economic growth and facilitate greater efficiency in many existing areas. That is why the UK rollout and take up of digital TV is so important. The BBC and private media companies must be given the means to sustain investment in digital production and delivery.

The efficacy of all these and other communications regulatory and policy issues will be determined and underpinned by the formation of OFCOM. The UK is taking an important international lead with the decision to merge its existing regulators into one, and if done properly, this step should encourage a much greater and faster growth of broadband and other new services.

As extensive users and providers of leading-edge communications services it is vitally important that OFCOM regulates markets with a light touch and an ever-watchful eye on competition. It will be the litmus test of whether the Government truly understands the critical role of communications as the generator of future economic growth, productivity and competitiveness.

International dimensions

Focusing on EU legislation, the CBI welcomes measures designed to liberalise Member States' telecommunications sectors, when fully delivered they will present attractive new market opportunities for UK firms. While the CBI believes that sector-specific regulation is still necessary to guarantee market competition, it is concerned by some proposals in the '1999 Review' Package.

The directives supposedly aim to promote competition in the provision of electronic communications networks and services through the reduction in market power of incumbents. But we are concerned that the Directive on a common regulatory framework could fail to provide regulatory certainty and Single Market consistency because of the high degree of discretion granted to the new National Regulatory Authorities. The CBI does however believe that there should be an ultimate power to require a Member State to amend or withdraw measures that would contradict EU rules.

Another concern is the Directive on the processing of personal data. We believe it should establish a uniform, inexpensive and practical set of requirements across the EU, rather than permit a patchwork of different national requirements.

An efficient European telecommunications market is vital, as much of the commercial and technological dynamism of the sector occurs outside the EU. In an increasingly global world economy, European businesses cannot afford to operate in markets where their flexibility and ability to adapt to change is constrained by over-regulation. That is why the EU's Lisbon agenda of increasing competitiveness and improving communications could take a decisive step forward at the Barcelona summit.

And in conclusion…

Information and communications technologies powerfully contribute to productivity and competitiveness across the business spectrum. The CBI's participation in the current debates will necessarily focus on the impact changes will have on overall economic growth and social progress. That is why broadband is such a core issue.

The CBI must also work with Government to identify the policy and regulatory reforms needed to allow businesses to really contribute. This will be even more important following the formation of OFCOM. Both business users and providers of communications services will be profoundly affected by the way in which OFCOM regulates markets. We hope the voice of business will have a proper and constructive place in the formation and ongoing operations of OFCOM.

The same requirement exists at international level. If the Barcelona summit next March is to advance the liberalising Lisbon agenda, the Voice of Business must have a strong and clear voice in the preparation for the summit, and the decisions made at it. The UK Government must work with the Spanish Presidency to ensure this is achieved. We have to have EU member states showing by their actions that they genuinely believe in an entrepreneurially-inspired, de-regulated Europe - the time for talking is over.