HC Deb 30 July 1981 vol 9 cc1172-81
The Minister for Industry and Information Technology (Mr. Kenneth Baker)

With permission, I should like to make a statement about telecommunications liberalisation. I apologise in advance for the length of the statement.

On 15 April, my right hon. Friend the Secretary of State published Professor Beesley's report on the use of British Telecommunications' network. This recommended complete freedom for anyone to use the national network to provide telecommunications services to third parties. Comments have now been received on the report from BT, from its unions, from British industry—both manufacturers and suppliers—and, of course, from user groups. The Department also held a seminar to allow a full discussion of the issues involved.

When he introduced Professor Beesley's report, my right hon. Friend said that the Government were attracted by his free market, please-the-customer approach. The comments received, often thoughtful and detailed, have done nothing to change this view; indeed, many of them have endorsed it. There now appears to be general acceptance that use of the BT network to supply services to third parties, particularly when there is an enhancement of existing facilities, stimulates additional use of the network and thereby increases BT's revenues. My right hon. Friend, therefore, proposes to use the powers in the British Telecommunications Act to allow the private sector much greater freedom to use BT'S inland network, subject in every case to technical compatibility with the network and compliance with the appropriate national and international standards.

This is a large step forward, which will help to transform telecommunications in this country from being dominated by a monopoly to being market-led and more genuinely responsibe to user demand. It will bring benefits not only to business and industry—and, therefore, jobs—but to all sections of the community. Such a transformation cannot, however, be achieved overnight, and my right hon. Friend proposes that, as has been done for attachments to the network, liberalisation of use of the network should be introduced on a step-by-step basis. BT and United Kingdom industry will thus have time to prepare for the new regime.

The first step will involve licensing private operators to use BT circuits to supply any value added network services which BT will not be supplying before 1 April 1982, and that will take effect when BT takes over from the Post Office on 1 October this year. The second step, commencing at the beginning of 1982, will involve freedom for the private sector to use BT circuits to compete with BT in the supply of all kinds of services, provided that these services involve substantial elements additional to the basic network facilities. This freedom will not apply to simple resale to third parties of capacity on circuits leased from BT. During these two stages, liberalisation will be effected by general licences for categories of service or by specific licences where that is more appropriate. Organisations wishing to provide such services should in the first instance apply for licences to BT, which will license them in conjunction with the Department of Industry. Services already licensed by BT will, of course, be allowed to continue in operation.

A possible third stage might involve allowing the private sector complete freedom to use the BT network to supply services to third parties, including simple resale. This raises wider issues and my right hon. Friend will examine the consequences further in consultation with BT and other interested parties.

Professor Beesley also drew attention to the implications of his recommendations for international services and for competing public networks. No liberalisation in the area of international services is proposed at the. present time, but the implication of this will be explored further with BT.

In his statement on 15 April, my right hon. Friend restated his intention to consider the scope for allowing the provision of additional transmission services. A number of organisations have been investigating the market possibilities and the first application has already been received. This is a detailed application from Cable and Wireless, BP and Barclays for a licence to provide a business transmission system known as "Project Mercury". The Government are giving active consideration to this proposal and are, in principle, in favour of such a development. A technical examination of the project is under way and a decision will be announced as soon as that has been completed. Meanwhile, BT is being encouraged to respond sympathetically to requests to remove some anomalies affecting private networks, a number of which have already been licensed.

The diversity of uses to which the network can and will be put increases the importance of having a modern dynamic terminal equipment market in the United Kingdom. The arrangements for liberalisation of the supply of terminal equipment for attachment to the network are in hand, and there have been extensive discussions with industry and other interests about the order of priorities for this phased introduction of full competition. New technical committees of the British Standards Institution have already begun work on the writing of the necessary standards. A working party of the British Electro-Technical Approvals Board—BEAB—

Mr. Dennis Skinner (Bolsover)

Another quango.

Mr. Baker

—which has been invited to act as the authentication body under the new arrangements, is discussing the detailed procedures that it will follow. A report on progress will be laid before the House as soon as possible.

In the context of greater competition, Professor Beesley also stressed the need for removal of constraints on BT's capital investment. The Government share BT's belief in the benefits flowing from a modern and efficient telecommunications network and have allowed BT to increase its investment substantially over the last two years. BT is currently investing some £5 million per day and already has the largest investment programme in the country. In the interests of its customers, BT would like to invest more.

The Government are glad to acknowledge that under Sir George Jefferson's leadership BT has made substantial progress in improving its services to its customers and in accelerating the introduction of modern technology. The Government are concerned to respond as positively as the constraints on public expenditure and public sector borrowing permit to the needs of BT's vital investment programme, especially when that is directed to modernisation. The Government will in particular keep very much in mind the need for the corporation to be able to compete successfully in the environment that it will increasingly face.

With this in view, the Government have received from BT a proposal for a new borrowing instrument which is being considered sympathetically. If accepted, this would be taken into account in fixing BT's level of external finance.

Mr. Stanley Orme (Salford, West)

We should have liked very much to debate the long statement made by the Minister as it has a great deal of content and the proposals will have far-reaching effects. We are most concerned that Professor Beesley's report has been so overwhelmingly adopted by the Government. We believe that it was a hasty report and that the period of two months allowed for consultation after its publication was totally inadequate. We are most dissatisfied with the way in which the Government are handling the matter.

Does the Minister agree that the proposals will take essential traffic—and the best traffic—away from the public network operated by BT, thereby reducing its ability to make profit and undermining its investment programme?

Secondly, will not the proposals go far beyond anything else proposed in the EEC or by any of our other main competitors? Is the Minister aware—will he give details on this—that British manufacturers are concerned about the uncertainty surrounding the British telecommunications industry? Will not the proposals have a detrimental effect on British manufacturers and lead to a flood of foreign imports?

Finally, what effect will the proposals have on the cost to the consumer? We are very concerned about this. The Minister has said that in the first stage the Government will consider selling off some of the units. Will not this lead to an enormous increase in cost and a reduced market for British Telecommunications? What will be the effect of that on domestic consumers, not least those in rural areas?

Mr. Baker

My right hon. Friend the Leader of the House is present and has no doubt heard the right hon. Gentleman's comments about the possibility of having a debate when we resume.

The right hon. Gentleman raised three points. First, he asked whether this would take essential traffic away. Some traffic, of course, will be taken away, but the Opposition should view this in proportion. The revenues of BT this year will exceed £5 billion. In the various recommendations and submissions made to us, the effect on BT's revenue in 1983, 1984 and 1985 of the measures on liberalisation that we have recommended will be between £70 million and £100 million turnover at the most, in relation to a turnover which this year was £5 billion and rising substantially.

The right hon. Gentleman's second question concerned the attitude of manufacturers in the United Kingdom. They are principally affected by the measures already announced concerning liberalisation of the attachments—the handsets, and answering equipment and the PABXs. I assure the right hon. Gentleman that I have had no representations recently from any manufacturer expressing concern about this. Indeed, all the large companies—GEC, Plessey, STC and Pye—are engaging in significant cost reduction exercises so that when the equipment area is properly liberalised they will be able to compete successfully in the United Kindom and also to export.

The right hon. Gentleman's third question concerned the effects on tariffs. I wish to refute the wild allegations that liberalisation will of itself lead to substantial increases in residential telephone charges. As the right hon. Gentleman knows, a substantial exercise has been taking place in BT for the last two or three years on restructuring its tariffs, for the simple reason that the domestic network loses money while the cost network makes money. That has been happening not only in Britain but in telecommunications regimes throughout the world.

The right hon. Gentleman specifically mentioned rural areas, although I did not notice the Labour Government taking any specific measures to protect those areas. If trunk calls are cheaper, many residential users in rural areas will benefit. In any case, whole areas will benefit from cheaper rural trunk calls which will make communications with the centres much cheaper. I have already had notification of one applicant for a van service who intends to take advantage of this by locating his office in a remote development area. The right hon. Gentleman must therefore recognise that cheap trunk calls can bring jobs to remote areas.

Several Hon. Members

rose—

Mr. Speaker

Order. In order to be as fair as I can to the House, I propose exceptionally to allow these questions to run until 4.30 and then to move on.

Mr. Peter Mills (Devon, West)

I agree with much of what my hon. Friend has said, but I am deeply concerned about the effect of these proposals on rural areas. Will he bear in mind that BT has already cancelled a meeting with South-West Conservative Members to discuss the possible closure of telephone kiosks, about which there is a real fear? I hope that he will be more reassuring about this problem than he has been so far.

Mr. Baker

I entirely understand my hon. Friend's anxieties. I shall bring them to the attention of the chairman and board of BT. As I have explained, the restructuring of BT tariffs has now been in hand for about 18 months, and that will continue whether or not we have liberalisation. I am concerned that, when there is liberalisation, rural and residential tariffs should not be unfairly loaded, and at a time when the real cost of telecommunications is falling I look to BT and its board as far as possible to achieve this change without significantly increasing charges in real terms for any class of user.

Mr. John Golding (Newcastle-under-Lyme)

Is the Minister aware that that is not possible, and that these proposals will increase telecommunications costs not only in the rural areas but also for small business men and the domestic user? Is he aware that by taking away £100 million turnover initially—potentially much more—these proposals will lead to restrictions on development and modernisation? If the hon. Gentleman does not think that these proposals will damage British industry and jobs, why has he given British industry three years in which to adjust? Is it not because he knows full well that this statement will create jobs in Japan, America and other countries with a resultant loss of jobs in Great Britain?

Mr. Baker

The hon. Gentleman should appreciate that, even by 1990, under these proposals and the proposals that we have made in the past, more than 90 per cent. of our telecommunications and services will still be provided by BT. That is a commanding share of the market. Most companies would not look upon that as a threat to their entire tariff structure. I do not accept the sort of scaremongering that I have heard today. In fact, that was refuted by consumer interests and by Dame Elizabeth Ackroyd at a recent seminar that we held.

I believe that these proposals will significantly increase the number of jobs in this area, and I shall tell the hon. Gentleman why. When liberalisation along these lines occurred in America from 1976 to 1978, jobs in AT and T, which is the equivalent of BT, went up by 6 per cent. and by 12 per cent. in the private sector. Therefore, there was an increase in jobs in both the private and public sectors. The hon. Gentleman should not let monopoly stand in the way of job creation.

Mr. Neil Thorne (Ilford, South)

Is my hon. Friend satisfied that if there are cases of abuse in the granting of these licences, particularly by firms overseas, he has sufficient power to terminate the licence as a matter of urgency, especially if it is likely to lead to unfair competition with our home industry?

Mr. Baker

I can give my hon. Friend that assurance. As to the liberalisation of buying telephone equipment, an elaborate system has already been established through using the British Standards Institution and the BEAB. During my statement, the hon. Member for Bolsover (Mr. Skinner) commented that that was another quango. If he wants to enter these debates, he really must inform himself. It is a private sector test authority. That is the body that we shall use. It is well established in private industry and is supported by the unions. I therefore ask the hon. Gentleman to become informed.

Mr. John McWilliam (Blaydon)

Is the hon. Gentleman aware that the Post Office Engineering Union, of which I am a member, asked Logica to carry out research into the effect of the Beesley report? It said that if cream skimming on the scale of the third proposal took place, 15 per cent. of the trunk call revenues to BT would be lost and that that would require a price increase of about 25 per cent. for remaining users. Is the hon. Gentleman aware that it is unlikely that users in the rural communities will benefit in any way whatever? How does he equate his statement on "Project Mercury"—which sounds more like a space shot—with the statement made by Lord Lyell, who in his reply on behalf of the Government said—

Mr. Speaker

Order. If the noble Lord was speaking for the Government, the hon. Gentleman is free to quote him, but if he was speaking for himself that is another story.

Mr. McWilliam

Thank you, Mr. Speaker. I am quoting from the House of Lords Hansard of 13 January, when Lord Lyell, replying on behalf of the Government, said: but the network, the actual wiring which goes from one place to another across the country … will remain the entire responsibility of British Telecommunications."—[Official Report, House of Lords, 13 January 1981; Vol. 416, c. 8.] That was at a time when the Minister had received the Beesley report.

Mr. Baker

I do not think that the hon. Gentleman heard what I said in my statement. The Logica report assumed that we would allow total resale straight away. Therefore, its figures are very different, and the findings are exaggerated as a result.

The hon. Gentleman also mentioned rural areas. I must emphasise that in any tariff restructuring in which trunk calls become relatively cheaper many rural areas will gain from cheaper trunk calls—[HON. MEMBERS: "HOW?"] Because they must communicate with other communications centres, and the costs will be cheaper. One significant application that I have already received comes from a company that wants to place its operation in a remote development area, with the result that employment for several hundred people will be created there.

Several Hon. Members

rose—

Mr. Speaker

Order. I remind the House that there is a time limit on questions. I therefore hope that we shall have brief questions and answers.

Mr. Peter Emery (Honiton)

Will my hon. Friend accept the congratulations of the House on being a Minister who acts within two months of receiving a report in order to carry out its findings? He deserves a great deal of co-operation Although hon. Members have asked about the loss of revenue, have estimates been made of the increase in revenue arising from the extra services that will be used as well as a greater use of the general circuit? As well as the rural costs, will my hon. Friend also consider the costs that will accrue to elderly people, particularly the single elderly, who rely on the telephone as the one method of staying in communication with the rest of the world?

Mr. Baker

I thank my hon. Friend for his initial remarks. Benefits will flow to BT because these proposals will increase its revenue. The American equivalent of BT, the Bell system, pays money to certain value added services for the business they generate for the Bell network. I wish that Labour Members would appreciate that fact and live in the real world.

Mr. Ioan Evans (Aberdare)

Does not the hon. Gentleman realise that his statement will be seen as an attempt by the Government dogmatically to pursue a policy of privatisation without regard to the national interest? Surely the Government should distinguish between a public monopoly and a private monopoly, where the user is the nation and the benefit comes back to the nation. Does he not also realise that many people will see this as the thin end of the wedge and will feel that if the Government get away with this they will be able to hive off other national assets in the telecommunications sector?

Mr. Baker

The hon. Gentleman exaggerates. I am quite sure that the changes we are making will be to the benefit of the consumer, British manufacturing industry and eventually, through higher revenues, BT. In addition, they will create jobs. What is wrong with that package?

Mr. Bob Cryer (Keighley)

That is not what will happen.

Mr. Peter Hordern (Horsham and Crawley)

My hon. Friend said that BT would introduce a new form of borrowing instrument. He also said that that would count against the external financing limit. Therefore, what is the use of it? Is he not aware that our institutions are investing abroad at the rate of about £2,000 million a year, including companies such as AT and T? Surely the solution is to take that part of BT outside the public sector altogether and to allow the institutions to invest in it to produce the kind of telecommunications system that Britain should have.

Mr. Baker

I am very much aware of the interest that my hon. Friend has shown in the capital investment needs of the nationalised industries generally and British Telecommunications in particular. We have received a proposal from Warburgs to issue a form of preference share for BT relating to its profit performance, based on its revenue and the profit related to the revenue. We and the Treasury are considering that with sympathy. Of all the various proposals that have been put to us, that is by far the most optimistic of those that we have considered. Even if it were to be approved, it is still likely that it would probably count against the external financing limit and, therefore, part of the public sector borrowing requirement for British Telecommunications. The fact that BT can go to the market to appeal for funds from a sector of the market that is not the same as the gilt-edged market means that there is an element of additionality, because if the preference share were to be floated the EFL of BT would be higher than it would otherwise have been.

Mr. Cryer

Is not the reality that the proposal is part of a continuing vicious attack on a highly successful public; enterprise which sticks in the craw of the Government? As that clearly will give access to the most profitable areas—while British Telecommunications will be required to maintain the rest of the services—can the Minister spell out in some detail, to satisfy both myself and the queries raised by Conservative Members that he has failed so far to answer, the safeguard for rural areas, small businesses, the elderly and the safety standards involved with the new equipment?

Mr. Baker

I specifically referred to safety standards; in my statement. There is an elaborate system of ensuring that safety standards will be preserved. I have already answered questions on the restructuring of the tariffs of BT, but a tariff restructuring is taking place in BT, apart from the liberalisation. The proposals recently made by the board of BT were made long before the board knew the Government's policy and it has made some progress along that road. I expect the board to take into account the considerations that I have made. We are living in a period when the real cost of telecommunications is coming down. I shall not permit a regime by the board that will load one type of consumer, whether those in the rural areas or the elderly.

Mr. Ian Lloyd (Havant and Waterloo)

Those of us who warmly support the general philosophy developed in the Beesley report will be enthusiastic about what my hon. Friend has said. As the effective liberalisation will depend to a considerable extent in the early stages on the attitude of the Post Office, which has licensing powers in its hands, what appeal will there be from the Post Office if the Government feel that the liberalisation is not being applied too generously? If that liberalisation is agreed by the Post Office but is strongly obstructed, as some of us fear and expect, by the trade unions who disapprove of the policy, what redress will we have?

Mr. Baker

My hon. Friend asked whether BT will exercise the regime fairly. There: are two constraints. First, the licensing powers are ultimately vested in the Secretary of State and the Government. If the Secretary of State or any Minister in the Department feels that BT is being unduly obstructionist, he will be able to use his powers of licensing and issue a licence. There are also the activities of the Office of Fair Trading. Any private operator who feels that he is being restricted and has not received his licence may appeal to the Office of Fair Trading.

My hon. Friend asked whether the unions would co-operate. During the passage of the British Telecommunications Act I spoke several times to Mr. Bryan Stanley, general secretary of the Post Office Engineering Union, and I spoke to him earlier today. I do not expect the union to be obstructionist to the proposals that I have outlined.

Mr. Skinner

While the exercise is being completed, how many jobs will be created? The Minister has a duty to tell the House. What is all this about the new word being constantly used today, "liberalisation"? Is it what I would call a Warrington word?

Mr. Baker

I assure the hon. Gentleman that more jobs will be created as a result of my statement today than if I had not made it.

Mr. Skinner

How many?

Mr. Baker

I ask the hon. Gentleman to consider what has happened in America in the past four or five years of liberalisation. Employment has increased in the main provider of the network, AT and T, and the number of jobs has increased among the private operators. I expect the same to happen in the United Kingdom.

Mr. Richard Page (Hertfordshire, South-West)

I welcome my hon. Friend's statement. It will be a major step forward in the promotion of information technology in this country. As Japan has stated that it believes that information technology will be its major economic and employment sector in the 1990s, is my hon. Friend prepared to expand his awareness of information support programmes to take advantage of his statement today? To continue with the point made by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), surely, if BT is a profitable sector of our economy, the public should be allowed to invest directly in its success through the City. If we are to have some sort of preference shares I cannot understand why such shares should count against our public sector borrowing requirement.

Mr. Baker

I shall draw the remarks of my hon. Friends the Members for Hertfordshire, South-West (Mr. Page) and Horsham and Crawley (Mr. Hordern) to the attention of my colleagues in the Treasury. The proposal from Warburgs is by far the most advanced proposal that we have had about the financing of nationalised industries by going to the private market. If one can consider floating a preference share based on profit and performance—we could do that only in a nationalised industry that is profitable, which BT is and will be in the future—one is creating a novel form of financing for the nationalised industries which will support the investment programme.

Mr. Kenneth Lewis (Rutland and Stamford)

Is my hon. Friend aware that when people hear talk about the restructuring of tariffs they know that as a consequence all prices will rise across the board? I support what my hon.

Friend is trying to do, but I hope that at the end of the day the proposal will lead to an expansion of telecommunications, because we need that to enlarge the market and bring down prices. If it does not bring down prices, the Government will be blamed.

Mr. Baker

I am grateful for my hon. Friend's comments, because that is the other side of the equation. I reassure the House on what I have already said about residential and rural tariffs, but the fact that we are to have competitive services, both value added and the possibility of an additional network, will produce a choice for the consumer for the first time in British Telecommunications services. Over the years that is bound to improve quality of service and ensure service at competitive prices.

Mr. Gerry Neale (Cornwall, North)

I join my hon. Friends in congratulating the Minister on his statement. Despite the sincere comments made from the Opposition about their opposite view, I reassure my hon. Friend that there is a strong view held by Conservative Members that where the private sector can provide alternative services it should be permitted to do so. We welcome that considerably. Will he reassure us that he intends to pay close attention to the pricing policies of elements of the monopoly that remain to ensure that there is no cross-subsidisation which could result in unfair competition?

Mr. Baker

My hon. Friend knows that there are powers in the British Telecommunications Act to ensure that we are kept fully informed of all the details and that there is not cross-subsidisation. The Secretary of State has powers to require some operations of BT to be hived off into separate companies that are separately accountable so that the true costs of such operations can be seen openly.

Mr. Nigel Forman (Carshalton)

Is my hon. Friend aware that many of us welcome his announcement, but we should be happier about it if we could be reassured, first, that domestic telephone users will not suffer as a result and, secondly, that the new borrowing instruments, which are called Warburg instruments, will be adopted by the Treasury?

Mr. Baker

I shall draw my hon. Friend's comments to the attention of my ministerial colleagues. As regards domestic and rural tariffs, I reinforce what I said earlier. There are within the arrangements, and consequent upon the tariff restructuring and liberalisation, substantial gains for the rural areas. One of the ways that we can ensure that BT remains competitive in those areas is to reinforce its investment programme, and we have done that. We inherited a dramatically declining investment programme from the Labour Government and in each of our years in office that programme has increased considerably—for example, from £1.6 billion to £1.9 billion this year.

Mr. Speaker

Order. As only two more hon. Members wish to question the Minister, I shall call both before calling the Opposition spokesman.

Mr. Tim Renton (Mid-Sussex)

I welcome the concept of the preferred shares, but does my hon. Friend agree that such shares normally count as part of the share capital of a company and that if they end up in the hands of institutional investors it will mean that some part of the equity ownership of BT has moved from the Government to the institutions?

Secondly, is it not a paradox that all BT's borrowings count as part of the public sector borrowing requirement, but those of Cable and Wireless, which is 100 per cent. Government-owned and is about to enter competition with BT, do not count as part of the PSBR?

Mr. Baker

I confirm what my hon. Friend said in the latter part of his question. The anomaly has existed for a number of years, largely because Cable and Wireless has not had recourse to borrowings for a considerable number of years and has generated investment from its own cash flow.

There is an element of what my hon. Friend suggested in the concept of a preference share. The alternative would be a participating bond, but the key element of a share or a bond is that it must be related to the profit performance of the nationalised industry. Otherwise it will change nothing.

Mr. John Browne (Winchester)

I fully support the initial move to privatise the industry, but I have some severe reservations, as, I suspect, do some of my hon. Friends, about the extent of the operation. A rump end of a monopoly in terms of private rural tariffs has been left behind and it could undercut prices on the trunk lines, thereby driving out competition on those lines, while raising rural tariffs. Will my hon. Friend explain what safeguards will be provided to prevent that from happening?

Mr. Baker

It is generally recognised that none of those problems will necessarily flow from the measures that I have announced or from the liberalisation. Various safeguards can be built into the provision of any value added network services as regards the terms of the interconnection with BT from the additional business. I remind my hon. Friend of what has happened in America. Where such services operate in the United States, they do so for the benefit of the main provider, AT and T, the Bell system, to the extent that the company pays certain service providers for the benefit of their operations, and not the other way round.

Mr. Orme

The Minister has failed to reassure the House and many of his hon. Friends about rural services, small businesses and the elderly. If the consumer is offered a cheaper service, he will choose that service. Will the hon. Gentleman, therefore, guarantee that the services that we are concerned about will not be run down and that costs will not go up as we fear? Will he guarantee to the House that he will protect those services?

Mr. Baker

I appreciate that there is anxiety on that point and I confirm what I have already said. First, I counsel the House against listening to too much scaremongering. That point was made repeatedly by consumer interests, and not Government spokesmen, at the recent seminar. I also confirm that at a time when the real costs of telecommunications are falling I shall look to BT to achieve the change that we have been talking about without, as far as possible, significantly increasing charges in real terms for any class of user.