HC Deb 21 July 1980 vol 989 cc29-40
The Secretary of State for Industry (Sir Keith Joseph)

With permission I should like to make a statement on British Telecommunications.

The present rapid growth of telecommunications and of information technology provides immense opportunities for the industries connected with telecommunications. Over the coming years the majority of British households will be affected. Whole new industries and sub-industries and many new jobs will be created.

These developments have been under way for a longer time in the United States and have gathered greater momentum there than here. I am sure that one of the reasons for America's greater success has been the freedom available there to entrepreneurs to develop new services and a wide range of equipment associated with telecommunications. The opportunities and the market are too great to be encompassed by a single organisation, however skilled and however great its resources.

For those reasons, I announced last September that the Government would be reviewing British Telecommunications' present monopolies over the supply of terminal equipment attached to the telecommunications network and over the provision of services to third parties using British Telecommunications' circuits. Following widespread consultation with interested parties, the Government have reached the following conclusions.

First, we are going to make it very much easier for equipment supplied by the private sector, including all private branch exchanges, to be attached to the network. Subject to a transitional period of about three years, there will be freedom to attach and maintain independently approved equipment which meets the necessary technical standards. The only exceptions will be the supply, installation and maintenance of the first telephone and associated wiring connected directly to the main network, and the maintenance of private branch exchanges and associated wiring, for which British Telecommunications will remain responsible. This substantial change will give the business and domestic customer a wider range of equipment from which to choose and should remove many of the bottlenecks resulting from the Post Office's present exclusive privilege of supplying such equipment.

Secondly, we are going to allow people more freedom to use British Telecommunications' circuits to offer services to third parties which are not currently provided by British Telecommunications—for example, in the data processing field. I expect this change to lead to a significant growth in information data, transmission, educational and entertainment services provided over telephone circuits and to the emergence of new businesses. I have also decided to commission an independent economic assessment of the implications of allowing complete liberalisation for what are commonly referred to as value added network services.

Thirdly, I am exploring the scope for allowing the private sector to provide telecommunications transmission services, such as satellite business systems.

Legislation will be introduced next Session which will make provision for relaxing the monopoly. British Telecommunications will be free to compete with the private sector, but to ensure fair competition the Government intend to take powers to require it, where appropriate, to create a separately accounting subsidiary or subsidiaries where it is in competition with the private sector. We shall welcome partnerships with private capital in these subsidiaries.

I hope that the first fruits of these changes will be manifest within a year or so from now and that they can be fully phased in over the next three years. I look forward to seeing at an early stage approved extension telephones on sale in the shops and the private supply of business equipment currently approved by the Post Office, including private branch exchanges, teleprinters and MODEMS. The changes will bring new opportunities and challenges both for British Telecommunications and the telecommunications industry and I hope that both will respond positively to this greater freedom. They will have the opportunity to expand their range of products to compete successfully both at home and in world markets, and I look forward to the associated development of new enterprises and industries.

I have today placed in the Libraries of both Houses a memorandum giving fuller details of these proposed changes.

Mr. John Silkin

I note that the Secretary of State has changed his mind since last Wednesday about international comparisons. As he has done so, why has he not taken into account the experience of France and Germany, which have not destroyed the monopoly and each of which is investing twice as much as we are?

The bulk of Post Office investment is self-financing. If that is cut into, as it will be by the loss of more profitable outlets, how will that make any difference to those on the waiting list for a telephone and how will it help those who complain about high telephone charges? Is it not likely to have an entirely different effect?

As regards British manufacturing industry generally, the Post Office has traditionally always bought British. How on earth will the Secretary of State ensure that when he lets in foreign competition it will not destroy yet another industry, in addition to those that he has already destroyed?

Sir K. Joseph

The proposals will not destroy the monopoly. France and Germany are, alas, much more prosperous than we are. My statement does not presage any loss of profitable outlets now being taken by the Post Office. British industry will be given a period of grace during which to prepare for international competition.

Mr. Silkin

Would the Secretary of State like to reconsider his answer? Of course, his proposal is bound to have an effect on British investment. He says that France and Germany are more prosperous than we are. Is he saying that the United States is not more prosperous than we are?

Sir K. Joseph

I repeat that the changes proposed will not, in general, act to reduce British Telecommunications' existing revenue.

Mr. Kenneth Baker

Will my right hon. Friend disregard the rather exaggerated and gloomy atttitude of the right hon. Member for Deptford (Mr. Silkin), because my right hon. Friend's statement preserves the monopoly of the basic network of Post Office lines in this country but allows the opportunity of a partnership between the public and the private sectors to provide ancillary equipment? To the extent that that is done, the capital provided by the private sector will reduce the demand on public sector capital requirements. Will not that provide just the opportunity that the customer requires?

Sir K. Joseph

My hon. Friend puts the case for what I am proposing much better and more vividly than I did.

Mr. Stott

Is the right hon. Gentleman aware that this is a further example of his manic obsession with ripping off profitable enterprises that are publicly owned? Is he further aware that his proposals will be opposed by the Post Office Engineering Union, the members of which work in British Telecommunications? Is he also aware that taxpayers invest about £ 4 million a day in the network and equipment of British Telecommunications? If, as the right hon. Gentleman proposes, the profitable parts of the industry are to be sold off, or private enterprise is to be allowed to use them, how does the right hon. Gentleman consider that the Post Office will be able to generate sufficient finance to maintain the present network?

Sir K. Joseph

The hon. Gentleman has not got it right—

Mr. Stott

I worked for British Telecommunications for 13 years.

Sir K. Joseph

The hon. Gentleman should therefore be closer to the facts than he apparently is. Mercifully, it is not the taxpayer who is providing £ 4 million a day—if that is the right figure—for British Telecommunications' investment. The investment comes almost entirely from cash flow from the customer, not the taxpayer. The present set of proposals will make no difference to that cash flow. As my hon. Friend the Member for St. Marylebone (Mr. Baker) correctly said, the proposals will divert some of that towards other purposes which British Telecommunications cannot now serve.

I think that I have dealt with the hon. Gentleman's main point.

Mr. Butcher

Is my right hon. Friend aware that his statement will be received with delight by the British computer industry and British computer users? Is he aware that the number of terminals connected to Post Office lines is expected to quadruple over the next 10 years? Will he closely monitor the performance of British Telecommunications in checking type approvals for new devices to be released to the market?

Sir K. Joseph

It is not proposed that British Telecommunications shall have the decision about what to allow into the market. It is proposed that there shall be an independent certifying authority for apparatus, an authority that will protect the integrity of the network.

Mr. Golding

Is the Secretary of State aware that the Post Office Engineering Union believes that the proposals will be damaging to the customer, staff and the economy alike and that by creaming off profit and by allowing private outside contractors to take the pick of the businesss they will inevitably lead to slow expansion and modernisation and may also lead to a worse maintenance service and to higher prices?

Sir K. Joseph

I do not wish to associate the Post Office Engineering Union with any of the decisions that the Government have reached. Therefore, I do not want to damage it by what I shall say, but my hon. Friend the Minister of State and I have had what we regard as very helpful discussions with the union in arriving at our policy. I repeat that I am not associating it with any of the decisions made. We propose to continue consultations with the union and with other interests during the preparation of legislation.

Mr. Neale

Is my right hon. Friend aware how much his statement will be welcomed by the private telephone industry, particularly in that he has at last set Buzby free? Will he confirm that while the Post Office will be free to compete for the fitting of equipment to the system it will not be permitted to cross-subsidise between the tariff rates that it charges on the network and the rates that it charges for its equipment that it fits? Secondly, will my right hon. Friend accept that the present standards laid down by the Post Office for fittings addressed to the system are too high and that it is time a regulatory body was established, jointly representing the Post Office and the industry, to lay down what the new lower minimum standards for that equipment should be?

Sir K. Joseph

British Telecommunications will need to account separately for the subsidiaries in which it is competing with the private sector. We intend that precisely to avoid cross-subsidisation, although the Post Office Engineering Union will be sure to say that the private sector is itself to some extent, subject to the requirement that it remains profitable, free to cross-subsidise itself.

I do not accept my hon. Friend's assumption that standards are necessarily too high. The problem with the monopoly so far has above all been that in requiring apparatus tailored minutely to British needs it has inhibited the supply of goods for a world market. I hope, therefore, that the independent certificating authority will both serve British interests and free suppliers to serve a world market.

Mr. Charles R. Morris

Is the Secretary of State aware that many will see his statement today, which envisages opening up the British telecommunications equipment manufacturing monopoly to foreign competition, as a contradiction to the "Buy British", "Buy the Flag" campaign being vigorously promoted by other Government Departments and the Daily Express? How long does the right hon. Gentleman envisage it will be before the British monopoly is replaced by the American or Japanese monopoly?

Sir K. Joseph

I am not responsible for the Daily Express, as the right hon. Gentleman knows. The British manufacturers have, to a large extent through the influence of the Post Office, been discouraged from the world market. We seek to give them opportunities in the world market, but we shall open up our own market to overseas competition only to the extent that overseas markets are opened up to us.

Mr. Cormack

As more and more people will depend on the telecommunications system for more and more ordinary, everyday information, is it not vital that there should not be a monopoly? Would not there be sinister implications if there were?

Sir K. Joseph

I believe that the whole House will agree that a combination of a monopoly for the network and private enterprise and partnership for all the services that can be provided, either added on to the monopoly or in parallel with it, makes good sense.

Mr. Penhaligon

Will the Secretary of State confirm that he has rejected the idea of ending the monopoly over the network for all time?

Sir K. Joseph

The answer is an unqualified "No". I have not rejected any such proposition. In fact, I have announced in my' statement today that we are setting up an inquiry to see how much further we can go in liberalising the use of the monopoly.

Mr. Sainsbury

Will my right hon. Friend confirm that without the opportunities given by the arrangements that he has outlined the British telecommunications industry would be very unlikely to have a large enough or varied enough home base to enable it to export into a market that is bound to be one of the most rapidly growing in the world?

Sir K. Joseph

Yes, Sir. We are dealing with industries that are expanding explosively wherever freedom from monopoly has been achieved, as in America.

Mr. Harry Ewing

How will the Secretary of State ensure that there is the fair competition that his statement speaks of between British Telecommunications and the private sector? Is he saying that he will now remove the cash limits from the Post Office in order to allow it to compete fairly with the private sector? Does he accept that, if he is not saying that, competition cannot possibly be fair under the terms that he has just announced?

Secondly, will the private sector have an unqualified right of access to the network, or will British Telecommunications have the right to refuse the private sector the right to use the network that has been provided by the taxpayer?

Sir K. Joseph

First, it is the private sector that will fear unfair competition from British Telecommunications. Secondly, we shall very much encourage access to private capital by means of partnerships between British Telecommunications and the private sector. Thirdly, access to the network will depend not upon British Telecommunications but upon an independent certificating authority.

Several Hon. Members rose—

Mr. Speaker

Order. I propose to call those hon. Members who have been rising since the statement was made.

Mr. Gordon Wilson

Will the Secretary of State bear in mind, when he advances the arguments of the benefits of expansion into the world market, that the same arguments were advanced at the time of our entry into the EEC? What estimates has his Department made of the likely impact of import penetration now that the exclusive domestic market is to go?

Sir K. Joseph

Perhaps I should repeat that we shall phase in the liberalisation of our market and open it up only to firms from such countries as open up their home markets to our suppliers.

Mr. Fletcher-Cooke

As my right hon. Friend's announcement heralds a great expansion, particularly in the number of terminals that will be available, does he not agree that that warrants, and, indeed, demands, an examination of the law of privacy in relation to computers and particularly the information stored about individuals?

Sir K. Joseph

I am sure that that was important before the statement, but its importance is certainly not diminished by the statement.

Mr. Faulds

Does the right hon. Gentleman remember the havoc that he created in his reorganisation of the Health Service? Does he realise that he is now wrecking industry throughout the country with this ideological commitment of his? Does he not realise that his statements today and last week are simply a pursuit of his ideological obsession with damaging various aspects of British industry?

Sir K. Joseph

No.

Mr. Michael Morris

Is the Secretary of State aware how welcome his statement is today to the consumer, both business and domestic? In bringing forward these proposals, will he first have consultations with the manufacturers of equipment and connectors to secure the time span that is necessary to readjust to the new competitive climate?

Secondly, will the Secretary of State say a word about the research work that has been going on, for instance, into the reading of water rates via the telephone, and ensure that this work does not come to a complete halt?

Sir K. Joseph

We have had some very useful consultations with all interests and will continue to have such consultations, including manufacturing industry. My hon. Friend is right to point to as yet uninvented or only scarcely invented possibilities that emerge in telecommunications, including the one to which he referred.

Mr. McWilliam

Will the Secretary of State expand on his statement about the special accounting arrangements that the Post Office will have to make in the areas where it competes directly with private industry? Can he say that, in equity, he will change the method by which private companies account for their activities? I have in mind a company which, for example, had a defence network contract and therefore subsidised back into its telephone installation work. Can we be sure that cross-subsidisation is not operating against the interests of the public in this area?

Will the Secretary of State also look at the question of value-added networks? Will he spend some time in looking at the recent case which has occurred in America, where a private company is renting lines from Bell and offering trunk calls at two-thirds of the rate at which Bell will give them to certain specific centres? What sort of impact would such an arrangement have on the provision of trunk calls into other rural areas, which do not attract this kind of traffic?

Sir K. Joseph

All that we are proposing for accountancy is that British Telecommunications, where it competes with the private sector, will conduct its business through a special subsidiary or series of subsidiaries whose accounts can be isolated from the accounts of the whole of British Telecommunications so that any cross-subsidising can be observed.

I hope that the hon. Gentleman will remember that the private firms have to make a profit in order to survive.

It is precisely because there could be a drastic cutting of trunk call charges, with consequent repercussions on local call charges, that we are not at this stage liberalising the whole of value-added network services but are restricting the liberalisation to services which complement rather than compete with services already provided by British Telecommunications and are initiating an inquiry into the implications of total liberalisation.

Mr. Prescott

The Minister will be aware that Hull's telephone system is uniquely owned by the local authority. His proposals would appear further to limit the income of that telephone exchange at a time when it is denied income from the national STD system, denied access to the key sector development, and squeezed by the present public expenditure cuts. Will he now heed the call of the local authority to review the capital requirements of this telephone exchange system in order to maintain the high standards that have been achieved by the local authority telephone system?

Sir K. Joseph

Hull is unique telephonically and its interests will have to be looked at carefully when we come to legislation.

Mr. loan Evans

In view of the fact that the Post Office, merely on telecommunications, has been making about £ 360 million profit each year, what effect will the announcement have on future profitability? Will British Telecommunications be allowed to manufacture its own equipment in future instead of buying it from various other firms? Will foreign firms be allowed to set up in this country to compete with the Post Office?

Sir K. Joseph

Profit prospects are not damaged by the statement today. Indeed, to the extent that the network should be increasingly used, they ought to be enhanced. British Telecommunications' manufacturing prospects will be about the same as now. I do not anticipate much change in the powers that it has about manufacture. To the extent that foreign competition is given opportunities here, we shall expect that much of it will lead to investment in this country.

Mr. Skinner

How many real jobs will be created as a result of the statement that the Secretary of State has made today?

Secondly, what effective safeguards has the Secretary of State built into the new system to ensure that the entrepreneurs compete effectively and not in the manner in which they did a few years ago when, among others, the chairman of the Tory Party, Lord Thorneycroft, on behalf of Pirelli, took so much money out of the system that £ 9 million had to be handed back?

Sir K. Joseph

I am glad that the hon. Gentleman distinguishes between real jobs and some other sorts of jobs. The number of real jobs, following the statement, that will be provided in due course is unknowable, but I would guess that it is very large indeed, probably in the public sector and certainly in the private sector.

Mr. Les Huckfield

May we bring the Secretary of State back into the real world of the ordinary telephone consumer? Since most delays in getting connected to the telephone system obviously come from a lack of investment, since the proposal that the Secretary of State has announced today will obviously erode the profits of the Post Office system and that investment, and since that will mean longer delays and higher charges to existing customers—apart from those who want to attach weird and new-fangled devices to the telephone system—how will the ordinary Post Office customer benefit? More particularly, how will the Secretary of State's proposals today result in any shortening in the delay in connection to the telephone system?

Sir K. Joseph

The hon. Gentleman is wrong in every link of his argument. The statement today will not erode the profit or cash flow of British Telecom- munications. A large sector of users of telephones are gravely disadvantaged by delays—namely, the business community; and the freeing of private supply installation of PABXs of less than 100 lines will liberate the private sector to meet the very large demand for business use.