HC Deb 15 April 1981 vol 3 cc323-9
The Secretary of State for Industry (Sir Keith Joseph)

With permission, Mr. Speaker, I wish to make a statement about liberalisation of telecommunications in the United Kingdom.

On 21 July last year I outlined to the House new competitive arrangements covering apparatus attached to the telecommunications network. Independent standard making and certification bodies are now at work on rules which will replace British Telecommunications' monopoly over approvals of apparatus. Both BT and the private sector are making arrangements to supply apparatus in competition.

Today I am publishing an economic survey by Professor Beesley, which reaches radical conclusions about network services. Copies have been placed in the Libraries of both Houses. Professor Beesley recommends full freedom for private sector suppliers to use the national network to provide telecommunications services to third parties. He envisages BT setting an open and uniform price for all users of its network irrespective of whether the users resell any of the capacity they lease. Professor Beesley recommends that private companies should be able to lease circuits—parts of the network—from BT and sell to the public telecommunications services carried on those circuits.

Professor Beesley points out that data and voice communication technologies are rapidly converging, making the existing BT monopoly arbitrary and constricting. He argues that if private firms were free to use the network, it would bring about innovation and substantial consumer benefits. BT would lose some revenue to its competitors, but much of this should be offset by increases in traffic as the private sector provided more services using the BT network. BT would be free to compete subject to safeguards of fair competition.

If Professor Beesley's recommendations were adopted, I would expect BT to be spurred to provide an even better service. New profitable enterprises and new jobs would be generated as both BT and new entrants stretched themselves to capture new, and in many cases as yet unknown, markets.

Professor Beesley's report marks a clean break from previous approaches. Implementation of his recommendations would transform the United Kingdom market for telecommunications.

The Government are attracted by the free market, please-the-customer arrangements recommended by Professor Beesley. The implications are, however, far-reaching, and I am inviting views over the next two months before coming to detailed decisions in July. I hope that BT will participate in working out the implications and details of what is recommended.

Although outside his terms of reference, Professor Beesley has also considered the implications of possible liberalisation of use of BT's international circuits and of possible competition for the main BT network within the United Kingdom. The free use of international circuits raises complexities, and I am inviting BT to comment. I indicated in my statement of 21 July that I intended to explore the scope for allowing the provision of additional transmission services. A number of organisations have been investigating the market possibilities, and I shall make a further statement on this subject as soon as possible.

In discussing the implications of network liberalisation, Professor Beesley stresses the need for removal of constraints on BT's capital investment. The Government recognise the importance of a modern telecommunications infrastructure to the development of the whole economy and, within the inevitable constraints imposed by the need to control public expenditure and the public sector borrowing requirement, I am discussing with BT the possibility of increasing the amount of external finance available to safeguard BT's vital investment programme.

The opportunities for both BT and others over the whole field of telecommunications equipment and services are immense. The quicker BT and its competitors respond by expanding their range of products, systems and services, the better.

Mr. Stanley Orme (Salford, West)

The statement and the Beesley report are other examples of the damage that will be done to essential public services. The report was submitted to the Secretary of State in January. It has just been published, in April, three months later, after the British Telecommunications Bill has left the House of Commons. Why was the report not published during the passage of that Bill through this House? Is not this denying proper parliamentary scrutiny? When shall we have the opportunity to scrutinise the report alongside the Bill?

What effect will the report have on rental charges to the domestic consumer? Will not these be forced up considerably by the Beesley recommendations?

The Secretary of State has implied that the cash limits may be lifted. They are now at £180 million. By how much will he allow the borrowing limit to be increased so that the telecommunications industry can seek more help?

Finally, all in all, does the right hon. Gentleman agree that this will lead to a loss of revenue to BT, a loss, therefore, in efficiency, and therefore, higher charges to all telecommunications users?

Sir Keith Joseph

Once again, the right hon. Gentleman has made very scant reference to the consumers of telephone and telecommunications services. He referred to charges, and I shall answer both of his questions on that subject in a moment.

The delay in publishing the report was necessary for the Government to study it and to come to the provisional reaction which I have explained to the House today. It is not as though my colleagues and I concealed our purposes. Throughout the passage of the Bill through the House we have constantly explained that our purpose was, has been and is to introduce competition for the benefit of the customers in this country and for the benefit of those who work in the industry and who will work in it in future. Hon. Members can see the report, which is available in both Libraries.

The right hon. Gentleman asked two questions about the effect of these measures on charges to the customer. There will be a small loss of revenue to the extent that some traffic will be taken away by effective competition that pleases the customer more. The result of that extra competition will be to increase services in the network.

Mr. Bob Cryer (Keighley)

How does the right hon. Gentleman know?

Sir Keith Joseph

That is the finding of the Beesley report and the finding in America, where the network has been opened up to competition. The result of the two conflicting influences—namely, the removal of some services because the competition provides them more attractively, and the increased use of the network because the competitors will provide services that are not being provided now—might involve at the greatest a loss of 2 per cent. in revenue in four years' time for BT. That is the view of Professor Beesley. The effect of that at the most might be an increase in rental charges for domestic consumers of about 10 per cent. in four years' time over what they would otherwise be. That at the most will be the result of what is proposed.

Mr. Ian Lloyd (Havant and Waterloo)

I extend a warm welcome to my right hon. Friend's decision to publish the report. Is he aware that, far from damaging BT, as suggested by the right hon. Member for Salford, West (Mr. Orme), virtually every speaker who has addressed the all-party committee on information technology during the past 18 months has endorsed Professor Beesley's recommendations and conclusions?

Sir Keith Joseph

I am grateful to my hon. Friend. I think that these proposals will produce a much better service and many more jobs.

Several Hon. Members


Mr. Speaker

Order. I propose to call the hon. Members who have been rising in their places to question the Secretary of State. I remind the House that there are two more statements to come.

Mr. Richard Wainwright (Colne Valley)

Is the right hon. Gentleman aware that every responsible reduction of a monopoly is welcome to Liberals but that he is not justified in describing his proposals as liberalisation so long as he insists on tying the hands of BT in respect of its investment? Does he accept that his remarks that BT's further investment has to be constrained by the public sector borrowing requirement is disappointing? Will he confirm that Professor Beesley makes it clear in his report that, in his view, it would be illogical to maintain that constraint on BT's investment budget?

Sir Keith Joseph

I apologise to the right hon. Member for Salford, West (Mr. Orme) because he asked me the same question as that posed by the hon. Member for Colne Valley (Mr. Wainwright) and I forgot to reply. I shall reply to the right hon. Gentleman and the Liberal spokesman.

The amount that BT can invest does not depend on what the taxpayer provides through the Government. The vast bulk of investment comes from depreciation provisions and the rest from retained profits. To the extent that BT's management and work force work effectively and economically, there will be more money through retained profit for investment. The co-operation of the work force in making its services as economic as possible and in moderating its pay claims will have much to do with the sum available for investment.

The Government have encouraged BT to seek through Companies Act companies minority or non-controlling holdings in private ventures that will be outside the PSBR and Government financial control. The Government are seeking to find ways by which investment on a risk basis may be allowed to BT which is outside the PSBR. That involves technical considerations in enabling genuine risk investment to be undertaken by a nationalised industry where prices are monopoly prices and where the Government are taken as giving an implicit guarantee.

Mr. Anthony Nelson (Chichester)

Is my right hon. Friend aware that although many of us welcome the principle of liberalisation, those of us who represent rural constituencies will be very concerned if the hasty process of liberalisation results in a steep increase in charges? What reassurance can he give that the current heavy subsidies that are provided for services in rural areas will not be replaced by substantial increases in costs? Will there still be the facility to refer such increases to one body or another to ensure protection of the consumer?

Sir Keith Joseph

I am pleased that my hon. Friend asked that question. I assure him that his fears are without justification. We are not discussing the postal services on the basis of the cost of distribution being greater in the less densely-occupied areas than they are in the densely populated areas. We are not dealing with a cost disadvatage in rural areas. Once telephone lines are installed, there is no cost burden that is extra in rural areas when compared with the burden in our densely populated city areas. Maintenance is probably more expensive in the densely occupied city areas than in the country. The tendency to equalise the trunk and local call costs on which BT has already embarked will make rural populations more accessible and at less cost when trunk costs are compared with local costs. There is no fear of a burden being imposed on rural populations through the changes that are envisaged.

Mr. John Golding (Newcastle-under-Lyme)

Is the right hon. Gentleman aware that BT believes that the full proposals would cost several hundred million pounds additional to the £110 million that has been calculated by Professor Beesley and his colleagues? Such an increase would mean massive increases in prices and a reduction in investment. Does he understand that the report will be most fiercely opposed by the Post Office Engineering Union, which is concerned for the consumer, for the telephone service and for its members? The view that there will be no harm done to the rural areas will be regarded as lunacy by all those who have contact with the business.

Sir Keith Joseph

It is in order to give opportunities to BT, the Post Office Engineering Union and any other bodies to give their views that the Government have invited comments before any decisions are made. I am advised that the views that the hon. Gentleman expresses are incorrect except for his representation that the Post Office Engineering Union is against my proposals. I hope that the POEU will recognise that better service to the public and a better use of the network are in the interests of its members as well as in the interests of the public.

Mr. Peter Bottomley (Woolwich, West)

I hope that my right hon. Friend will accept my welcome of the general thrust of the early part of his statement. As for the financing side of BT, when will my right hon. Friend overcome whatever technical problems remain, and when will BT be able to enter into commercial borrowing and make it possible to top up the investment so that the customers are not required to pay more and more for what should be financed by capital borrowing and then returned?

Sir Keith Joseph

I sympathise very much with my hon. Friend's approach. I hope that I shall be able to solve at least part of the problem very soon. I hope that my hon. Friend will not join those who believe that the task of solving the problem is for the Government. When the Bill is enacted, it will be open to BT to open up, in partnership with the private sector Companies Act companies whose borrowing, provided that BT is not in control of the companies, will be outside the PSBR. We are still seeking with BT risk-taking mechanisms that will also be outside the PSBR.

Mr. Gregor MacKenzie (Rutherglen)

Is the right hon. Gentleman aware that, notwithstanding what he said to my right hon. Friend the Member for Salford, West (Mr. Orme), most of us regard it as a matter of considerable regret that he did not choose to publish the Beesley report during the course of our deliberations on the British Telecommunications Bill? He said that he would be seeking the views of many people. Will he seek the view of the House of Commons before the Bill becomes an Act of Parliament?

Secondly, I ask the right hon. Gentleman to comment on the statement reported in this morning's press that the board of BT saw the report before it was presented to the House and that it is envisaged that this hasty liberalisation will sharply increase charges in the rural areas.

Sir Keith Joseph

My hon. Friends who served on the Committee and I have never concealed our purposes, which were to reduce monopoly, to increase competition and to consider value added network services as well as the possibility of additional networks. All that I am explaining today is within those general purposes. We shall study the views of all those who use the two months' consultation period. We shall take seriously BT's opinion of the report when it has had time to study the report.

Mr. Barry Henderson (Fife, East)

Is my right hon. Friend aware that one of the principal problems of British Telecommunications is finding the capital to develop the resources of the network? Would it not be good if British Telecommunications could sell for cash particular equipment and, when leasing lines, offer them on a 99-year lease to achieve a rapid inflow of cash?

Sir Keith Joseph

Both those points raise interesting possibilities.

Mr. Ioan Evans (Aberdare)

Should not the Secretary of State be concerned with the national interest when he makes such statements? As British industry is in serious difficulty and is in a state of collapse, is this the time to break up a public enterprise from which profits come back to the community? Does he not realise that breaking that monopoly at this time will increase competition and allow in foreign capital so that the profits will be hived off abroad?

Sir Keith Joseph

The reduction of monopoly and the increase of competition are nearly always in the national interest.

Mr. Bowen Wells (Hertford and Stevenage)

I congratulate my right hon. Friend on grasping the radical proposals to expand the telecommunications industry. Will he comment on the necessity of impressing upon the Treasury that it should not restrict that expansion unnecessarily by constricting the borrowing of the telecommunications corporation by the PSBR restrictions? Will he speculate on the increased employment which will be created for Post Office engineers if the proposals are implemented?

Sir Keith Joseph

Investment in BT fell under the recent Labour Government. It has risen in real terms under this Government. We should like to enable it to rise more. However, people are complaining about a much increased real terms investment programme. We hope to enable it to increase further.

Mr. John McWilliam (Blaydon)

Will the right hon. Gentleman reflect on the fact that it costs more to drive 10 miles to fix a telephone than to walk 10 yards? That is the purport of one of his statements. Will he further reflect on the fact that his right hon. and hon. Friends who represent rural constituencies will in four years' time carefully consider his assurances about rural services if he gets his way? Will he reflect on the fact that Post Office engineers will not accept that they should forgo increases in wages and salaries merely to enable such a cream-skimming operation to take place for large companies in the centre of cities?

Sir Keith Joseph

We are giving a period of consultation. I do not agree with any of the hon. Gentelman's points. However, I do not propose to take up the time of the House to deal with them now. Let him put his views, and we shall study them.

Mr. Bob Cryer (Keighley)

Does the Secretary of State accept that, through hiving off the facilities, the industry will be faced with a massive influx of imports? Is not it absurd for him to embark on that course when only last week he was bailing out ICL—which was more or less in the same position—to the tune of £200 million? What control will he place on the import of equipment which will affect British Telecommunications?

Sir Keith Joseph

The hon. Gentleman should read the reports of the Committee proceedings. My hon. Friends the Minister of State and the Under-Secretary explained the position clearly. All the reasonable time in which British industry can prepare for the new conditions will be allowed.

Mr. Michael English (Nottingham, West)

Will the right hon. Gentleman go back to his office and ask why we cannot have the same definition of PSBR as that which operates in the OECD countries?

I have great sympathy with what he is trying to do. I cannot see why investment in British Telecommunications which is vital to the country, whether it be in private or public hands, should be restricted by the present arbitrary definition.

Sir Keith Joseph

Perhaps the hon. Gentleman is right. One should also consider the difference which nationalisation makes in other countries as well.

Mr. English


Mr. D. N. Campbell-Savours (Workington)

If during the consultation it turns out that the suggestions of Opposition Members are right and that rural charges will rise, will the right hon. Gentleman change the legislation or any recommendations which he makes to the House?

Sir Keith Joseph

There is much flexibility in the charge which Professor Beesley envisages that BT would make for the use of network services to enable any such result to be taken into account.

Mr. Dennis Skinner (Bolsover)

Is the Minister aware that the Liberal spokesman, the hon. Member for Colne Valley (Mr. Wainwright), ought to be the last person to talk about monopoly when that party is involved in a reverse takeover by the snob party? Has British Telecommunications gone yellow ready for the Japanese takeover?

Mr. Orme

Will the Secretary of State and the Leader of the House take into account this afternoon's exchanges and the fact that we should like a debate at the earliest opportunity? Issues such as rural charges and general charges should be discussed by the House, thus giving the Secretary of State the chance to explain his statement about rural charges.

Sir Keith Joseph

I am sure that the right hon. Gentleman will put his views to those who deal with them through the usual channels.