§ 2.55 p.m.
§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, I beg to move that this Bill be read a second time.
The Bill has two main objectives: first, greatly to improve competition to the universal benefit: secondly, to privatise British Telecom. The two objectives are linked. The second is a necessary step in achieving the first. There has been a great upsurge in information technology. Telecommunications play a crucial role in this revolution. We must take full advantage of the opportunities this offers, both in improving the efficiency of our own trade and industry and in providing equipment and services required not just in this country but in overseas markets as well.
Until 1979 the telecommunications industry in this country was effectively controlled by a single organisation—British Telecom. Consumers had no choice of supplier of services or of apparatus. Customer dissatisfaction was rife; British Telecom had no incentive to improve its efficiency—which left much to be desired—and no incentive to develop new services or improved apparatus. The equipment manufacturing industry faced with a single buyer equally had little incentive to cut costs or to develop new and better equipment. The fact that our manufacturing industry's share of the world market has slipped so dramatically—from 20 per cent. in the 1960s to less than 6 per cent. now—is clear evidence of the pernicious effect of this lack of competition.
The British Telecommunications Act of 1981 was the first major step forward. Customers now have a choice of supplier of virtually all the major types of telecommunication apparatus—from ordinary telephones to sophisticated private exchanges. In the area of value added network services nearly 70 companies have been licensed to provide telecommunication services ranging from storage and 842 retrieval of messages to conversion between non-compatible terminals. Two competing cellular radio systems have been licensed. They will in due course cover the whole country and provide mobile radio telecommunication services at the local level. Thirdly, the Government have licensed Mercury to establish an alternative national telecommunications network. All this has been of direct benefit to the consumer—the business consumer as well as the domestic consumer. But there has also been an immense indirect benefit in the form of spurring British Telecom greatly to improve its own services.
The present Bill is directed to removing those obstacles which still stand in the way of the development of a fully competitive telecommunications industry. There cannot be full and fair competition unless the ground rules are essentially the same for all those who are competing. The ground rules cannot be the same while British Telecom remains a nationalised industry enjoying special privileges and its competitors are private sector companies. This Bill aims therefore to put British Telecom on an equal footing with its competitors. Under the present legislation British Telecom has certain privileges which its competitors do not. British Telecom does not have to have a licence but its competitors do. British Telecom is in the anomalous position of licensing its own competitors. British Telecom alone has the statutory powers conferred in the Telegraph Acts to place plant on private land, on the highway and so forth. It also has powers of compulsory purchase of land and powers of entry.
The Bill places all on an equal footing. British Telecom's exclusive privilege will be removed. British Telecom, like any other operator, will have to have a licence which will set out the conditions with which it must comply. The Bill creates a, new class of public telecommunications operators, who will be required to comply with certain obligations and who will be placed on an equal footing with British Telecom. These are important steps forward. But true equality will only be achieved and full and fair competition attained if British Telecom ceases to be a nationalised industry and becomes an ordinary private sector company subject to the same rules, the same commercial disciplines, the same legal framework as its competitors and the generality of trade and industry. This is the primary reason for the proposals in the Bill to privatise British Telecom.
There is, as I have said in your Lordships' House before, a philosophical divide between those of us on these Benches and many of those sitting opposite. Many Members of the Opposition regard state ownership as an end in itself. We entirely reject such a philosophy. There may be exceptions but, in general, nationalisation has not served the nation well either in terms of the efficient use of capital resources, or in terms of efficiency, good labour relations or good service to the consumer. On all these counts, the private sector has a better record than the public sector. It is because we want to see greater efficiency; and because we want better customer service that we are determined to press ahead with returning state industries to the private sector. And no more important candidate could be found than British Telecom: and none where the prospects for progress 843 and development under private sector ownership and management are brighter.
There are critics who claim that the sole, or primary, objective is to raise money for the Chancellor of the Exchequer. The receipts from the sale will of course mean that the Government will need to borrow less money than they otherwise would. The sale also means that future demands for capital by British Telecom will be provided by the private sector, not by Government. All these are benefits and benefits not lightly to be disregarded. But they are not the primary reason for privatisation. That rests upon the considerations of competition and efficiency that I have already described.
I now turn to the details of the Bill. We believe in allowing market forces to operate to the fullest extent possible. Nevertheless, regulation is necessary in a field in which substantial areas of monopoly will continue and where there are social as well as economic considerations to take into account. The regulatory system that we propose is contained on Parts I and II of the Bill. British Telecom's exclusive privilege to run telecommunication systems will be ended. In future, all those running telecommunications services, including British Telecom, will need a licence. The licence will set out the conditions under which the service must be run. A Director General of Telecommunications will be appointed, supported by an Office of Telecommunications (Oftel). The director will monitor and enforce licence conditions. He will also have powers to initiate changes to licences and to investigate consumers' complaints. The director's function therefore is both to protect the consumer and to ensure fair competition.
So much for the broad pattern of the new system. Clause 3 then sets out in detail the general duties of the Secretary of State and of the director general. These provisions guarantee a degree of protection for the ordinary consumer which at present he does not enjoy, or enjoys only by grace and favour. Clause 3 requires the Secretary of State and the director to exercise their functions so as to secure the provision of a universal service throughout the United Kingdom to satisfy all reasonable demands. including the provision of public call boxes, services to rural areas, emergency services and maritime service so long as the provision of such services is practicable. The main way in which this duty will be fulfilled is through conditions in licences. The Government have already published a draft of the licence that will be issued to British Telecom. This licence contains conditions obliging British Telecom to provide services throughout the United Kingdom, including services in rural areas, public call boxes, emergency services and maritime services. In this way, all the vitally important social services will be continued. Compliance with these obligations will be monitored by the director, who is required by Clause 16 to enforce the licence conditions.
Thus, rural services will stay, as will rural call boxes, the "999" service and essential shipping services. These services will, in fact, be subject to more effective safeguards in future because this is the first time that these services have been specified by statute. There is, therefore, no basis for the fears which have been 844 expressed on this account and I hope that what I have said will put these fears to rest.
Clause 3 also imposes a duty on the Secretary of State and the director to promote the interests of all consumers, including, in particular, the disabled. In general the interests of consumers will best be protected by competition, which is one of the principal objectives of the Bill to foster. Many of the conditions in the draft licence to be issued to British Telecom are directed to protecting consumers. In the case of the disabled, there are four conditions in the draft licence specifically directed to their needs. A new clause, Clause 83, has also been included in the Bill directed specifically to helping the disabled. The clause will enable the Secretary of State to pay grants towards research and development of apparatus designed for use by disabled persons—for example, telephone exchanges adapted for use by the blind.
The detailed licensing arrangements are contained in Clauses 5 to 9. All who wish to run a telecommunication system will require a licence. The primary responsibility for issuing such licences will rest with the Secretary of State. He may, however, delegate this to the director, but the Secretary of State proposes retaining responsibility for licensing major systems.
Mercury has already been licensed to provide an alternative national telecommunications network. For at least the next seven years, the Government do not intend to license further competing national networks. This has been criticised on the ground that it will replace a monopoly with a duopoly. This is one area in which haste needs to be made slowly. We want there to be effective competition for British Telecom. This will only happen if the competing company or companies have the financial, management and technical resources to mount an effective challenge. Our view is that for the time being the available resources will only be sufficient to enable one such company to be established as an effective competitor.
Outside the national telecommunications area, the Government are already licensing competition in three specialist markets under the 1981 Act. In the case of value added network services, nearly 70 companies have been licensed. Two national cellular radio companies have been licensed to provide a national service, each capable of serving several hundred thousand customers. There will shortly be licensed the 11 pilot broad band cable systems.
The task of monitoring compliance with licences will fall to the director, using the powers in Clauses 16 to 18. These powers enable the director to take swift and effective action. Thus he can issue an order under Clause 16 which will oblige the licensee to comply with its licence. The Bill as now drafted strengthens the director's powers by enabling him to issue an enforcement order which takes effect immediately; and it enables anyone aggrieved by a licensee's failure to comply with an order to seek compensation in the courts.
Clauses 12 and 13 empower the director to amend conditions of licences. He can either do this by agreement with the licensee, subject to certain conditions, or by referring the matter to the Monopolies and Mergers Commission.
845 Under the 1981 Act, a great deal of progress has already been made in introducing competition into the market for telecommunications equipment. Clauses 20 to 26 continue and strengthen the existing arrangements. The clauses provide for the setting of standards and the approval of apparatus, including meters. Provision is also made for the approval of contractors who install and maintain private branch exchange systems.
The Bill also provides—in Clause 10 and the related Schedule 2—a new Telecommunications Code controlling the way in which telecommunications apparatus is placed in streets and on private land. The powers conferred by the code can only be used where the Secretary of State applies them to a particular licensee, including British Telecom. The arrangements for compensation were considerably improved and extended by Government amendment in another place.
Part V of the Bill contains the necessary powers to enable British Telecom to be transferred to the private sector. I have already dealt with this matter in detail but I should like to say something about pension obligations. The Bill does not affect the pension entitlements of British Telecom's pensioners and current employees. These are safeguarded under the trust arrangements governing the British Telecom pension fund, which will be unaltered when British Telecom is turned into a public limited company. The public limited company will inherit British Telecom's financial obligations to the pension fund under Clause 58 of the Bill, with one exception: that is, the pre-1969 pension fund deficiency, which will remain with, and be discharged by, the statutory corporation backed by the Government.
Part VI of the Bill contains measures to amend the Wireless Telegraphy Acts 1949–1967. Their main purpose is to strengthen the enforcement provisions for dealing with radio interference and illegal use of radio equipment.
This is a Bill of major importance. It represents a very significant step forward in improving the efficiency of the British economy and in enabling us to take full advantage of the opportunities presented by the development of new technology in the field of telecommunications and information processing. It gives full and effective protection to the consumer, entrenched in the statute—something which has never been the case before. It takes full account of social needs, particularly the needs of the disabled and those who live in rural areas. It safeguards the emergency services. It seeks and obtains the best of both worlds—the encouragement of efficiency and enterprise, coupled with full and effective safeguards. On this basis, I commend the Bill to your Lordships. I beg to move.
§ Moved, That the Bill be now read a second time.—(Lord Cockfield.)
§ 3.16 p.m.
Lord Bruce of Donington
My Lords, the House will be most grateful to the noble Lord for having moved this Bill in amplification of what his noble colleague Lord Trefgarne, to whose contributions I may refer a little later, said on the Second Reading of the Bill when it first came before your Lordships' House. I did rather 846 think that the noble Lord's concluding peroration was a little unfortunate, in that he said the Bill gave the best of both worlds. It is notorious in modern experience that those who try to get the best of both worlds very often get the worst of both.
When the noble Lord started giving his reasons for the introduction of the Bill, and in particular the vital necessity for competition, I thought initially as I listened to him that the whole field of British Telecom's operations was going to be thrown open—had already been thrown open—to mass competition from all over the place. It was only a little later that he gave the information with regard to the operation of the whole network that as it affects the telephone subscriber-to-subscriber service, which is what most citizens in the United Kingdom regard as a telephone system, only one company would be permitted to compete in that field. So the argument that the promotion of free competition is the main and enabling purpose of the Bill is, I am afraid, not entirely true. At the risk of damaging relations between the noble Lord and the Prime Minister, which I would hesitate to do, I am afraid I shall have to cite the Prime Minister in support of the case that I am going to present to your Lordships.
Quite clearly, the main purpose of the Bill is to enable the Government to sell off 51 per cent. of their interest in British Telecom. They want to raise money, and there is nothing particularly ignoble about that. Chancellors of the Exchequer have been at it for years, and a party which has such an interest in monetary theory—albeit now a bit dimmed—and cuts in public expenditure must take more than a passing interest in this as the main purpose of the Bill. But they want to raise money, and have said that they want to raise some £3,900million—I am just citing the Economist estimate for the moment and the noble Lord can correct me if he wishes—over the next three years.
Over the past four years, from May 1979 to the conclusion of the last Parliament, the Government raised some £1,750 million in this way. For some obscure reason they raised it by the sale of companies in the public sector that had made profits. Also for some obscure reason, on which the noble Lord will undoubtedly enlarge as time passes, the Government do not seem to be conferring all the benefits of private enterprise—the industry, the enthusiasm, the imagination, the drive—on companies that are ailing. To coin the noble Lord's phrase, they like to wait for the taxpayer to nurture new industries into existence or to rescue old ones that have been ruined under private enterprise. Vast sums of taxpayers' money are then spent on them and the moment they become profitable they are returned to the sector whence they came.
The noble Lord may not consider this to be a paradox. For all I know, it may be part of Conservative philosophy. But the public at large need be under no illusion about that. As I said, in the next three years it is proposed, by the sale of 51 per cent. of British Telecom, to raise some £3,900 million at the rate of roughly £1,300 million a year. That, we are told, is to be supplemented by a sell-off of enterprise oil during the current year, perhaps amounting to £450 million, and we are also promised that British Airways—presumably on the assumption that it continues to be 847 profitable—is to be sold in 1985 for some £500 million. That means that some £3,900 million in BT shares, and a much larger sum, in total, of nearly £5,000 million, is to be raised over the next three years.
The important factor is whether the City of London institutions will be able, without distorting the whole of the capital issues market, to raise this sum or whether they will he prepared to do so. I somehow recall the noble Lord, in his earlier incarnation as a monetarist, speaking about the crowding-out factor: that too much investment devoted to one purpose in the City would crowd out investment elsewhere. We also have to bear in mind that the City has shown a certain reluctance in regard to sums of this kind.
The noble Lord will recall, for example, that British Aerospace, which was recently privatised and freed from the shackles of state interference and from the necessity of state support, is trying to raise £427 million in order to embark on an Airbus. One would normally have thought that that was an extremely laudable operation which the City institutions would have supported. In case there is any misunderstanding, I am bound to say that I would be quite prepared for the state to support that enterprise, but apparently the City of London is a little reluctant to do so, unless it is guaranteed by the Government, which of course defeats the whole purpose, in financial terms, of the original Bill nationalising British Aerospace.
But on the assumption that the City institutions take a look at this and put their heads together—the institutions meet, the banks meet and the other financial organisations meet—to decide whether or not they should subscribe to this issue, what is the first thing they will take a look at? I suggest that they will take a look at the rate of return on assets employed by British Telecom, and they will note that the existing profit return on assets employed in British Telecom is running at about 6 per cent. Of course, this is almost bang on the Government's target. It being a state industry, the Government have quite properly set a target for the profitability of British Telecom. They stipulated that they wanted a return of about 6 per cent. I have the figures here, together with the accounts, and I shall take the noble Lord through them if he wishes.
If the noble Lord has read the Financial Times in the last week he will know that it had a table showing the net return on capital employed in the case of some 245 public companies whose years ended between 1st January and 31st March 1983. He will find that companies in the industrial sector had an average return of 17.7 per cent. on the assets employed in their business. Of course, the figure varied. Some were 19 per cent. and others were 17.5 per cent. In the case of office equipment the figure was 44 per cent., while for banks—rather a gilt-edged operation without overmuch risk—it was 11.9 per cent. The figure for insurance brokers was 33 per cent. and for other financial institutions it was 12.6 per cent.
Quite clearly, the institutions of the City of London will not be content with a 6 per cent. return on capital employed. Obviously, the targets previously set by other Governments, as well as this one, did not take into account the profit element which arises when 848 investors, as distinct from the Government, take part in an undertaking and require a return on the money that they put in. In fact, the right honourable Lady the Prime Minister said only a few weeks ago that it could hardly be expected that investors would invest money in companies for round about 5 per cent.; they want much more than that. Indeed, as the noble Lord opposite knows perfectly well, you can get a return on your own investment in banks of between 10 and 12 per cent.
In case the noble Lord feels that I am confusing the return on the capital employed with the actual dividend on the investment, may I immediately inform him that, in order to provide for a satisfactory return on an investment of approximately £4,000 million, the profits of British Telecom would have to be increased by roughly £200 million per annum. The City will seek safeguards and the Government will have two main alternatives.
First, they may decide to write off the whole or part of British Telecoms' indebtedness. If they were able to do so, it would reduce the interest burden paid at present by British Telecom and received by the Exchequer in relief of the expenditure it has to incur. That alternative was commended by the chairman of British Telecom, Sir George Jefferson. This is what appeared in an article in The Times on 17th October, headed "Telecom wants debts written off":Speaking at a London Press Club lunch, Sir George said he would be pressing for a favourable settlement of the corporation's balance sheet problems in negotiations with the Government about the form in which British Telecom starts its life as a private sector company.'I want to have a capital structure that enables us to look like an attractive stock in the market place, not a second class gilt' ".Sir George can say that again. It is quite inevitable therefore that the Government will be considering a write-off of British Telecom's debt to them, a debt which, incidentally, has been honourably discharged on due dates by British Telecom out of its own cash flow. Interest has been paid fully to the Government. It amounts at the moment to about £300 million a year in relief of taxation. In addition, British Telecom is able to finance investment out of its own funds.
I am not saying that the Government will do so, but let us take an example of what would happen if, as has been suggested by the present chief of British Telecom who is in broad general sympathy with the Government, they were to write off British Telecom's debts. It would mean that in the first three years the Government would lose some £900 million of interest and £308.9 million of capital repayments. In that event, they would lose about £1,200 million, which can be deducted from the £3,900 million they hope to obtain by the issue. I do not know whether the Government propose to write off that amount, or any part of it, but quite clearly something has to give. The interest burden has to be reduced in order to enable the appropriate additions to be made to reserves and to increase net profitability, otherwise one fears the City will not touch it, a point to which the Prime Minister referred, as I shall indicate.
The alternative—though there may be a bit of one and a bit of the other—is to eliminate or substantially to reduce the loss-making services at present undertaken by British Telecom. Your Lordships will 849 find that these are clearly set out on page 56 of the accounts. The loss made at the moment on residential rentals is £323 million; on call offices, £77 million; on the Telex system, £26 million; and on miscellaneous (including, presumably, directories and other free services, such as the 999 calls which are provided at present by British Telecom quite voluntarily without it being put into legislation), £24 million. That gives a total of £450 million worth of loss-making services. I should add that there is a note in the accounts by the eminent auditors, Coopers and Lybrand, that there has been a change in the accounting system of British Telecom. The figures which I have just given to your Lordships and which are taken from the accounts must not be regarded as absolutely correct but as indicative figures.
However, even on the assumption that the losses amount to half that figure of £450 million—shall we say to £200 million?—British Telecom would be required or would be expected by the City to reduce drastically those losses. If necessary, British Telecom could increase their charges. This would be one way out of the difficulty. But the Government are already committed to an RPI-minus-X formula which stipulates that charges—although it is careful not to specify precisely what the charges are—will not go up by more than the retail price index increase, minus an X factor which is to be determined by the Government. If that is the case, it would he very interesting to have it in the statute. There is an accommodating formula of that kind of the statute. I should have thought that it would be more desirable to have it there because, as Mr. Tebbit was kind enough to inform us, under some pressure from Mr. Brian Walden, in the course of a television broadcast a week ago yesterday, the provisions of the licence could be altered. He can say that again. We know how the Government alter their mind when they are under pressure from their supporters. It was notable that in the case of the Stock Exchange Bill which we shall be discussing tomorrow pressure was put upon them which led to the Government reneging on their own legislation.
There has therefore to be a combination of those two alternatives. The Government's reply is that they will have an Office of Telecommunications—Oftel—to look after all these matters and to make quite sure that the consumer, the disabled, the blind, those in rural areas, 999 calls and all the rest do not suffer. My noble friend Lord McIntosh of Haringey will deal in more detail with that aspect of the matter when he winds up the debate. Suffice it to say that many of your Lordships may marvel that it should be necessary to steer legislation through this House which lays down an obligation that in practice is already voluntarily performed by British Telecom without the need for any kind of legislation—a perfect illustration, if ever there was one, of the social and economic worth of a public utility, served by people dedicated to the public service who are not obsessed solely by the drive for money or by financial greed.
The noble Lord may reply that there are more alternatives than those two, but the City will have to he reassured that nothing is going to stand in the way of the earning of profits on a massive scale, sufficient for attractive dividends to be paid. The noble Lord has 850 already suggested that privatisation will in itself produce more efficiency. I should be glad if the noble Lord would explain to me how a change in the ownership of shares will bring about greater efficiency. I can provide him with a number of instances, and will certainly do so when the Committee stage is reached, which illustrate just what effect shareholders have on boards of directors. Most of them take only perfunctory interest in the affairs of their companies. I speak not, of course, of cases where you have a management comprised at its higher levels of substantial shareholders in the firm itself; I do not speak of those. I speak of the ordinary, run of the mill company where, in response to the Government's desire to make everybody shareowners or property owners of some kind, there is a widely diffuse ownership of shares. To imagine that that has any impact at all on management, or that the individual shareholders are able to exercise any pressure on management whatsoever, is to fly in the face of all City experience.
But the noble Lord says, as indeed he adumbrated in the earlier part of his remarks, that competition will do the trick. Well, there is Mercury in competition. But the House will not he concerned with the peripherals which were discussed earlier by the noble Lord and made much of a mountain. The real competition is only going to be Mercury, which is one-fiftieth. Indeed, the Prime Minister is very insistent on that. According to The Times of 13th August last, in a letter to Mr. Richard Shepherd, Conservative M.P. for Aldridge-Brownhills, Mrs. Margaret Thatcher said—and I quote:An open and unregulated market would inevitably lead to a concentration on the lucrative business market at the expense of the less profitable domestic rural services, public call boxes and the emergency services, which run at a loss. I am determined"—and the noble Lord should take heed of this because when the lady speaks, she speaks—to protect these services, which is why we took the decision that Mercury should be the only national network provider to compete with British Telecom.".So what have they in fact created by the Bill, aside from the fractional competition of Mercury? Instead of having a monopoly responsive to the public through Parliament and Governments, what is now created is a private monopoly against which there is no effective competition in the main services it provides at all.
Not only in August, but if the noble Lord would care to take a look at the Observer of 18th December, there we have a recent report of an abortive effort by Morgan-Grenfell to interest the noble Lord's former department, the Department of Trade, in the flotation of a rival company to the tune of £500 million. And, of course, the Government declined to support that. So the Government on the one hand complain that monopoly is bad. Indeed, that view was put forward by the noble Lord, Lord Trefgarne, at the Second Reading of the Bill last year:A state monopoly is unsatisfactory under any conditions". —[Official Report, 18/4/83; col. 403.]Is a private monopoly which is responsive to no one in the public interest? Is one that has to be restrained and held in check by a quango Oftel in order to make it tow the line in the public interest? Is that the kind of monopoly which the noble Lord is prepared to support? I defend—and I suspect that the bulk of the 851 citizens of the United Kingdom are prepared to defend—a public utility which performs its functions with efficiency (and certainly performance here is just as efficient and just as cheap as in any other civilised country in the world), which gives the customer good service, and which is responsive to all Governments which have their loaf screwed on and which are capable of delivering intelligent directions to it, as indeed British Telecom has responded perfectly in every respect, in return on capital and so on.
We on this side of the House do not deny and indeed would seek to support real competition between private firms in fields where consumer choice is a valid concept. But in public utilities of this kind we think—and, moreover, consider that the public will think—that it is right ultimately for the responsibility for that service to be in Parliament through their respective Ministers: because Ministers can make changes on the boards of directors, unlike somnolent shareholders, the dividend receivers, the rentièrs, and all the rest. All Ministers are in a position to be and ought to be responsive to public pressure. If they are not, then Parliament is.
Moreover, we are satisfied that British Telecom serves the interests of national security better than any private network would be likely to do. I happen to have served in the last war in the Royal Signals, and later on the General Staff in a similar capacity. I had intimate connections with the personnel of the Post Office, as it then was, concerned with telecommunications. I can tell the noble Lord that the services rendered to this country by the personnel of the old Post Office on the telecommunications side—even though one cannot reveal them for security reasons—played a very decisive part in assisting the nation to ultimate victory.
We believe that this Bill is a bad one: that it does not serve the public interest, and that its main purpose is to raise sufficient money for the Chancellor of the Exchequer to lower taxation—usually income tax—in good time before the general election. As such, this Bill is a hoax on the consumer. It is a hoax on the taxpayer. And it is a fraud on the employees of British Telecom. We will therefore seek to amend this Bill at every stage. In this matter we shall appeal to Members of your Lordships' House across the broad spectrum of the House because we believe that, aside from the Front Bench and a few of its well-known devotees, there lies a substantial body of view in this House generally, included on the Back Bench opposite, which is very uneasy about this Bill and does not wish it to go through.
We cannot vote against this Bill on Second Reading, by convention, but I can promise the noble Lord that during its Committee stage we on this side of the House will subject the various clauses of the Bill to very considerable scrutiny. Who knows what kind of private enterprise corpses we may exhume in that process?
§ 3.50 p.m.
§ Lord Taylor of Gryfe
My Lords, one of the reasons why the SDP/Liberal Alliance exists in this House and in the country is its non-doctrinaire approach to the 852 question of privatisation and nationalisation. There are certain industries which we accept would be better in private hands, while there are some which should remain in state ownership. Each case should be examined on its merits on the basis of its efficiency and its benefit to the nation.
It was in this mood of objectivity that I read all the material that descended on me in the last few weeks from the various parties interested in this Bill. May I say that I was much impressed by the presentations and the material submitted by the trade unions concerned in this matter. It was well reasoned, well argued and factual. By the same token, in my search for some decision in this matter I visited the United States last year and examined the impact of the deregulation of AT & T; and today I have listened with great interest to the case presented by the Minister. I find the Minister very persuasive when he argues the case for competition as a spur to efficiency, and one has only to look at the economies of Eastern Europe to justify his contention. I also agree that in this sophisticated technological industry we will require a very high level of investment, and that this industry should have access to market funds. But at the end of the day, having weighed up all these factors, I have reached the conclusion that this complex measure is both unnecessary and totally irrelevant.
In the first instance, the whole of international experience in this field suggests that the industry is a natural monopoly: but in such circumstances the state has a responsibility to build in consumer safeguards, and those safeguards will probably be diminished under the proposals now before us, despite the weasel words of the provisions of the Oftel licence. Secondly, despite what the Minister says the Bill does not create the conditions for a free competitive market. It simply replaces a public monopoly, which has consumer protection commitments and an acceptance of social obligations and an answerability to Parliament, with a private monopoly which, while accepting certain constraints of the Oftel licence, will have its major answerability to its shareholders. In terms of Conservative political theory on the virtues of competition, this Bill does not stand up. Apart from limited liberalisation in the sale of equipment, the extent of competition from Mercury in the next seven years represents only 3 per cent. of the total market. To that extent it cannot be argued that this Bill will create free and unfettered competition.
On the question of access to the market for funding, I should like to make two points. First, there is no reason, apart from Treasury theology, why the existing BT organisation should not have access to the market. In fact, arrangements were made for separate funding for BT through the issue of Buzby Bonds. These have now been withdrawn, but it was demonstrated by that exercise that there was no reason in the world why British Telecom should not be able to enter the market outside the PSBR in order to attract funds. In this connection may I say that if the new organisation has to borrow in the market, as is proposed, without Government guarantee, the cost of borrowing is going to be extremely high, and this will require to be carried in the charges to the people who use telephones.
The Minister argues that these proposals will free the industry from the shackles of Government. Even 853 this argument does not stand up. Anyone sitting with a 49 per cent. shareholding while 51 per cent. is held by a widely dispersed group of shareholders can hardly be said to have shed control; so that even this hallowed objective of the Conservative Party is not fulfilled by the Bill as we now see it. If one reads the conditions of the licence, even although the terms of the Oftel licence are not too clearly defined there are substantial constraints representing Government intervention which will be carefully examined by any potential investors. The trouble is that this clumsy and complex Bill is an attempt to impose on a natural state monopoly a free enterprise pattern which does not fit at all.
Like the noble Lord, Lord Bruce of Donington, I should like the Minister to be a little more forthcoming in his estimates on the flotation. After all, he is asking approval to sell 51 per cent. of the shares in this organisation to private shareholders. He ought to tell us a little more about the amounts to be realised. First, let me say that there is a limit, as the noble Lord, Lord Bruce of Donington, argued, to the extent to which the market can absorb flotations of this kind. The figure varies from day to day. We have seen it estimated as a possible flotation around £4 billion to £5 billion. This represents nearly the total investment of all the United Kingdom institutions in United Kingdom equities for a period of almost two years. What effect will this have on other United Kingdom private sector companies which may seek to raise capital during this period?
I suspect that the window would be very sharply closed for new issues. What price crowding out now? Where does this stand in the queue in relation to the privatisation of Rolls-Royce, British Airways and the other competitors in the market? An excess of stock on the market at any one time can depress prices, so that our national assets may be disposed of far too cheaply. The record of this Government is not impressive in this regard. I noticed last week—and it is easy to be wise after the event, I admit—that it is estimated that the unfortunate timing and pricing of the issues for Ports, Amersham and British Aerospace cost the taxpayer something like £400 million.
On arriving at a possible target of £4 billion to £5 billion, will the Minister tell us a little more about the pension fund commitment he was good enough to mention in his opening speech? British Telecom owes the Post Office pension fund £1.25 billion. The Minister said that the new company will accept the pension fund obligations from now on. But I assume that what is going to happen is that the £1.25 billion owing to the Post Office will be written off before this new company takes over its new obligations.
Will the Minister also tell us a little more about the social obligations which are involved—the rural services, and so on? It is mentioned that these will be accepted by the new company, but something is also said about these being financed by agreed access charges. Perhaps the Minister will tell us a little more about whether the state is going to assume some public sector obligation for such services, like British Rail, or what form of adjustment there will be of access charges, and who will meet them under the new set-up.
I am aware that the Government have engaged representatives in the United States to encourage 854 institutions there to respond to this investment opportunity. I say to the Minister in all seriousness, having recently examined this situation in the United States, that in the present state of nervousness arising from the AT & T deregulation there will not be great enthusiasm to respond to this new stock following the complications that have arisen from that deregulation. I understand that initially the United States provided the model we were to follow, but the present situation in the United States following the deregulation of AT & T involves a higher consumer cost for the use of a telephone and means also a greater degree of Government involvement through the FCC than there was before the deregulation. I suggest that we look at current experience in the United States before we accept that as a necessary model.
I mention these difficulties not to discourage investors but simply to emphasise that this exercise is unnecessary and could also be extremely expensive to the nation. If we are to have privatisation—and I hope we shall not—let me make what I hope is one helpful suggestion to the Minister which is consistent with the desire of the Government to secure wider state ownership. As he knows, in previous issues of privatisation small investors have had preference and frequently their shares have been bought on the market and "stagged", to end up in the hands of large institutions. I suggest that the Government consider offering blocks of, say, £100 shares to all telephone users and give them a discount on their telephone bills so long as they retain those shares. This would ensure a retention of the shares spread over perhaps 5 million or 6 million people. These subscribers could then be organised into regional co-operatives, which would represent a consumer voice in the affairs of this large organisation.
I hope that this Bill will not pass although, inevitably, I suppose it will. Like the noble Lord, Lord Bruce of Donington, we shall spend a great deal of time in this House examining the detail. I believe that the Bill arises not simply from the Exchequer's need to raise cash but because of well-established prejudices about the efficiency of state enterprises. Yet the claim of inefficiency in British Telecom is not borne out by international comparisons. If the prices of the single line business of British Telecom are compared with the telephone services of other leading administrations and we take the United Kingdom as 100, the figure for France is 115; for West Germany, 123; and for Italy, 132. In terms of international efficiency British Telecom rates very high. Therefore, I believe that the argument about efficiency is not conclusive.
I come now to the final irrelevance of the Bill. If there is one problem that this country and this Government must face it is that of unemployment. I do not believe that the Bill will contribute in the least to creating employment in this country. Indeed, if the evidence of the equipment manufacturers in the United Kingdom is observed, privatisation will endanger jobs in this country in a high technology industry. At present, 95 per cent. of British Telecom's requirements are purchased in the United Kingdom, but Mercury—the new private enterprise competitor—has already taken steps to acquire a good deal of its equipment from outside the United Kingdom. Sir George Jefferson, the excellent 855 chairman of British Telecom, has made it clear that when privatised the company will not feel constrained to purchase only from British companies. At the same time, foreign telecommunication services continue to operate home-purchasing policies, I have no doubt that the noble Lord, Lord Weinstock, who I am delighted to see here today and who will speak shortly, will have something to say in this connection, because I recall that from the mass of papers I received from the various organisations was one from the manufacturers' association, which stressed its desire to secure protection. I assume it accepts the philosophy of private enterprise, but at the same time it is suggesting that there should be state protection for the industry in the transition of British Telecom to a private company.
As the noble Lord, Lord Bruce of Donington, said, this is a complex Bill, and many criticisms will be offered during the course of this afternoon. Many amendments in the other place were guillotined and, therefore, not considered. It is the duty and special responsibility of your Lordships' House, as a revising Chamber, to examine all possible amendments to the Bill, and I hope that this House will not shirk this responsibility.
§ 4.6 p.m.
§ Lord Orr-Ewing
My Lords, I think it is common to declare an interest, if one has one, at the beginning of a speech, so I will say that I am a consultant to one of the 47 companies, mainly very small companies, in the free market area of radio telephones. I have no directorship and I have no shares in that company, but I am a consultant. As a person who has been associated with the electronics industry all my life I hope that noble Lords will not think that unnatural.
Perhaps I should first deal with one point made by the noble Lord, Lord Taylor of Gryfe. To say that this measure will reduce employment in this country is a gross distortion of the facts. It is strange to hear that remark coming from the SDP, just behind the Liberal Benches. and I resent the suggestion that the liberalisation we are aiming for in this Bill will destroy jobs. It happens that a British Telecom telephone I saw recently had "Made in Japan" stamped underneath it, but I am not seeking to make that point. What has been happening, and has been destroying jobs, is that our share of the world telecommunications market only 10 years ago was 26 per cent., and that has now fallen to 6 per cent. That has happened because we have been over-specifying and over-designing and we have not been keeping up with the most modern technology. That has cost jobs and I believe that we shall regain or re-create some of those jobs as a result of this liberalisation.
The Bill was strongly opposed by the Labour Party in another place. I think it is significant that the debates on the first two pages of the Bill occupied 75 hours. A Labour spokesman said that to continue at that rate it would take over 40 years to complete discussions on the Bill. So it was not unexpected that as a result of the filibuster a guillotine Motion was introduced. The noble Lord is absolutely right in saying that that means the amendments and the 856 clauses do not get discussed nearly as fully as they should. Indeed, many do not get debated at all because the guillotine falls on all that has not been debated. Therefore, I absolutely agree—as I am sure do many other noble Lords in all parts of the House—that we have a special responsibility to look at the Bill in detail. I hope that we shall revise the Bill in order to make the competition rather better. The SDP members of the informal group that we have formed to discuss the Bill clearly do not agree with me.
I agree with the basic principles of the Bill, but I sadly feel that the Government have been forced to make the provisions not as free and as market-orientated as I believe would be desirable. I think that more competition is desirable. As that is not there, as I shall explain later, I think that we have to strengthen the regulatory authority. It is a sad necessity.
In their wisdom the Government have set up a duopoly of two networks. The term "long line" that is used in the United States is a more appropriate description. Ninety-seven per cent. of the market share will remain in the hands of British Telecom: and if Mercury prospers, 3 per cent. may come within its market share. I think that it was undesirable that the licence given to Mercury in February 1982 should have named a limit on the market and, incidentally, should not have been open for discussion. It was only 18 months later that we discovered that the licence specifically said that Mercury should not have more than 3 per cent. of the market. That is an undesirable principle from a Government who are wedded to greater liberalisation and competition. I can well understand why that was done. It was probably done partly to explain to the Post Office engineering unions that some of their anxieties were misplaced. It was probably also done in the light of what happened in America where it was difficult for competitors of AT & T to carve themselves 3 per cent. of the market. Mercury may not get more than 3 per cent. of the market, but I still think that it is wrong to specify that limit in a licence.
I am sorry that the Government have felt it necessary—possibly because of the question of raising funds and because of the shareholders in Mercury—to give the duopoly a life until 1990. It would have been desirable to offer others, if they put forward a sensible plan, an opportunity to come in and share in some of the new technologies, such as satellites, and so on, which may come along between now and 1990. With a BT domination of the market of 97 per cent., and perhaps up to 3 per cent. going to Mercury, I feel that these two will inevitably work more and more closely together, which is not my idea of competition.
If there is weak competition, it is necessary to have a powerful controlling body. In this case the body is Oftel. In discussion and in possible amendments to the Bill we may wish to strengthen Clause 3, which concerns Oftel. The task of Oftel will be to protect the consumer and to deal with complaints, and at the same time, I think, to see that prices and the return on capital are reasonable, and possibly also to see that sufficient funds for R and D are being ploughed back into BT's future. One wonders how the regulatory body will have the teeth to control the giant 97 per cent. monopoly involving from 240,000 to 250,000 people. I understand that it is to employ only 50 857 people in all. I hope that it will recruit very bright characters. It has been difficult to recruit people of the right calibre to the technological side of DTI. I hope that Oftel will succeed in finding such people.
Like the noble Lord, Lord Taylor of Gryfe, I have been looking at the American system. I ask the Government to have a look at the way the United States controls its public utilities. Incidentally, they are in the private sector although they are called public utilities. In the states of New York, California and many others, state commissions have been set up which have powers to examine all the facts and figures in order to control the profit margins and to say whether price increases are justified. The regulatory commission can assess damages. If a person feels that he has been unfairly treated or overcharged, an accurate assessment can be made. The investigators are not full-time employees but are subcontracted to investigate the utilities in detail. In the 1982 report of the New York commission I saw that the equivalent of £14 million had been paid back by four electricity companies which had transgressed the standards expected by the commission. I believe that we could learn from the system there and I ask my noble friend Lord Cockfield to look at it during the various stages of the Bill.
I also feel that we should have the ability to impose an injunction—albeit an interim injunction—with speed. Predatory pricing and obstructive practices have existed and do exist. As I said earlier, in the private sector there are many quite small companies. It is important that such practices should have an injunction imposed on them while the matter is being sorted out. If it is merely referred to the Office of Fair Trading it will take months, if not years, before anything happens, and by that time the smaller company will have gone to the wall.
How will Oftel control price increases, particularly when the BT accounts are so desperately vague? As the noble Lord, Lord Bruce of Donington, admitted from the Opposition Front Bench in his opening speech, there are qualifications—and qualifications of a substantial size. He did not mention page 38, which concerns stock control. It says that stock was assessed at roughly £702 million, but,we are not yet able to report that proper accounting records are maintained".We are dealing with £702 million of stock and they are not able to say that the proper accounting records are maintained. This autumn it is promised that a prospectus will be put before the public to raise £4,000 million. I hope that we shall not have to wait, as has been suggested, until 1987 for proper and detailed accounts such as would be expected when money is being raised on that scale.
As has been said, there is also a qualification on page 56. This page is to show the alleged profit or loss on different sectors of the accounts. That is qualified to this extent:There is some doubt whether the methods used in preparing this statement are now sufficiently reliable and they are under review. The figures should be treated only as indicative rather than as exact results".I am sure that noble Lords in every part of the House would urge that BT gets on with it. It is well advised by 858 competent and large bands of accountants, but I understand that it has only one qualified chartered accountant among the 250,000 people, so perhaps it is not surprising that the accounts are qualified in that manner. But that is no way to run one of the biggest employers of labour in Western Europe. I am sure that everyone wishes to see it done properly.
I am sad that the duopoly networks should exist and sadder still that they should exist until 1990. I wish that the period had been shorter. I accept that that is perhaps the way it will have to be. Politics is the art of the possible. I do not think that this House will have much chance of changing the Government's mind there. But a second duopoly is being created in the mobile radio field where mobile radio services are provided. The Government have decided that in the new cellular technology on 900 MHz again there should be only two contestants. One will be BT; it will in fact be BT and Securicor together, but clearly it is being dominated by BT. Securicor is a partner, but BT will be ruling the roost. The second licence is to be given to Racal/Millicom and the market will be shared between these two.
I have no doubt that the new cellular radios will be more efficient. There will be less interference on 900 MHz where there are plenty of channels. I expect that they will also be rather more expensive. What will happen to the 47 radio telephone companies, the oldest of which has existed for the past 25 years? These companies have pioneered the services. Apparently they are to be allowed to go to the wall. I think that the terms used by my noble friend Lord Cockfield were full, fair and free competition. In that field the competition is far from being full and fair. The growth of these companies is being inhibited, and three or four have gone to the wall in the past year. Incidentally, companies of this size were very strongly encouraged in the last Conservative Party manifesto, in which we were told that high technology, small companies of this kind were exactly the ones that we should encourage, and in which new jobs would become available. But I am sorry to say that the present Government and previous Governments have shamelessly denied the frequency channels to these small companies.
The largest of these companies is Air Call, and it has some 8,000 clients. BT has about the same number of clients—8,000. BT also allows automatic interconnect for all its own clients, and it refuses to provide similar facilities—contractually, anyhow—to its competitors. That is understandable.
Now let us look to see what the Government are doing about this matter. BT has 112 VHF channels. This is in the field of 160 MHz. Many of these are under-used. BT's rival, with the same number of clients, has 17 such channels. Is that the full, fair, and free competition which we heard about from the Front Bench? It is grossly unfair and unjust. Blocks of frequencies must be made available if we are to allow some freedom and growth in these companies, and if they are to continue to exist.
There is another matter which I feel I must mention. It is Clause 6. I think that it must be either abolished altogether or radically changed. Companies and customers must be able to use and resell telephone 859 services on behalf of third parties. This has been discouraged and obstructed. If one has a tie line between one's bank and another branch, there is no reason why one should not resell the tie line for data transmission and other purposes for which one may not want it oneself during the night hours, or at times when it is not loaded, and thereby make more use of it. In its competition policy, the EEC, on 10th December 1982, came out very strongly with the view that BT was operating against the rules governing competition, and stated that it must no longer restrict the resale of these facilities. I hope that my noble friend will perhaps deal with this question in his windup speech.
I should like to summarise my points. I am the honorary secretary of the group to which I have referred, and my noble friend Lord Spens is the Cross-Bench chairman. I speak for myself. I accept the duopoly of networks, though I do not like the 97 per cent. and 3 per cent. I hope that this very restrictive competition will be only temporary, a first phase; and I shall be sorry if it has to last the full seven years. I accept the Government's duopoly of cellular radio, with two organisations—BT, with its partner, Securicor, and Racal. Racal has to reveal all its sites and plans to BT, because they are the people who are going to provide the tie lines. So it will not be true competition, in that one organisation will know the true plans of its main competitor long before they come into effect. So it seems to me that competitors will work closer and closer together, and eventually there may be a cartel which is rather too cosy.
I cannot accept that 47 radio service companies should be driven into bankruptcy on the excuse that no frequencies are available. The Government must open the radio bands to new, innovative services—fixed, mobile, and satellite services. This is the one area in which we can instigate more competition and from which competition will create exports and extra jobs. I give way to the noble Lord, Lord Bruce of Donington.
Lord Bruce of Donington
My Lords, I am much obliged to the noble Lord. It would, I think, be an advantage to the Government and to the House if the noble Lord would indicate the frequency bands which he has in mind. It would help us enormously if he could specify the bands.
§ Lord Orr-Ewing
My Lords, I mean the VHF bands around 160 MHz. There is a band there, and over-reservation has beer made. There is the private maritime band where some frequencies are available. In any case it is surely logical to say that as BT moves away the 112 VHF channels which it now has and switches its clients to the 900 MHz channels, it should give up the channels to those companies that are denied going into 900 MHz. They would then be available to be shared between the 47 private sector companies.
§ 4.25 p.m.
§ Lord Weinstock
My Lords, I, too, have to declare an interest as a member of a company which is a major supplier of telecommunications equipment. The noble 860 Lord, Lord Cockfield, complained that, as a state-owned monopoly, British Telecom—in which term I include all its predecessors—has been an inefficiently run organisation which provides a poor and expensive service. Contrary, I fear, to the remarks of the noble Lord, Lord Bruce of Donington, a table produced in the Financial Times on 27th September 1983 showed that in comparison with AT & T in the United States, British Telecom lags behind in capital investment per subscriber line and employs more people per line: and that in 1982 telephones were owned by more Americans than Britons per 1,000 head of population. AT & T is of course privately owned, though it has enjoyed a substantial monopoly.
But the table also showed that BT lags in precisely the same way behind France and West Germany, where the networks are owned by the state. In no respect—investment, revenue per employee, or subscribers per employee—does British Telecom meet the performance of these state-owned authorities. By itself, public ownership does not therefore emerge as an obstacle to efficiency; nor does the PSBR appear to have inhibited investment in telecommunications in France or Germany, or in Sweden or Japan. It is all a question of management, as I think the noble Lord, Lord Cockfield, realises very well.
But, my Lords, after the ownership of British Telecom has passed from Government hands to the private sector the management will be the same as before. Do not Ministers already speak in glowing terms of the improvements and changes in attitude which Sir George Jefferson has brought about in British Telecom? If the nationalised status is an inherent bar to efficiency, how has it been possible for the noble Lord, Lord King, to bring about the heroic transformation of British Airways, which is still 100 per cent. owned by the state?
But the Bill before us is also about liberalisation, creating competition, and the removal of the British Telecom monopoly. Of course there is no reason in the world why one could not liberalise the supply of telecommunications apparatus and services without selling off British Telecom. But the Government reject the necessary condition of dividing British Telecom into two entities, in order to separate absolutely its communications network operation from the business of providing subscribers' apparatus.
The fact is that it is simply not possible for real competition to take place while BT is at the same time the network operator and the major provider of terminal equipment. This problem will not be resolved by a complicated licensing arrangement, though that is all the protection likely to be available.
The liberalisation process started with the British Telecommunications Act 1981, and has certainly brought a greater degree of consumer choice. For example, one can now buy a Mickey Mouse telephone. One can also buy an American one, a French one, or even a Danish one.
British Telecom still gets to the customers other suppliers cannot reach. In the supply of terminal equipment to ultimate users, now supposedly open to free competition. British Telecom's monopoly is, to all intents and purposes, intact. What is more, it has also captured a large part of the business in large PABXs 861 supplied to non-government users—the one market from which it was previously excluded. Were this solely due to BT's outstanding efficiency, the 1981 Act was hardly necessary. But that is not the reason. The truth is that a monopoly supplier has insuperable advantages to exclude would-be competitors more or less at will. With control of every telephone exchange line in the land outside Hull, BT has automatic access to all market information, pace condition 38 of the draft licence. Almost no one at present can apply terminal equipment to other than a BT line.
British Telecom's potential competitors are mostly those same companies that depend upon BT for the base load for their businesses, not only in subscribers' apparatus but also in main telephone exchanges, transmission, and much other equipment. They cannot he too aggressive in the market for fear of annoying an all-powerful patron.
The Bill directs the Secretary of State to set up a directorate-general—Oftel. The Secretary of State will give a licence to British Telecom which contains intended safeguards against most of the obvious forms of misconduct, charging Oftel with the duty to see that BT plays the game according to the rules. But, if BT chooses, it will be able, in spite of the licence, to find ways to exploit its dominant position in the market. The plain fact is that the prohibitions built into conditions 18 and 20 of the draft licence are inadequate to deal with the scope for abuse. Of course, we hope and expect that those responsible for the management of BT's affairs will respect the spirit as well as the letter of these regulations. But we must recognise that this licence and the conduct of Oftel thereafter will determine absolutely to what extent the British Telecom monopoly will be restrained from disabling competition.
Your Lordships have had the opportunity to see the draft of this licence. But it is not laid before you in the Bill or by way of an order. Nor will it be. Nor was it, or will it be, so presented in another place. The terms of the licence are not part of the legislation. Once the Bill is enacted, then, subject only to the loose general conditions of Clause 3, the Secretary of State can settle the licence to British Telecom either on the presently drafted terms, or on some other terms, without parliamentary approval. The Secretary of State is effectively making this law, and not Parliament. This is a matter of some consequence since the draft licence is accompanied by 21½ closely typed pages of explanatory notes introduced by a paragraph that reads:The licence itself deals with complicated legal, technological and commercial issues, some of which require further consideration with interested parties.I repeat to your Lordships, and I think that it is worth repeating, that neither this licence nor any subsequent amendment to it will require the approval of Parliament although it is to endure for at least a quarter of a century and is absolutely fundamental to what happens in this field hereafter.
In every country which possesses a substantial design and manufacturing telecommunications capability there exist very close relationships between the suppliers and the network operator. In our country, this relationship has been derided and described as cosy, and it would he wrong to deny that there is an element of truth in that charge. But it has 862 not been by any means all like that. Part of the price that manufacturers have had to pay for the advantages that they have enjoyed has been the acceptance of virtual dictatorship by BT as to specifications of main telephone exchanges which, until System X, have been woefully wrongheaded and have eliminated the larger part of industry's exports of this equipment.
Long before the introduction of this Bill, the nature of the relationship between British Telecom and its traditional suppliers had changed. No trace of cosiness remains. But there is, fortunately, a substantial residual degree of close co-operation on the System X project and in other areas of technology upon which one hopes it will be possible to build for the future.
In the past, British Telecom has always disavowed any intention to manufacture. If I may make a passing reference to the comments of the noble Lord, Lord Taylor of Gryfe, so far as jobs are concerned, it is not a matter of too much importance whether a privatised British Telecom acquires equipment from abroad or whether a nationalised British Telecom acquires equipment from abroad. There is no guarantee for British manufacturers that either would not do so. The only protection ultimately for the British manufacturer is his own ability to compete. But, despite British Telecom's past intention not to manufacture, it does not any longer so avow—and this with the apparent acquiescence of its sponsoring department, since the previous Secretary of State wrote that British Telecom has ambitions to become another AT & T.
Far from following a good example, the Government are, in fact, flying in the face of United States experience. AT & T has recently been required to divest itself of its subsidiaries providing local telephone services, thus terminating the economic integration of its manufacturing activities and the operations of the local networks which involved direct contact with customers. This is an essential part of the new framework for establishing competition in the United States telecommunications industry. The Bill now before your Lordships' House tends in the opposite direction.
For British Telecom to embark on a programme of supplanting its existing suppliers by setting up its own manufacturing facilities is an obvious vertical extension of monopoly power. The potential contrast with the position in other countries with which our industry has to compete for export business could hardly be more pronounced.
There is disquiet and concern in the industry at the lack of genuine assurances that British manufacturers will be supported to the same extent as the indigenous suppliers in Europe and Japan are supported by their national network authorities. The Government argue that they are promoting competition and point to the establishment of Mercury Communications. By concentrating on specially lucrative sections of the market, Mercury might ultimately become viable. This Bill certainly gives it a good start with seven years' protection. But it will take decades and many hundreds of millions of pounds even to dent British Telecom's monopoly.
What does the Government's policy really amount to? It is to turn British Telecom into a privately owned 863 monopoly not regulated by parliamentary sanction and to give the Department of Trade and Industry the power, in settling the licence, to place upon British Telecom the minimum of constraint in order to guarantee profits at a level which will satisfy the City and its foreign counterparts, without which there would not be the slightest chance that the shares could be placed.
The Government's policy is paraded under the banner of the market economy. Today, your Lordships are discussing the BT monopoly. In cellular radio, to which the noble Lord, Lord Orr-Ewing, referred, the Government have given two monopoly franchises—in one case, incidentally, with a written ministerial assurance already in default, of access to the market for equipment. In cable communications systems, now reduced in the popular vocabulary to cable television, quasi-monopoly licences are being handed out to selected applicants. In satellite broadcasting, it will be the same story. Where does the market economy get a look-in? If anything, the Department of Trade and Industry should have "patronage" incorporated into its title. The interaction of these different, sometimes complementary and sometimes conflicting, resources is a complicated matter, and will have deep-seated effects on the national life for a long time.
If the Government are satisfied that British Telecom is now much better managed, what is the rush to privatise it? And is it wise to hand out monopolistic licences and concessions without a properly considered and coherent national programme for communications? I have to tell your Lordships that we do not even have a complete set of technical standards by which these systems can inter-operate, which possibly explains the absence in the draft licence of any requirement on BT either as to the standards or the quality of its service—matters on which the Bill is also imprecise.
I do not stand before your Lordships as an advocate for state ownership; far from it. Nor. as I hope is perfectly plain, am I against measures to increase competition and competence in telecommunications. I am sorry that I do not believe that this Bill will achieve those objectives. The Government have made up their mind that BT will be privatised, and so. no doubt, it will be. But if BT is to be privatised, let it be done sensibly.
Perhaps it is too much to hope that noble Lords on the Government Benches will be convinced of the need for radical amendment to this Bill. But, if not, I hope that your Lordships will at least think it right to send it back to another place, with proper provision inserted for parliamentary scrutiny of that all-important licence.
§ 4.42 p.m.
§ The Earl of Longford
My Lords, the other day someone said to me that we have some of the most successful businessmen in our House, and that we must benefit a great deal from their counsel. I was bound to say that this does not happen as often as it should, but the noble Lord has made me regret all the more that other leaders of industry do not give us of 864 their wisdom. Certainly he has made a most deadly speech.
By listening very hard the noble Lord the Minister, with his acute intelligence, may have heard one good word said for his Bill from the four speakers who followed him, but I have not heard a single good word raised on his behalf. The Bill has been castigated from every quarter of the House. I do not want to add to the Minister's pain, and therefore I shall not deal with the general issues, except to express a strong support for what was said so eloquently by my acting Leader, my noble friend Lord Bruce of Donington, and also by the noble Lord, Lord Taylor.
I shall speak from one angle only, which is that of the disabled and the blind. I am not one of those who work themselves up into a passion about this question of private enterprise versus the nationalised industry. The noble Lord the Minister regards private enterprise as sacred, but I am not like him. I was Minister for a nationalised industry for three years, which, after making losses, I am glad to say passed into profit during my time. Immediately after that I was chairman of a bank for eight years and we got along there perfectly well. But to me there was no extraordinary difference between these two ways of life; there was no extraordinary philosophical conflict between the personalities in private enterprise and those in the nationalised industries. Therefore, I am afraid that I do not share—and I think very few Labour people share—the, if I may say so, rather crude view held by the noble Lord the Minister and which, in reverse, he attributes to us.
Therefore, this afternoon I look at this matter from the point of view of one large element of the community who may well suffer under the proposed Bill. I suppose we all agree that special provision ought to be made for those who are disabled. I hold in my hand a travel permit for an old person, a bus ticket, and a railway card also for an old person. In other words, I belong to that large group of disabled who are represented pretty strongly in your Lordships' House, and no one supposes that they should be told to stand on their own feet without the help of a crutch, or whatever they are able to proceed with. Everyone agrees that some special concession should be afforded to the old, and so it is for the disabled. I suppose that, in theory at least, everyone here agrees that, in dealing with this subject of telecommunications this afternoon, some special concession ought to be made for the blind and the disabled. I suppose that that is generally agreed, but under the Bill the question is: will the concessions which are now extended to them be jeopardised? From the investigations that I have been able to conduct, there seems to be a widespread feeling among those who can speak for the disabled that that will indeed be so.
I expect that a number of noble Lords will have received a powerful and. I think, convincing document from the British Telecom Unionist Committee. It is entitled, How selling off British Telecom Will harm the blind and disabled. I shall confine myself to reading a few of the sub-headings. It is submitted by this unionist committee that the Bill will increase telephone charges, that it will put uneconomic lifeline services at risk, and that special services for the disabled are threatened. It is submitted that the Bill 865 will mean poorer investment, which will deprive the disabled in particular. Those propositions are submitted on behalf of this committee which I think represents all the unions concerned. No doubt when we come to the Committee stage a number of these propositions will be ventilated and discussed.
However, this afternoon, speaking briefly, I shall deal instead with submissions made to me by the National League of the Blind and Disabled, which I understand is the only trade union which officially represents the disabled. That does not mean that it represents all the disabled, but it is the only union which represents the disabled. It is opposed to this Bill. It may be thought that as a trade union it might in any case be supposed to be opposed to the Bill. That might be true, but it is opposed to the Bill for a number of special reasons, and primarily because it anticipates serious damage to the provisions for the blind and disabled which have been built up by the Post Office, in the first instance, and later by British Telecom. That is the view of the trade union directly concerned with the blind and the disabled.
It has asked me to point out various dangers. In the first place, extensive special research to develop special aids has been a hallmark of the services hitherto provided by British Telecom. Among other things, they have ensured a lucrative form of employment for blind people; for example, telephone operators for whose use switchboards have been adapted. The provision of special aids has enabled many categories of disabled persons to be able to use the telecommunications network who would not otherwise be able to use it. In recent years—and I am not quite sure how far this has gone—there has been much research work to allow a person who is deaf and blind (this is rather a miracle but I believe that it is taking place) to be able to communicate with another deaf and blind person, or with an able-bodied person.
All this research is taking place and obviously costs a great deal of money. The National League of the Blind and Disabled wishes to emphasise very strongly that the cost of all this has never been passed on to the disabled person. I could dwell on a number of other points that have been submitted. But if British Telecom is privatised—and I can readily understand this and accept the argument—it is difficult to see how these same endeavours will be made without the cost being passed on to the disabled user. In fact, if the cost is passed on, it would be a cost that they could not usually afford, as the majority of disabled persons are either unemployed or on low pay. Therefore, a high proportion of the blind and disabled would probably lose this vital form of communication.
I have no doubt that the Minister, who always answers these matters carefully and sincerely, will refer to assurances which have been given by the Government through the Secretary of State for Trade and Industry. But here the National League of the Blind and Disabled are highly apprehensive. Other organisations which are concerned with the disabled may have gained more reassurance, but at any rate the National League of the Blind and Disabled are highly apprehensive. I quote here what they have written to me. They say:We are reminded of a meeting that we had with Mercury Communications …It was clearly pointed out to us that whilst they 866 were prepared to advise their consumers and suppliers they were not in a position to make any mandatory agreement".So who can blame the blind and the disabled, or those who speak for them, if they feel profound anxieties?
Here the Minister may wish to put me right, or at any rate he may wish to clarify the position. As I understand it, the regulations now being introduced will be enforced only at the discretion of the Secretary of State. I hope that in due course, when the Minister comes to reply, he will deal with that point. These regulations are not a firm promise of security; they are discretionary. One is bound to ask: what will happen when private suppliers are in sharp competition with each other? It is inevitable that they will endeavour to keep their costs down. They will be strongly tempted to back out of the research area and not make the necessary' adaptations to their equipment. A powerful lobby will inevitably he built up to persuade the Secretary of State to be less strict in the use of his discretion.
Here, I am glad that the noble Lord, Lord Weinstock, is sitting so close, because he will be able to tell me if this is a true statement of fact. According to my information the National League of the Blind and Disabled are already aware that one supplier, GEC, which used to make provision for the adaptation of switchboards, has declined to do so in its latest product. My information is of course subject to any correction from the noble Lord.
I could continue along these lines at considerable length, but there are many other speakers and I am dealing with only one aspect of this awkward and complex subject. I return to what has been said by various speakers, certainly the noble Lord, Lord Bruce, and the noble Lord, Lord Taylor. I emphasise the point that we in the Labour Party have for many years made it plain that we have no objection to private profit. I hope that the noble Lord, Lord Cockfield, is listening. As I said earlier, the noble Lord, Lord Cockfield, has a rather over-simple view of our attitudes. He is not an over-simple man: he is a complex man with over-simple views. I am trying to explain that the noble Lord, Lord Cockfield, seems to he under the impression that we dislike the very idea of profit. Of course, we do not do any such thing—and I speak as someone who has been chairman of a bank and, in a small way, chairman of a publishing company.
No, of course Labour people do not dislike profit. All sensible Labour people have for many years been agreed that what we are aiming for is a mixed economy, and that means an economy in which a high proportion of the activity of the country will be conducted on a profit-making basis. So we are not against profit. But we do not regard profit as sacred, and we firmly take the view, which has already been expressed from this Front Bench, that there comes a point at which profit must he curbed if it is going to interfere with the minimum duty of the state towards these disadvantaged minorities.
§ 4.55 p.m.
§ Lord Glanusk
My Lords, I should perhaps first declare an interest. I am chairman, but not a shareholder, of a small telecommunications company, 867 among the best customers of which are British Telecommunications and Lord Weinstock's companies. The first thing this Bill does is to create the position of Director General of Telecommunications and his office of Oftel. In my opinion this is going to be the key factor in the achievement of liberalisation of telecommunications in the United Kingdom. The director is going to have a most exacting task, requiring not only a sound knowledge of telecommunications and a breadth of technical and commercial foresight but also a degree of firmness and tact way above that of the ordinary mortal. Where this miracle man is to come from, and how the Government are going to arrange to pay a salary to attract such a man, remains to be seen: but perhaps my noble friend the Minister can enlighten us later.
The director will also need to be supported by an excellent first-line management team which must be recruited in a totally balanced way, from industry as well as from BT. so as to avoid any possible bias within Oftel. There is a serious shortage of such men in the telecommunications industry, as any expanding electronics company can confirm, and recruitment, I am sure, will be extremely slow.
The Littlechild Report mentions that the control of liberalisation should be as free from Government interference as possible, and there have been various statements from the Government to the same effect. This is a sentiment that I hope will be maintained. Nevertheless, in several places in this Bill the Secretary of State is authorised to issue licences and to carryout other primary functions apparently over the head of the director, and only at a later date must he inform the director. Surely it should be possible for the Secretary of State to operate through the director, so that all the necessary control of industry comes solely through the Oftel office.
Almost any directive from the Government is bound to have repercussions on other licensees in the technical field as well as in the political and managerial fields, and Oftel is the place where these implications should be studied in detail and where their effects on any other sector of the industry should be reviewed. This would have the added advantage that all directives to the industry would emanate from one source only, and the Government would at least be separated by that one stage from the day-to-day operators. As stated in the Bill, the first two duties assigned to the director and the Secretary of State are to protect the interests of the consumer and to see fair play among the systems operators.
The next area in which I foresee problems or difficulty concerns the powers that Oftel has available for regulating fair play among licensed network operators. These are set out in Clauses 16 and 17, and it is for your Lordships to assess how effective they are likely to be. These clauses in fact underwent considerable revision during the later stages of the Bill in another place, and I have only just seen the latest version, which I am afraid is probably my fault. But from a brief glance at them, and after hearing what the noble Lord the Minister said in his opening remarks, there still appears to be no sense of urgency on the operator to comply immediately with the provisional orders or the orders issued to him pending the 868 consideration of any appeal he might make. If he does not respond immediately, any delay could cause serious commercial damage to one of the parties concerned.
Presumably the ultimate sanction that the director has available to him is the removal of the operator's licence, but I would suggest that this is a complete non-starter either now or at any time in the future. There are never going to be more than a few major carriers, and if any one of them was forced to cease trading a large section of British industry would virtually come to a halt, and none of the other carriers would be able to wire up to accept the customers affected in anything like a reasonable timescale.
It is Government policy, as my noble friend the Minister has already stated, that in the early years of liberalisation there should be only one alternative major carrier in competition with BT. This is fully understandable when one considers the time it will take for that carrier to become effective in the field, and the truly astronomical scale of capital investment required before any serious revenue can be created. But in the eyes of the general public this duopoly will not appear to be a very rapid advance in the quest for liberalisation. It is hoped that one of the priorities for Oftel will be to encourage some other specialist companies to be licensed to operate some less capital-intensive schemes for value-added services. This would considerably help the image of liberalisation without in any way damaging the duopoly.
Your Lordships are being asked to consider two Bills concerned with communications almost simultaneously, namely, this Bill and the Cable and Broadcasting Bill which starts its Committee stage next Monday. By these two Bills the Government are creating two new regulatory bodies; a quango for cable TV services and a new department of the DTI for telecommunications. At present the two techniques involved are reasonably distinguishable one from the other. but it is the opinion of experts in these fields that within the space of no more than two or three years they will be so interlinked and cross-connected as to be totally unrecognisable.
Cable television cannot exist economically for any length of time on entertainment alone. It will need to offer a variety of other services to the customers. Similarly, a telecommunications carrier must endeavour to reach businesses, both large and small, and ultimately move into the private home. There is no faster way of achieving this than through the cable TV companies which will by then be connected to over a million homes with wide band channels and probably have some spare capacity.
In view of this inevitable complex of cross-fertilisation, it would appear to make sense to have one national body controlling both arms of communications, including the thorny problem of radio frequency allocation in the VHF, UHF and microwave bands. But this latter problem has already been dealt with much better than I can deal with it, by my noble friend Lord Orr-Ewing.
But if, as I suspect, it is now too late to make such provisions at this stage in these Bills, it is hoped that it may be possible to house these two licensing authorities at least in the same building so that they 869 can readily meet face to face to discuss mutual problems, rather than have to use these expensive modern methods of communications that we have been discussing. They might even be able to share some common services.
Finally, the wind of change and the threat of competition have already produced a new and innovative attitude in BT, as is well shown by its most recent press release last week announcing its new services including a conference-by-phone service and its entry into the cable TV business as equipment suppliers to five of the eleven of the cable TV consortia.
It only remains to say "good luck" to Mercury in an uphill and expensive venture and to hope that BT plc and the associated trade unions will co-operate generously to put Britain in the forefront of the world in this rapidly advancing field.
§ 5.6 p.m.
My Lords, I put my name down to speak in this debate not because I have anything new to contribute but because I felt, as certain other people do, that there is a great worry about the state of the public monopoly which is being transferred into a private duopoly. I found myself at a meeting with a number of your Lordships from all parts of the House, except for one, and I found myself being given the honour of being elected chairman of a group of which the noble Lord, Lord Orr-Ewing, was secretary. We decided to call ourselves the Telecommunications Liberalisation Group. Our efforts will be not to try to stop this Bill from going through, but to try to alter it in such ways as can introduce more aspects of competition and fair play than we think there are in it at the moment.
We are particularly concerned about the fair play towards small businesses as there appears to be no protection, or very little, for them at present. We are also concerned about the treatment of the individual customer. Here I shall indulge in my own particular little moan about how the present British Telecom treats its customers. I have here one of these pink telephone reminder bill forms. The original bill sent to me was dated 19th December. I cannot remember whether I received it before Christmas, but certainly immediately after Christmas I went abroad to spend a fortnight in the new Republic of North Cyprus. I returned late on Friday to find this pink monstrosity, dated 9th January, exactly 21 days after the date of the original bill and not taking into account the three bank holidays during that time and the Christmas period. I object very strongly to the implications of this pink bill. It says:May we draw your attention to the bill that we recently sent to you and which our records show to be overdue".Overdue? Three weeks after the date on which it was sent? I think that is quite monstrous. It continues:If you have not already paid, may we please have immediate payment, otherwise you are liable to be cut off".I call that harassment of the individual and I have written to my local Telecom branch manager to tell him so.
I wonder how long British Telecom leaves it before it settles the bills of its suppliers. Do your Lordships 870 think it settles them within three weeks of receiving the statement? I do not think that it would possibly have been able to do so. It is difficult to find the right word for the state of the finances which do not have more than one accountant properly qualified to deal with them. Do your Lordships think that it treats its suppliers in the same way? If it becomes the private monopoly which it is about to become, will it start trying to force its customers to pay their bills by return of post, before cutting off the telephone—which action accords with a typewritten statement at the foot of the bill, which reads:Please note that if your service is disconnected the reconnection fee is £13 plus £3 for extra lines".What a good way of collecting a little bit of extra revenue from a large number of people.
We in our group want to look very carefully at the terms of the Bill. It is going to be very difficult because, as the noble Lord, Lord Weinstock, so eloquently told us, the real terms are not in the Bill at all; they are in the licence. If he had not dealt with that problem, it is one that I would have dealt with myself. We have no opportunity of discussing the terms of that licence and I feel that that licence has got to be discussed. As I see it, I think that the only way we can get that licence discussed will be to put down amendments to Clause 7 and to subsequent clauses of the Bill in such a way as to take up the points of the licence which we think are too weak.
Also, I feel that we shall have to look very closely at the powers of the director of Oftel to see whether he has sufficient powers—and here I strongly support the noble Lord, Lord Orr-Ewing, in the points that he made; the director ought to have the power of issuing an interim injunction in order to stop any nonsense which the private monopoly will still have in regard to small suppliers. Our group is going to meet regularly. Its first meeting is tomorrow at 3 o'clock in Room 4B. I hope that we shall see many of your Lordships there to support us.
§ 5.12 p.m.
§ Lord Molloy
My Lords, I will not follow the noble Lord, Lord Spens, too much in his submission. I have the sort of simple mind which feels that whether a big industry is publicly owned or privately owned, if people do not pay their bills they have "had it" either way. What is remarkable is this. The Bill is almost a condemnation of the Government as being the most hopeless Conservative Government ever to launch out with an idea of privatisation. We would have expected that—but this is not privatisation; it is more like profiteering. The Bill in no way adheres either to the philosophy of free enterprise or to that of public ownership; and we all know what lies between the ideas expressed by that particular phraseology.
The only thing that gives us some hope is that this Bill on this occasion was moved in your Lordships' House by the noble Lord, Lord Cockfield. I have listened to Lord Cockfield over the past two years telling us almost weekly that we are just about to get over the hump of the depression, that unemployment is going to come down and that there is a land of roses almost within grasp. As the months have gone on nothing like that has happened. The noble Lord 871 opened his speech this afternoon—and I admire his audacity—by telling us how private enterprise had done remarkably well in the last few years. Only a fortnight ago there was an official announcement that the bankruptcies of Great Britain had reached their highest level since records were kept. That, in my judgment, is no kind of a success story; and only the noble Lord, Lord Cockfield, could try to make it so.
The fact is that this Bill was designed to be an asset-stripping Bill and to rob the British people of a vital public service. We have in this Bill the combination of the ugly face of capitalism and the dead hand of Tory privatisation. That is a most appalling combination. I feel that when this is realised—and my noble friend Lord Bruce submitted this to the House this afternoon, and Lord Taylor of Gryfe had a similar story to tell, as did the noble Lord, Lord Weinstock—it will be apparent that one should not meddle so fruitlessly with a vital industry like this. I think that to denationalise this industry is almost bordering on irresponsibility. If they go on like this I should not be surprised if the Tory Party, if they should ever have another manifesto, will arrange for the "flogging off' of the Royal Navy, the Army and the Royal Air Force. That is the logic that must follow, is it not?
What we are seeing, too, is the threat of the privatisation of a great department of state. If the Prime Minister becomes less fond of the Foreign Office than she used to be, perhaps she can flog that off as well. The same old arguments will be put up: Lord Cockfield will put up the arguments for denationalisation that, as I have said, we have heard for years. Frankly, the more he indulges in those the more we like it because this gives us a wonderful opportunity in other places to expose the appalling intellectual inability of the Government in general and the paucity of real intelligence on the Front Bench opposite.
What is happening—and I shall turn now to the serious aspect—is that the Government like to take a gamble. Private enterprise is built on gambling to a large degree and the marketplace, as we know, is a place set aside for men to cheat each other. But the Government have found another place to do a little fiddling—and that is in this Bill. But this is not just a gamble; it will be a dangerous gamble and it will have a deleterious effect on the lives of many sections of our people. I should like the noble Lord, Lord Glenarthur, if he will be good enough, to explain to us what was behind the move that in no way is it going to be private enterprise; that in no way is it going to be free competition; that we are going to select who shall have the big chunk to begin with. Is it some big submitter of funds to the Tory Party? Who are Mercury? Let the noble Lord, Lord Glenarthur, state quite clearly tonight how this came about and how these provisions were effected. That, I believe, is a very serious question which is not being asked in any red rag, but it is being questioned in The Times, in the Observer and in the Economist in very serious terms. Therefore, I hope that the Ministers will get together on this and see that we are told the truth tonight about this and told how it was brought about.
Her Majesty's Government have also to decide whether or not they will give £437 million to the privatised British Aerospace. When they give private 872 organisations a hand-out of £400 million, it is Government money. On other occasions it is always the poor taxpayer who has to pay for these wicked, publicly-owned organisations. I hope that we shall have some explanation of that as well. It seems to me, quite seriously, that we are witnessing a classical attack of the party of wealth and privilege opposite in submitting a Bill which is designed to rob the many ordinary people of advantage and to place great advantage before a very few members of our society or organisations which are made up of a very few powerful people. That seems to me to be the signpost to the road to disaster. It could cause serious upset when it is fully realised what is happening.
I certainly agree that the Tory party's powerful propaganda machine can and does look at everything with "feigned affection" beaming in one eye, and with calculation shining out of the other. There has been a lot of calculation in the case of this Bill, not for privatisation and not for the principle of free enterprise or competition. We do not quite know what it is. I have a shrewd idea and I hope we are going to have some explanation this evening because a great debate has ranged in another place—and here on another occasion—and throughout the country. The conflict has been intense. Much of the Government's traditional support in the country, if not opposed to the Bill, has expressed grave apprehensions. We had them a moment ago from the noble Lord. Lord Orr-Ewing, supported from the Cross-Benches by the noble Lord, Lord Spens. I will not join them all together but I hope that they have some degree of success. The only success I can see for the British people regarding this Bill is to strangle it; but that will not come about and so we have to look at it very carefully.
If I may say so, I think the great value of this Chamber—which is often maligned, often attacked and often ridiculed—is that it will never be a sycophantic adherent or a Whip-responding slave. I do not think any of the Members of this House will adhere to that principle. Bills which have come from a Conservative Government through this House and another place over the past few years have been defeated here when they could have been overwhelmingly passed. I think that does this House very great credit because in so far as Members of this House are not adherents to any particular Whip in a sycophantic way, it is this role and this independence that they enjoy and it is this independence that is so essential in conditions such as we are faced with in regard to this Bill.
The Government claim that by selling British Telecom to whomsoever is going to buy it—and may I ask whether there are any foreign powers involved? I think we have the right to know. Are there any foreign organisations involved which are closely linked to foreign powers? It has happened before. I think we should be told these things tonight by the noble Lord. Lord Glenarthur. Will he help to clear up what has become known throughout the country as the licence mystery? I will not go into it in any depth because that was done so brilliantly earlier this afternoon by the noble Lord. Lord Weinstock. I hope that the noble Lord, Lord Glenarthur, will explain just how this came about and what it really means. Will he explain to the 873 nation what people in all kinds of newspapers and specialist publications are calling the licence mystery, which the noble Lord, Lord Weinstock, placed before the House this afternoon?
The Government also say they will free the present organisation from public sector borrowing requirements, and the new organisation henceforth will be able to borrow for investment on the open market. I suppose that those of us who are not absolutely au fait with all the calculations of the system will have to accept that. But with a Bill of this nature, and when we read a great deal and try to understand what we are reading from specialist sources, one has not got to be a specialist to understand that there are private consultants who have stated categorically that what the Government are claiming in this respect is quite untrue, and that it could lead to lower levels of investment. That is another aspect that we have to look at during the Committee stage.
The Government claim that British Telecom is suffering from the dead hand of state control, but that is not entirely true. Indeed it is far from the truth. The figures reveal that the growth of British Telecom over the years has been remarkable. Much of the credit for that is due to the employees at all levels, from people in the very senior posts to those right down on the lowest levels of all. They deserve credit not only for what they did in the old GPO before, during and since the war, but also for the contribution they made in trying to create British Telecom. I speak with some interest, having been closely involved at ministerial level in another place with both the General Post Office and British Telecommunications. Furthermore, this measure could ultimately place an industry which is of major importance to our economy and to society in the hands of the market place; and once that happens it is beyond all accountability.
I am certainly not one of those who believe that the answer to everything is public ownership. That is a banality and a total absurdity. It would strangle all individualism and all ideas of the spirit to get on. That is why I admire the people who, whether they are civil servants or not, or are in publicly-owned industries, still believe that they can get on and serve their nation. It is vital for certain aspects of our great industrial life to be in the public domain. One should realise that there is more public ownership in the United States than in the United Kingdom; so let us have a balance over these things. One of the best arguments that I have ever read against any form of massive, ridiculous public ownership was enunciated by the late Aneurin Bevan in his famous book, In Place of Fear. I accept absolutely that it is a terrible danger to become totally obsessed with public ownership, just as it is a terrible danger to become totally obsessed with the idea that everything has to be left to the market place. There are things in between which Parliament and Government have a right to look after on behalf of the people.
I also believe that the effect on employment could be rather serious if this Bill became law. There is a threat to thousands of craftsmen in the United Kingdom who manufacture telecommunications equipment, and also to related industries. For instance, there is the National Coal Board and British Telecom; they have all sorts of business with all sorts of industries which 874 are not directly concerned either with the Coal Board or with British Telecom. That is not always appreciated by some people in public life. I know lots of people in industrial and commercial life who know that their little bit of private enterprise depends absolutely on the success of the publicly owned industry that they serve. Let us acknowledge these things and not be silly about it.
Another thing I find rather distressing is that in so far as British Telecom have justified their policy of buying British, we cannot put up for long with a Prime Minister who, when she is talking to millions on TV, says, "I believe in buying British" but then does not hold to it; when chunks of publicly-owned industry are hived off, and they say, "We are taking no instructions from any Prime Minister". The Prime Minister then has to come out and say directly that I hope they would have. I hope that she will deplore the attitude of Mercury in these matters, because if not we could see a flooding of imports into this country and as they come in so there will be an increase in unemployment. I see some noble Lords are shrugging their shoulders but if their families had been on the dole because of some activity of not buying British, let them see whether they are not hurt or annoyed. These are the things that we have to take into consideration.
There is also the inflationary effect. I believe that if this Bill became law then with the new organisation it creates it could force up prices; it could easily force up installation prices, as we have seen. I am also rather concerned that it might undermine research and development. I hope that the Government will look at that aspect very seriously. It seems to me to be a deliberate destruction of a profitable, financially sound public industry.
This Bill is vandalism on a scale writ large. There is bound to be a threat to the telephone box, which is almost part of our public life, to the emergency services, to the inquiry services—despite what the noble Lord, Lord Cockfield, said—to the maritime services, to the countryside, to the disabled and to the blind. Above all, in the long term it could very well have a very serious effect on British business in general.
This Government are most nimble in calling for the sale of public assets, so assiduously built up by the British people. British Telecom and industry combine technological progress with business efficiency and an admirable social conscience. It is almost idyllic in its set-up at the present moment. Of course it has faults, but I know of no other organisation in this part of industry anywhere in the world which can combine those elements, and those pieces of praise which I have just enunciated—namely, combining technological progress with business efficiency, while maintaining all that is desirable in having a massive social conscience.
This Bill, if it is passed, will further divide our nation. That is a sorrowful thing to have to say. Parliament and parliamentary action will simply become the handmaiden of private economic activity alone, and that is bad. Parliament could end up by becoming the financial backer and stimulant for private entrepreneurs in their various schemes, rather than maintaining the principle that Parliament should look after the overwhelming majority of the people.
875 There is so much that one is tempted to say, but one must not stray into the field of the Committee stage. But, in conclusion, I want to say that this whole principle of privatisation, particularly in this Bill, more or less subverts the integrity of the nation. Our British national institutions and idealism will be eroded or sacrificed on the altar of greed if this sort of thing continues. Under this Government—and this Bill is an example—we are witnessing a dramatic change in our national character, where the inspiration of the pioneer is being replaced by the reward-seeking lackey.
I hope, not in the interests of any party but certainly in the interests of our nation, that this House will give this measure the closest scrutiny and will try to see that it makes good sense and is as fair as possible. It might be too much to ask that the House should throw it out—possibly we cannot do that—but the Bill requires a massive amount of close examination, not in the interests of any Government or Opposition, but in the far greater interests of our nation and people.
§ 5.33 p.m.
§ Baroness Macleod of Borve
My Lords, with other noble Lords I should like to thank my noble friend Lord Cockfield for the particularly succinct way in which he introduced this very complicated and difficult Bill. We have heard a lot of brilliant speeches this afternoon but I shall not follow any of them, except that I am going down the road of the noble Earl, Lord Longford. I certainly could not follow the noble Lord, Lord Molloy, who I think said that vandals are more likely to vandalise telephone boxes if they are in a private enterprise, than if they are in a public enterprise. I cannot follow him on that one.
I am not an expert in either technology or finance, which is why I want to say a word or two following the noble Earl. Lord Longford. But, before I do so, I should like to air my disappointment at reading the many documents that have been sent to me by those representing the British Telecommunications unions' committee. It represents six unions and about 250,000 members. I should have hoped that they might be proud of the considerable achievements which they have wrought in the past, would welcome the advances in technology and would be keen to accept the challenge to put them into practice. Instead, a completely negative and shortsighted approach has been adopted, certainly in all the documents sent to me. I completely disagree with them and with the noble Lord, Lord Molloy, in that I think that there will be more jobs created as a result of the Telecommunications Bill.
Like other noble Lords, I know that recent technological advances are enormously exciting. My main interest is in how they can help the people in our country and, in particular, those who are elderly or in any way disabled. May I say here that I am grateful to my noble friend Lord Cockfield for specifically mentioning the disabled in the Bill. But I should also like to include the elderly as well. It is accepted that we all want to stay in our homes as long as possible, even into our old age or dotage, whether we are owner-occupiers or council or private tenants. The telephone 876 in our home is, next to the cooking stove, the most important piece of equipment to anyone living alone. It is a lifeline, and I feel very strongly that all single occupiers should have the benefit of this vital means of communication. How often does one know of elderly people going into a communal home because they are too frightened to live alone, and, equally, of relatives who are constantly worried in case their older relatives may be ill and alone? With the new technology, their fears can be put at an end.
I recently went to Hitchin, at the invitation of the chairman of the North Hertfordshire District Council housing committee and the housing manager. They are justly proud of initiating a scheme for local authority residents whereby, if they are in trouble, they can contact by direct telephone the computerised help-line system. The computer is manually operated and within seconds of the call from a coded number the operator has the name, address, age, doctor's telephone number, ailments, next of kin and friends' telephone numbers on the screen in front of him. He can at once talk back to the dialler and help is sent.
This system can be put into operation by the consumer pressing a disc on his wrist, or by pulling a cord round his neck or by speaking directly into a very small machine on the wall. All these can be operated over a distance of up to 300 yards from a telephone. A large area of North Hertfordshire and parts of other counties which are adjacent, serving 15,000 people, are now covered by this council, which at present bears the cost, except for the charge of 10p a week for each consumer. It is estimated that at least one life is saved by this means every month. This system is so valuable for the well-being of elderly people that I should like to see a network covering the whole country. I also feel that owner-occupiers should be linked to the same system, which is not the case at the moment in North Hertfordshire because there seems to be some doubt as to whether one of the Housing Acts would allow it. When he winds up, I wonder whether my noble friend the Minister could help me on this particular point.
Besides being a vital means of communication, the telephone provides a great service; it is an essential part of all our lives. But if it is out of order it is of no use to anybody. I live in a very isolated farmhouse, miles from anywhere. My telephone is often out of order. Twice within the last two years I have been very ill and told not to leave my bed. Luckily, when I discovered that my telephone was out of order, friends tried to get it put back in order: on both occasions, unfortunately, I had nobody else living in the house. My friends told the telephone exchange that I was disabled, very elderly and very ill; would they please get my telephone repaired as it was a vital link with the outside world. In both cases they took four days to repair my telephone. That, I suggest, is not a good service.
I have been asked by medical people and doctors at home to suggest to the Minister that a list should be kept in every telephone exchange, especially in country areas, of all those subscribers who live alone, and that if their telephones are out of order they should get top priority for repair. One needs only a small amount of imagination to realise how many people might be dying and unable to contact the world outside. As I have already said. I am afraid that at the 877 moment the service for me and for others I know is just not good enough.
I welcome the Bill. I believe that a great deal of money must be found and invested in this future technological age in order to make use of all that is going on both in this country and in other countries. I end by quoting from the Telecom parliamentary briefing, which sums it up. It says:This Bill is not just about the transfer of ownership of certain of the BT assets. It is also a blueprint for the restructuring of what is arguably Britain's most vital industry in the national effort for economic recovery".I wish the Bill success.
§ 5.43 p.m.
§ The Countess of Mar
My Lords, in previous speeches in your Lordships' House I have mentioned that for more than 12 years I was employed by the Post Office, latterly British Telecom. Despite a lapse of two years, I still have a particular interest and concern for the corporation, but I do not speak on its behalf. In view of the crossroad presently facing British Telecom, I find the interest and affection built up over those 12 years manifesting themselves more plainly than ever before. I must make it clear that the affection I feel is not that bred of familiarity but that which grows from pride—pride not only as an ex-member of the organisation but as a member of the British public. I can think of no other public corporation which so directly affects almost every British man, woman and child, whether or not they are aware of it. We should all take a pride in the success of the business, for it belongs to all of us.
The terms "nationalised industry" and "public corporation" sound discordant notes to some individuals, but the management and staff of British Telecom have, I am sure, proved themselves the exceptions to the rules. There have been tremendous improvements in the quality of service and the range of apparatus and facilities offered to customers in the past few years. The vast majority of men and women with whom I worked were proud of and immensely loyal to the business and they cared for their customers. Their expertise and inventiveness have always been there, whether those staff were civil servants or employees of a public corporation, and in my experience every effort was made to provide the customer with what he wanted, by non-standard means if no standard method was available.
I will not deny that there was some complacency, that there was overmanning and that in some areas there was considerable inefficiency, but all these faults could be found in any sector of British industry. Her Majesty's Government should be given credit where credit is due. The organisation has been made to look at its own housekeeping and the improvements have been significant. We rarely hear complaints about the telephone service from politicians, and no longer is it the knocking block for the stand-up comic.
I admire, too, the manner in which British Telecom management and staff have accepted the challenge and are now prepared to meet any competition courageously. This is somewhat different from the situation which existed in the United States of America when the trusts which existed some years ago between the big companies which held a monopoly in 878 communications were broken. They lost a huge proportion of their business overnight and had to work extremely hard to re-establish themselves as market leaders.
As mentioned by the noble Lord, Lord Taylor of Gryfe, and other speakers, the American system has to some considerable extent been used as a model for this Bill. I am seriously concerned by recent reports that the American system is now in considerable managerial and financial difficulties. Who was it who said, "What happens in America today happens here in 10 years' time"? The British Government do not have a very good record for their encouragement of pioneers and inventors. Private industry has a worse record for its failure to capitalise on modern technology and working methods. So many brilliant ideas have been lost to foreign competitors because of the failure of the British Government and business to have the courage to back their originators. The nationalised industries, on the other hand, have a remarkably good record for their acceptance and exploitation of new technology, and British Telecom has consistently been in the forefront.
One of the sorriest examples of the failure of Government and British industry to exploit a new development was in the field of electronic telephone exchanges. One such exchange was developed, believe it or not, by the Post Office engineers in the late 1950s and reached the field trial stage, but the manufacturers had a steady order book for the old electro-mechanical systems and would not take that then giant step. Now, when it is too late, they are complaining that they cannot get orders abroad for System X. Why? Because other countries, our potential customers, have developed their own systems. There are far too many similar instances.
I find myself between two stools. I have seen the benefits that liberalisation of services has provided for Telecom customers. I have also over the years had contact with a great many businessmen, and so often I found them unable to comprehend an abstract idea or to make a quick decision about a reasonably simple matter. There are exceptions, but they seem to be far too few. This industry is vast, the potential I think beyond the comprehension of most of us, and it needs men and women of exceptional calibre to ensure its success in the face of foreign competition. I cannot see that transferring ownership from the public to the private sector will necessarily guarantee the continuing success of the industry. At present the profits made by the business are reinvested into the business. Shareholders, not unnaturally, want to see a return on their investment. I am fearful that dividends will take priority over capital investment. Complacency, too, is not restricted to the public sector. This Government are determined upon their course of denationalisation of public services. I am far from convinced that the decisions they have taken in this instance will not lead to a tragic disaster.
Several generations of men and women have devoted their working lives to a service in which they have a justifiable pride. Do they not deserve to enjoy the benefits which accompany the advances which modern communications technology has and will have to offer? Or is the enormous scale of the future development of this industry too great for the 879 Government to accept the responsibility for the ultimate decisions? It is so easy to blame faceless private individuals when foreign competition becomes too great. After all, they are not publicly accountable.
§ 5.49 p.m.
§ Lord Mottistone
My Lords, I support entirely the principles of the Bill which have been so succinctly set out for us by my noble friend Lord Cockfield. I do not, however, believe that the Bill goes far enough. Even, as has been stated, removing the exclusive privilege of the Post Office is to my mind insufficient. I would have thought that perhaps my noble friend Lord Orr-Ewing and the noble Lord, Lord Weinstock, would have agreed with those remarks.
For all the remarks of noble Lords opposite—in particular. those of the noble Earl, Lord Longford, and the noble Lord, Lord Molloy—I am absolutely convinced that the experience of the past 50 years is that businesses can only be effectively managed if fully subject to the disciplines of real competition. Bluntly, I do not agree with the concept of a natural monopoly referred to by the noble Lord, Lord Taylor of Gryfe. Why is discipline necessary for effective management? It is quite simple; it is necessary for two purposes. The first is to make the enterprise competitive in the world market. My noble friend Lord Cockfield and the noble Lord, Lord Weinstock, gave us examples of how British Telecom, and the Post Office before it, had become steadily less and less competitive in the world market over the past 20 years. The second reason is to provide the best value for money to the United Kingdom customer.
For all the loyal remarks of the noble Countess, Lady Mar—and she started off by perhaps being more loyal than when she went on—I suggest to your Lordships that, if the Post Office and, later, British Telecom had been subject to real competition in the home market, they would have been able to offer services to the public not only of a much greater variety but much more cheaply. The failures of the telephone service in what it has offered to the public in the past 25 years or so have been substantially masked by prodigious advances in all sorts of electronic equipment during the same period. For example, it is a staggering fact that the price of privately-manufactured colour television sets has reduced in money terms over the past 15 years, during which time inflation levels have more than doubled. This is certainly not repeated in the publicly-owned telephone charges.
The Bill is very necessary and, indeed, long overdue. But I am much concerned at whether the safeguards within it, and within British Telecom's licence, are good enough to create artificial competition for what will be an overwhelming monopolist in the market place. As a provider of the network—as my noble friend Lord Orr-Ewing has said—British Telecom has 97 per cent. to Mercury's 3 per cent. This is not a duopoly because a duopoly is 50/50. It is just a tiny shaving off of a monster monopoly. Furthermore, there is a safeguard for them both of no further competition before 1990.
880 As a provider of telephone instruments, British Telecom still has more than 90 per cent. of the market. As a provider of private exchanges, British Telecom will start with 100 per cent. of the market and will only relinquish that from 1986. As a customer for the majority of large and profitable telecommunication systems from exchanges to radio equipment, British Telecom has over 50 per cent. of demand. All this means that British Telecom, like other nationalised industries, is in a position to manage the market in which it is so very much a whale swimming among a few minnows—entirely to its own best advantage, as so clearly explained to us by the noble Lord, Lord Weinstock.
It can bully, if it wishes, not only its small competitors in providing equipment and services but its big suppliers also. Indeed, there is some evidence that it is already doing both those things, possibly even unintentionally. Large monopolies often seem to find it impossible to appreciate their anti-competitive actions because they just cannot understand the viewpoint of the small competitors. This is probably even more the case for an organisation which has had a 100 per cent. monopoly for 70 years and which has never really understood what being a small competitor is like.
My noble friends in the Government may say that all is well because we have restraints in the licence and requirements for effective competition in Clause 3(2) of the Bill, with the impeccable Director General of Telecommunications to see that it all works according to plan. Well, I hope that it will. However, the precedents are not encouraging.
The splendid Competition Act 1980 for the first time made nationalised industries subject to the Monopolies Commission, and we have had the Director General of Fair Trading as a watchdog for much longer. However, there has been evidence during the past three years that the Director General of Fair Trading is powerless to operate if he does not get information; and small firms in market places dominated by large nationalised monopolies are frightened of allowing evidence to go forward with their names attached for fear of being squeezed out (and some of them have been) before the commission has time to operate and report.
Thus, we come back to my opening remarks. Businesses can only be effectively managed if fully subject to the disciplines of real competition. Artificial control of a live monster monopolist is not going to create real competition—partly because monsters without effective opposition are too bureaucratic and insensitive to be effectively controlled, and partly because the tiny competitors are too frightened to appeal for help.
My belief is that the Director General of Telecommunication's main use to the nation will be in safeguarding the services mentioned in Clause 3(1)(a)—concerned with public call boxes, et cetera—and I believe that we need feel no concern or worry in that sort of respect. No doubt he will also be helpful —although the Bill does not quite give him the task to do so—in assisting the Secretary of State with regard to actions under Clause 3(3). So far as the requirements for competition are concerned, I believe that the Government's only effective solution is to dispose of 881 British Telecom piecemeal over several years. I rather felt that the noble Lord, Lord Weinstock, was saying much the same thing. I suggest that the process be started with Telecom's international company and manufacturing capability. Its retail services could also usefully be split up.
It is not clear to me whether Part V of the Bill would allow the Government to take such action if, after consideration, they wished to do so. I will be most grateful if my noble friend Lord Glenarthur, who I see is to reply, can tell me whether he thinks that Part V would give the Government those sorts of powers. If not, I shall have to see whether I myself cannot find an amendment to give the Government that power. In the event that the Government do not intend—at any rate, in the first instance—to provide a framework for a really competitive market for telecommunications, there are several areas in which the powers of the director general could be strengthened. There are also areas in which the licence might be altered.
I so agree with those noble Lords who have drawn attention to the fact that the licence is not directly controllable. I wondered whether it would be possible—and here again perhaps my noble friend, Lord Glenarthur, could comment—somehow to turn the licences, or at any rate the British Telecom licence, which is special because, as I have explained so lengthily British Telecom is a monster monopoly if ever there was one, into a statutory instrument, so that we could at least debate it. I do not think it would be necessary to do it with poor little Mercury or even smaller minnows that there are in other parts of the market place. If it could be turned into some sort of statutory instrument, I think that might answer the problem of how to get it changed.
However this may he, my Lords, there will be room for amendments, and there will be all sorts of reasons why we shall need to put forward amendments in order to strengthen this Bill and to make it more positive in providing proper control of British Telecom. I shall also give notice here that any suggestion in the other direction from the Benches opposite will meet my implacable and firm opposition.
§ 6.2 p.m.
§ Baroness Gardner of Parkes
My Lords, I have listened to the very interesting speeches that have been made on this subject, and it does seem to me rather surprising that the speeches from my noble friend Lord Mottistone and from the noble Lord, Lord Molloy, have a certain amount in common, in that Lord Mottistone is saying that this Bill does not go far enough in terms of opening telecommunications up to completely wide competition, and Lord Molloy was more or less saying the same thing. To my surprise, the noble Lord, Lord Molloy, did not give any credit for the disciplines which will be attached through the licence or any of the protections for people, which I personally am delighted to see will come through the licence. There have been in the past such worries about rural services, the 'phone boxes, the disabled, the elderly—we all know this list that everyone has been concerned about. Now, when we are having this licence designed in such a way that it will give the very 882 protection that has been sought in all earlier discussions, we hear people saying that this licence is either too restrictive and not giving enough fair and open competition or, in the case of Lord Molloy, that it is just something in between, neither privatisation nor nationalisation, and therefore he thought presumably that it was a hybrid; he found that less satisfactory than being either fully private or fully nationally owned.
I do not agree on that point. This is the great merit of this Bill as it stands, that we are going to have privatisation of British Telecom which will give the service the opportunity to borrow capital on the open market in order to respond more rapidly and flexibly to the needs as they arise, because this is a highly competitive industry. We must realise that although this may be a virtual monopoly in this country our competition must be with other countries and not just within this country.
I listened to the experience of my noble friend Lady Macleod and was very interested that it had taken four days to repair her country telephone. My own experience in the remote part of Cornwall that I have lived in was exactly the reverse, that the servicemen in rural areas would turn out very rapidly; but I have often been left two to three weeks before anyone came in London because they said there was such a pile-up and waiting list. The point that they care for people in a social sense is perhaps fair, because the servicemen will come to my surgery much more rapidly than they ever will to my home, which is fine from the point of view of patients but still leaves difficulty at home. I pay tribute to the rural services, as I think they have been very good.
I should also like to comment on the dramatic change that has taken place in British Telecom since the 1981 Act which separated them from the Post Office. Until that time no matter what the consumer wanted from British Telecom he had no hope of getting it. I remember all the years I spent looking at telephones when I first came to this country; they were those tall standard ones; after that it took all those years, 20 to 25 years, before they progressed as far as a Trimphone. No matter what consumers requested in terms of something a bit smarter or something that did more—as they now have all the memory inbuilt machines that are so readily available—the Post Office remained unmoved by the demands because they had no opposition. The only people who were able to get telephone answering machines had to accept Post Office approved machines, which I know from my own experience in the surgery were great big, cumbersome and totally out of date machines. It was only if you illegally accepted some American import, which any Post Office engineer would happily connect to your apparatus, that you then had a machine which would fit into your office or home and worked perfectly well. So I am pleased to see the progress that has taken place in British Telecom since it was separated from the Post Office. At the time I was doubtful whether this would be a good or effective change, but these two years have quite convinced me of the improvement.
There is little more I wish to say because so much has been said in this debate. I am concerned slightly over the post of the Director General of 883 Telecommunications and Oftel, in that I think there is an enormous responsibility to be put on that one person. The calibre of that person must be highly significant in how successful or otherwise that will prove to be. I am not entirely satisfied—in a different way from those who have said there is too much discipline—that it will be watchdog enough. I believe that it is certainly the intention of this Government that it will be a very successful way of protecting the consumer interest, and I believe that on the whole this Bill will prove to be a success.
§ 6.8 p.m.
My Lords, although I can think of more pressing candidates for denationalisation, such as possibly the Post Office, on the whole I welcome this Bill, but I have a few reservations about it as it stands. It is scarcely nine months since we gave its deceased elder brother its Second Reading. Since then we have had the Second Reading of the Cable and Broadcasting Bill, and it is not easy to comment on the Bill before us without taking it into consideration too. I am particularly concerned about the importance of very close co-operation between Oftel and the cable authority, and I am disappointed to find that in Part III no mention is made of the director of Oftel having any duty to ensure such operations; nor is any mention made in the Cable and Broadcasting Bill of the cable authority having a duty to maintain close contact with Oftel. I know that the Government are not anxious for these two to be married, but I fear that if they are not either married or forced to cohabit they will not cooperate to the necessary extent, and will instead play the well known game of buck-passing, to the detriment of the consumers' interests.
The noble Earl, Lord Halsbury, speaking on the Second Reading of the Cable and Broadcasting Bill, envisaged a time when every house would contain an electronics room, and I am sure he is right. I already consider a house without a telephone to be substandard. It will not be many years—probably before the end of the century if not before—before advanced telecommunication systems become a necessity in every home. As they come into general use for business purposes and business letters cease to be written, and tele-banking, for example, comes to be the norm, the postal service will almost certainly decline so that the delivery service for letters will become even slower and more expensive than it is already.
The postal service as we know it may well cease to exist and be replaced by a very much more expensive courier service. Indeed, courier services are already taking the place of parcel post, thanks to the carelessness with which the Post Office frequently treats parcels, and letters, too, particularly in London.
With this in mind, I am thinking of communities in such areas as Upper Deeside, Strathdon and the side glens off them, and indeed large areas of rural Scotland and other comparatively thinly populated parts of the country where quite a lot of people live but are scattered in farms, crofts and hamlets over a wide area. I am thinking of paragraph 19B of the Department of Industry's paper Ringing the Changes in explanation of Clause 8, and in particular the phrase: 884British Telecom will be obliged to provide ordinary voice telephony everywhere and advanced services in all areas except those where there is insufficient commercial demand for them".I take that to mean areas where British Telecom will not make a profit. I am wondering how these country people, whose voting power is small, will fare and whether those rural areas will become further depopulated as their communications fall further and further behind those of urban areas. Of course, I must declare an interest being a country bumpkin from those parts myself! While we are on the subject of Clause 8 I should also like to see written into the licence an obligation to retain the existing free directory inquiry service which is so vital to the blind.
There is another aspect of the forthcoming sale of British Telecom which worries me a little. I am wondering whether it would not be possible for an unfriendly foreign power, a political party, or an unholy alliance of both, to acquire a majority holding in the company so as to be able to control it and replace key personnel with people disloyal to Britain so that the elected Government could be held to ransom or, in the event of hostilities, our communications system dislocated or taken over by the enemy. Perhaps I am romancing and I hope that the noble Lord, Lord Glenarthur, will be able to tell me that I am, and why. If not, I wonder whether some safeguards could be inserted into the Bill. I cannot find any. The noble Lord, Lord Taylor of Gryfe, made an interesting suggestion which might go some way to countering the danger. He suggested that telephone subscribers could be offered blocks of 100 shares and given a discount on their telephone bills as long as they retained the shares. But that is not the complete answer.
§ 6.15 p.m.
§ Viscount Trenchard
My Lords. I am very glad that I am not still with the Department of Industry. I have a great deal of sympathy with my erstwhile colleagues in Government at this time. Like most others on this side of the House, and some on the other side. I fervently believe in competition and believe that normally that is more easily achievable in private enterprise. Also, while agreeing with the noble Lord, Lord Weinstock, that management is absolutely key, I believe that on the whole one gets both a type of management and, more important, a performance out of management when one has both the discipline of competition and of the individual profit and loss account which my noble friend Lord Mottistone spoke of. Indeed, some of those who have been recruited into some of our public sector enterprises in recent years in my view have only joined because they have been able to see the light at the end of the tunnel and a possibility of private enterprise when they get there.
It is grossly unfair of the noble Lord, Lord Bruce of Donington, to suggest that the main or almost only reason for the Government putting forward this Bill is because they want the money from the sale and privatisation of British Telecom. It struck me that the noble Lord contradicted himself by pointing out how much they would lose in interest and repayments in the first year, which almost made clear that this could not be, even if one were cynical enough to believe it was, the only reason. No, the reason is that this 885 industry at present is vitally important. It has enormous growth opportunities and it is at the apex of many changes throughout industry and our life. Furthermore, as my noble friend Lord Orr-Ewing has shown in quoting the shares of market—which are normally my prerogative to quote in relation to industry generally; in fact, I am a gramophone in this House in that respect—our performance is far from what we should like it to he. I thought that his mention of the accounts of British Telecom was also indicative of whether we have, in that single, monopolistic organisation, the kind of atmosphere needed in this vitally important industry.
The noble Lord, Lord Weinstock, mentioned international comparisons and showed that we do not compare so well as all that. The important point here is that all countries, for historical reasons, tend to be saddled with huge, monolithic organisations. The country that can move fastest in the right direction will be the one that will score not only in this industry but in other industries which it will help. Therefore, I really believe that, if one looks at the growth potential and the revolutionary changes in this industry, no one but the extremely dogmatic in favour of public enterprise could contradict a desire to move towards a competitive situation.
Against that background, we found my noble friend Lord Cockfield saying that we must make haste slowly. Of course, that is why this is such a difficult problem and why I am glad I am no longer at the Department of Industry. The size of investment required to get into this industry, with all the modern equipment and the modern types of lines of communications that are now possible, is enormous. One has to ask: if there were a total free-for-all now, who would take on either the state or the private monopoly which British Telecom would become? Therefore, one must make haste slowly. That, too, is the answer to the noble Lord, Lord Taylor of Gryfe, who says that privatisation will not make any material difference to competition in the next few years. We shall come to atmosphere, which has already changed, in a moment.
Clearly there is an alternative in principle to go the American route of splitting the single, large organisation. The Government have decided that this is evidently not a practical or desirable route to go in this country, but I am not an expert in many of these fields. If there is to be no splitting, then time, although not perhaps quite as much time as the noble Lord, Lord Weinstock, suggested, is required to build up competition which is clearly real and to create substantially more than one big competitor in the field. Certainly a decade or more is necessary, even in an age of change.
We must not dismiss the peripheral areas, which are very important. Competition in equipment, in added value services and in other peripheral services can make a big difference. It can also help to change the atmosphere. But it will take a long time even for the one organisation—Mercury, if it is successful—to build up to being a sizeable competitor to British Telecom. I believe that the Government are right to make a start. My noble friends Lord Glanusk and Lady Gardner of Parkes have pointed to the changes in atmosphere that have occurred as a result of competition in peripheral areas which has already 886 started and the competition which should be brought about in the main network by the Bill which is now before this House.
An enormously important role will be thrown on Oftel and its director general. Anyone who accuses our Prime Minister of being dogmatic should note that here is a Conservative Government recommending a new and formidable quango. There is no dogmatism about this. It happens to be the only practical way to move to a truly competitive market—admittedly over a very long period of time—in the circumstances in which we find ourselves, with an industry that is at the moment, and has been for a long while, a total monopoly.
It has already been stated by many speakers that the director general will have to be something of a superman. I wonder whether the Government have fully taken on board the fact that they are looking for someone to preside over the steady build-up of competition in a huge and important industry where it has not existed before and to advise the Secretary of State upon it. His task will be considerable. The Bill will not end the situation. Over the next 10 to 15 years, Oftel will have to be a strong referee if indeed we are to build up competition in the industry.
I want to add only two short points. The first concerns employment. I agree with my noble friends who pointed out that competition, and, we hope, greater growth for British industry, will increase employment. But, from reading the literature that I have received on the subject, I do not believe that it will be long before the necessary technological changes that lie before British Telecommunications lead to job losses in some areas of the industry. I can already hear that being blamed on this measure and on competition. Fantastic changes are going on. Most of the equipment will have to be renewed or changed. Many of the changes will cut out enormous quantities of the existing labour force in the industry. If British Telecom is on its toes, its employment in total need not show a catastrophic downward trend, but it is not a period in which we can stand still and claim a right to existing jobs. There has to be change, and fast change, and it will affect employment.
Enough has been said on the safeguards for the less well off elements in our society. When we come to examine the Bill I believe that we shall debate these, and we may strengthen some. But there is the idea that, for instance, all rural areas are populated by extremely poor people who must be subsidised in their services. That hardly matches up with what I see when from time to time I visit some of my very good friends in the country. Neither are telephone kiosks used only by the needy. In dealing with a great many of the real problems of looking after the less well off elements in society, it is not a sensible course to have a complicated system in all rural areas for special telephones and so on. It is far better to deal with the problems directly through pensions, social benefits and so on. I read in the literature sent to those of us who are interested in the Bill that British Telecom performs many essentially non-commercial services. I believe that a great many more should become commercial and we should look to dealing with the problems of the needy by a direct route and not by those means.
§ 6.25 p.m.
My Lords, I join with enthusiasm other noble Lords in thanking my noble friend Lord Cockfield for introducing this Bill. He did so not only with his usual élan but in such a way as to remind us very properly of the fundamentals of the Bill. It is nothing other than an enabling Bill. It is a Bill to enable Government, and not a nationalised industry, still less private business or conglomerates, to gear the tempo of change.
I believe it is crucial to the understanding of this Bill and, indeed, related legislation that we should be aware of the fact that the Government of 1979 were the very first Government within living memory to ask themselves two fundamental questions. One was, "What is the role of Government?", and the other was, "Where lies the nation's economic future?" I believe—and I believe the Government also believe, but not necessarily because I believe it—that the answer to the first question is in part that it is not the business of Government to be in business, for the very simple reason that every time they have gone into business they have manifestly failed.
The answer to the second question, again in part, is that the economic future of the nation very largely lies in information and communications technology, otherwise known as telematics. That is why my noble friend Lord Cockfield was absolutely correct in using the term "revolution". It appears that Her Majesty's loyal Opposition, at any rate, are blissfully unaware that a wonderfully exciting future lies ahead for this country in creating the right atmosphere and tempo for change in this field of endeavour. This Bill is concerned only in part with the transfer of assets from a public or state-owned corporation to an in part privately-owned corporation.
It is also worth recalling that in September 1979 almost the first acts of the Government were to allocate some £9 million for the provision to schools for computer hardware and, indeed, more importantly, to create a ministry, albeit a junior ministry, to tackle the challenge to the nation's future that the telematics revolution will visit upon us. This reflects the thinking that this Government have brought to bear upon this subject.
As other noble Lords have stated, the Bill particularly concerns itself with structuring governmental organisation so as to ensure that this country remains in the forefront of this vital industry. I believe it to be critically important that Her Majesty's Government get the form and structure correct at the very beginning. How this can be done remains of its very nature more a point for Committee stage than for Second Reading.
That brings me to the brilliant and stimulating speech of the noble Lord, Lord Weinstock. I sincerely hope that Her Majesty's Government consider with very great care what he has said, as indeed I am sure they will. Parliament, and indeed the country, can only hope that the first Director General of Telecommunications will be a man of his calibre and experience. Despite the fact that I agree with almost everything the noble Lord said—it would be difficult to do otherwise—I must take issue with him on two counts. The British Telecommunications licence, and 888 indeed any other licence, is the child of a department of state. There is nothing that I know of stopping Parliament from questioning or debating the terms of licences issued by a department of state. Although Parliament does not have the power to approve such terms, it would be very naïve to believe that the Government would take no note of what Parliament had to say on such matters. However, I believe that the noble Lord, and indeed other noble Lords, were quite right in raising this matter, because it brings forward questions of constitutional importance, and indeed of national economic importance.
I am certain that the noble Lord, Lord Weinstock, and indeed Her Majesty's Government, are aware of the fact that initiative for change, if taken at too fast a tempo, has the capability of being destructive rather than constructive. I believe that Her Majesty's Government's evident caution, reflected in the Bill, is born of that fear, and that fear alone. As from Day 1 British Telecommunications might well appear to be a public monopoly made private: it is up to private industry to ensure that by Year 5 that position has materially changed. Private industry, I might add, with the help and encouragement of the Department of Trade and Industry, should be the catalyst for change.
My major anxiety about the Bill centres around the principle that it concerns itself more with remedies post de facto damage done than with vigorously deterring damage done, wittingly or unwittingly, to competitors, or putative competitors, by the major operators and those who control the public switching network. I shall not develop this point now, on Second Reading. However, I shall end by wishing the Bill God speed, and by suggesting that the key to its success lies in the quality of the director general of Oftel, of the staff of Oftel, of the department of state and, indeed, of the successive Ministers of State responsible for information technology and telematics generally.
§ 6.32 p.m.
§ Lord Somers
My Lords, I apologise for speaking when I have not put my name on the list of speakers; but, quite frankly, I thought that on a Bill such as this the list would be so long that I would never have a chance of finding a place. It seems to me a great pity that words such as "free enterprise" and "competition", which in their own right are excellent and very valuable words, should have become mere political catch words; and that is what they have become.
Let us examine exactly what competition consists of. When two or more firms produce similar goods or provide similar services, they compete with one another, and the firm which provides the best service or produces the best goods will make the most money. But in a case such as the telephone service there is no question of that. There is only one network, and there can be only one organisation which uses it. One cannot have competition in the sense of one organisation making more money than another.
It seems to me that making a change such as is here proposed merely for the sake of privatisation—a word which I cannot find in the English dictionary, but 889 which no doubt some of your Lordships will understand—will mean spending a lot of money without there being the slightest benefit to the one person who really matters, the consumer. It seems to me that it is purely a political exercise, of no value whatsoever. I am afraid that the Bill has gone too far to do anything about it now, but I sincerely hope that at the Committee stage we shall be able to amend it so drastically that it will look very different.
§ 6.34 p.m.
§ Lord McIntosh of Haringey
My Lords, I must begin my speech by apologising to the House because, in addition to my natural disabilities, I am today without the use of a large part of my vocal chords. Therefore I hope that if your Lordships have difficulty in hearing me, you will so indicate. I join with other noble Lords who have expressed their gratitude to the Minister for his succinct and lucid introduction of the debate. I find myself in sympathy with much of what he said about the need for competition and efficiency. The only problem with the noble Lord's speech was that it bore no relation to the Bill that he was introducing.
Let us be quite clear from the outset what the Bill is, and what it is not. I believe that the noble Lord, Lord Weinstock, has already dispelled any doubts which there might have been about what I am going to say. This is not a Bill about competition. This is not a Bill about liberalisation. This is not a Bill about efficiency. This is a Bill which seeks to switch what is a natural monopoly from the public sector to the private sector. We must consider it in that light from the point of view of its social and economic effects, and a number of noble Lords who have spoken very effectively introduced those two aspects of the matter.
The noble Lord, Lord Weinstock, said that there is not necessarily a connection between privatisation and liberalisation—thereby combining two of the nastiest words in the vocabulary, though doing so in such a way as to knock the stuffing out of the Bill as it appears before us.
Immediately after his eulogy on competition and efficiency, the Minister went on to say that regretfully there would be no real competition, at any rate until 1990. A public monopoly would be replaced by a duopoly. But I find it very difficult to see how it can really be a duopoly with 97 or 98 per cent. in the hands of one organisation and perhaps 3 per cent. in the hands of another organisation.
It is not that the Government lack courage in these matters, it is not that they see what is right and follow the worst course. Rather, as the noble Lord, Lord Somers, said a moment ago in his welcome intervention, there is an inherent impossibility in trying to introduce free competition into this kind of market. Not today, but during an interview on Channel 4 last year, the noble Lord, Lord Weinstock, said:I am not clear what point there is in privatising a company which is by its nature a monopoly. I don't see how you can have anything other than a monopoly running a national communications service".The noble Lord expressed that view again in the House today, and it was echoed by the noble Countess, Lady 890 Mar, the noble Lord, Lord Somers, and other noble Lords, notably the noble friends of the Minister.
So let us leave aside the rhetoric about competition and efficiency. Let us look coldly at what the Bill is actually going to do, at who are the people who will benefit from the legislation if it is pursued in its present form, and who will lose.
My Lords, I apologise for interrupting the noble Lord. Before he leaves this point, which is critically important, can he possibly give me another example of a natural monopoly? Furthermore, what is natural about a monopoly which is created by statute?
§ Lord McIntosh of Haringey
My Lords, any undertaking in which it would be grotesquely inefficient to duplicate the supply involves a natural monopoly. Water is a natural monopoly. In various parts of the country there can be different companies or organisations competing with one another in regard to the standard of service. But I say to the noble Lord that for him, or for me, or for any other noble Lord, there is only one supplier of water. We are not going to thank anybody for seeking to provide a second choice of water pipes into our homes; nor are we going to thank them for a second choice of telephone service, or gas, electricity or any other such public utility. Indeed, this is recognised in the United States where there have been further moves towards liberalisation but where they have taken the form of creating a number of regional monopolies instead of one national monopoly. Wherever they may be, they are still monopolies.
I wish to pursue the question of who loses by the proposed legislation and who benefits by it. The first groups deserving our attention—as, indeed, they have received attention from a number of noble Lords, notably the noble Baroness, Lady Macleod, and my noble friend Lord Longford—are the potentially disadvantaged: the disabled, rural subscribers and the poor. In fact, I would include all domestic subscribers in the sense that it is the domestic telephone supply that has proved to be less profitable then the business supply. A great deal of anxiety has been expressed eloquently in the House—today and previously—and in another place on behalf of these groups. The fact that there is justification for this anxiety is evidenced by the changes that the Government have introduced in Clause 3 to strengthen the general duties of the director of Oftel and the Secretary of State.
The Government felt clearly that the representations made at an earlier stage of the Bill had some justification or they would not have made the amendments. There are, I believe, still many causes for anxiety. I hope that the Government, in the course of the Committee stage here, will seek some means of alleviating those anxieties.
First, a new concept has been introduced into the Bill which says that the services which would be thought of as unprofitable will be paid for, not from the general revenue of British Telecom, but from access charges. This is a new concept. It deserves a great deal of consideration and thought. The principle, I understand, is to make charges both to BT itself and to other organisations which seek to make use of the basic BT network. It seems to me fairly self-evident 891 that it is in the interests of both BT and Mercury, and of any other future organisation seeking to make use, to keep the access charges as low as possible. If access charges were allowed to get very high, there would be a temptation—on the part of Mercury, perhaps—to by-pass the basic network and to have the kind of inefficiency which the noble Lord, Lord Morris, seems prepared to accept with equanimity. Most of us, however, would not be prepared to accept it. If access charges are to be low, the opportunity for effective subsidy for disadvantaged groups of consumers will be limited accordingly.
The phrase still stands in the Bill, and over and over again in the draft licence, of "reasonable demand". They have to meet reasonable demand. There was great pressure to turn the word "demand" into "need" but the Government have steadfastly resisted doing so. Reasonable demand can mean anything to any person. But the most natural expectation of noble Lords opposite is a demand that can be justified economically: in other words, someone has actually got to pay for it. I suspect that we shall move increasingly towards a market economy view of minority consumers and of their needs.
The Minister said with some pride that this is the first occasion in which statutory protection has been brought for these minority groups. Indeed, it is. Why has it not been needed before? Because there has not been that sort of shareholder pressure on British Telecom to neglect those groups of consumers to whom it has always felt itself to have an obligation in providing what is described in its remit as a universal service. I suspect also that the real difficulty that will face British Telecom in trying to meet the demands of Government, and trying to square those with the demands of minority groups of consumers, will be that the only protection for those minority groups is a fully integrated telephone service. That is what will be put at risk by the legislation.
Let us look at whether employees might lose from the proposed legislation. There was some debate when the Bill appeared previously about the right to strike, although it has not occurred this afternoon. I shall simply recall this fact. It is a very strange anomaly that when an easy opportunity came to amend the Telegraph Act 1863 and permit those people who will be the employees of a public limited company the same right to strike as the employees of all other public limited companies, the Government have not taken the opportunity to do so. Indeed, ironically, they are using Clause 45 of the Bill to preserve Section 45 of the Telegraph Act1863. This can only be part of a more general attack on the rights of trade unions. It is a threat that we, on this side of the House must take into account in the amendments that we propose to the Bill.
Similarly, there have been various bland assurances about pensions. I note two matters from the Report stage and Third Reading in another place. The first is that the pension rights of BT employees are not to be taken over by the new PLC but taken over by a shell company. I should like to ask the Government why this should be the case, and whether there is any significance in it. Secondly, the Parliamentary Under-Secretary 892 of State said that this would be the position for the time being. What happens afterwards? How are the rights of employees of British Telecom—and, in particular, the rights of future employees of British Telecom—to be protected? The noble Viscount, Lord Trenchard, referred to the possibility of job losses, and stated rightly that we on this side would be seeking to blame the Government and this legislation for future job losses. I say to the noble Viscount, try us. We certainly shall.
§ Viscount Trenchard
My Lords, I made that point against the background of inevitable job losses through mechanisation and new equipment that British Telecom would have to install in any event.
§ Lord McIntosh of Haringey
My Lords, I was well aware of the noble Viscount's more general points. I accept that those are the conditions under which any telecommunications industry will have to work in the future. I suggest that there is nevertheless an obligation on the Government. while this is a public sector industry, to be concerned about job losses, to minimise them and to provide the best possible protection for the loyal employees of British Telecom.
The next group that we have to consider are those in the telecommunications manufacturing industry. I do not believe that I could dare to improve on the devastating comments of the noble Lord, Lord Weinstock, especially as he is a former employer of mine. I hesitate to run the risk of contradicting him, particularly as I agree with him. The protection of home markets for highly technological industries such as the telecommunications industry does not depend on whether the telecommunications business itself is privately or publicly owned. We have only to look at the French example to see how it is possible to provide protection for a telecommunications manufacturing industry through the CIT-Thomson encouraged merger with a public telecommunications supply industry. We have to look at the Japanese who manage to provide the same protection in the private sector.
The change from a public monopoly to a private monopoly will not in itself affect the viability or profitability of the British telecommunications industry. We need greater assurances than the Government have yet given that the particular change that they propose—where, for example. Mercury is thinking about having most of its equipment from abroad in contrast with British Telecom which has nearly all its equipment from this country—will not make a difference in Government support for our telecommunications manufacturing industry.
With regard to the business community in general, we come back to the issue of whether this legislation is actually going to provide for the individual consumer, living in a particular street or a particular house, with only one supplier, or the business consumer, with only one major choice, and whether it will make any difference to him. I have heard nothing in the debate this afternoon which has indicated that there will be any significant improvements.
Let me now turn to the issue of who benefits from the legislation. There are certainly some obvious beneficiaries, and some of them have been represented in the debate today by the members of the 893 Telecommunications Liberalisation Group, who very properly declared their interest as being concerned, not with the basic service of telecommunications, but with some of the more peripheral matters. The radio-paging industry terminal apparatus might have been referred to; specific reference was made by the noble Lord, Lord Off-Ewing, to the resale of circuits, which could indeed be an extremely profitable business for somebody prepared to buy in bulk and sell in detail if British Telecom was, in fact, obliged to make that possibility available.
There are all sorts of ways in which various parts of private industry can make money at the margin from telecommunications without breaking the natural monopoly of the telecommunications supply business. Certainly, if there is enough of a move towards liberalisation, these are people who will benefit from this legislation, and they will do so on the back of British Telecommunications PLC acting as a milch cow, as providing the service for them on which private profit will he made.
The next group of people who will benefit is, I would suggest, the City. We are talking here possibly about £4 billion of receipts for approximately 50 per cent. of the assets of British Telecom. The noble Lord, Lord Taylor, very effectively showed how difficult it would be to achieve even that £4 billion within any one financial year, the effect that there might be on the markets of such a huge investment opportunity, the effect that there might be on other investments, and the possibility of them being starved. But, even if we take it that that £4 billion can be achieved, we are talking about £4 billion for 50 per cent. of the assets of a company whose fixed assets are well over £9 billion. So even at that level we are talking about a discount of more than 10 per cent.
If we go further and do what Sir George Jefferson is suggesting and start to write off the debts of British Telecom before going to market, then we, the taxpayers, who have put this £10 billion into British Telecom over the years will be losing out even more. There will be more and more discounts available to investors at the expense of the taxpayers and at the expense of the national economy. I challenge the Government to show how, within a reasonable period of time, they can expect to get, by going onto the market, an adequate return for the investment that has been put into British Telecom over a period of many years.
Finally, will the Government benefit from it? Of course they will, because the Government will find one means of escape from the contradictions of their own economic policy. They will find one means—I think the phrase was "by selling the silver to pay the butler"—of dealing with their inability to cut public expenditure, of dealing with their inability to cut taxes. Of course, for a year or two, or perhaps even for five years, it is possible to go on selling off the assets of Great Britain Limited and to use them for the day-to-day needs of Government financing. But in the long run it is the people of Britain who will suffer. I suggest that in this Bill we have a switch-sell. The ideology of liberalisation is being used as a screen. We are being told that this is all in accordance with capitalist principles. I suggest that, in fact, we are having a return to mercantilism.
894 What we have here is the selling of monopolies, rather as Queen Elizabeth I sold the monopolies of tobacco and salt. This is a huge step backwards in economic thought and not in any way a step forward. The Government are already aware that they will be squeezed in Committee by the genuine adherents of liberalisation. I suggest to them that they will also be squeezed from this side, because as this Bill goes through Committee we on this side—and from what the noble Lord, Lord Taylor, said, I believe that that is not just the Labour Party—will be seeking greater accountability to Parliament. We shall seek greater protection for the jobs of people concerned both in British Telecom itself and in the telecommunications manufacturing industries. We shall seek better protection for the rights of the existing employees. We shall seek in particular better protection for the users of telecommunications—both residential and business users of telecommunications. We shall not give up on any of those objectives, and we shall pursue the Government hour by hour and minute by minute on all those points.
§ 6.56 p.m.
§ The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Glenarthur)
My Lords, when I wound up the Second Reading debate of the Telecommunications Bill almost exactly nine months ago, I told your Lordships that we had started out on what I thought would be quite a lengthy debate. I must confess that I did not realise it would be quite so lengthy as it has turned out to be. However, on that earlier occasion we had an informed, useful discussion and a number of important issues were raised, some of which have been referred to again today.
However, before turning to some of the specific points that have been raised, I want to say a little about some of the arguments that have been made against this Bill outside Parliament, because those arguments have created among many sections of the population quite unnecessary anxiety about what the Bill will do. The sort of misleading propaganda about which I am thinking is that which, for example, claims to identify the consequences of the Bill for the disabled—and I shall return to the disabled later—and for the socially necessary services provided by BT, like the 999 service, and the effect of the legislation on rural customers.
This campaign goes on despite the fact that the Government have taken deliberate steps to strengthen Clause 3 of the Bill, and despite the fact that the draft of BT's licence has been published, giving concrete evidence of the Government's intention to ensure that essential social services will be fully protected in the new competitive framework which we are establishing for telecommunications. Furthermore, that is in a way which has not hitherto existed.
As evidence of the Government's continued willingness to respond to well founded arguments, some further amendments were made to the Bill at Report stage in another place, and they have been referred to this afternoon. One was concerned with the enforcement procedures in the Bill. It was designed to 895 ensure that the new director general has powers to act very quickly in cases where it is considered that a breach by a licensee of its obligations is likely to cause serious damage to one of its competitors. My noble friend Lord Orr-Ewing raised this point. Similarly, in relation to the Telecommunications Code in Schedule 2—an important aspect of the Bill which has been virtually undebated so far but which has been the subject of strong representation by outside bodies—the Government have made very substantial changes to meet genuine concerns.
Here perhaps I ought to say a few words about the director general. This particular point was raised by my noble friends Lord Glanusk, Lady Gardner, Lord Trenchard and Lord Morris. The fact is that the Government recognise that the director general will have to be a man of considerable stature, but no decision has yet been taken on who should be appointed. However, a firm of consultants has been engaged to advise on possible candidates. We have no doubt of our ability to find an individual of the stature which is required. The Government hope to be able to announce the name of the director general designate without too much delay.
My noble friend Lord Cockfield referred to the philosophical divide between the views of the Government and the many views expressed by those opposite. I do not think that I can remove the gulf that exists, but I hope that I can answer some of the wilder assertions made by the noble Lord, Lord Bruce, and, indeed, by the noble Lord, Lord Molloy. The noble Lord, Lord Bruce, charged us with selling off only profitable industries. It is simply not possible to sell a loss-making industry on the Stock Exchange. Where a public sector industry can be made viable by a reduction in its debt burdens, the Government are willing to make the necessary capital reconstruction and transfer the company to the private sector. We did it with British Aerospace, but an inveterate loss-maker has to remain with the taxpayer, not because the Government wish it so, but because there is no alternative, at least while the loss-making continues. The noble Lord, Lord Bruce, further said that British Telecommunications needs to be made more profitable. As the noble Lord knows, British Telecommunications makes good profits. There is no inference that profitability considerations will require either undue reductions in debt burdens or a contraction in the scope of service.
The noble Lord further went on to talk about British Telecommunications' 6 per cent. return on capital. Here I think that he will find that he might be slightly confused. British Telecom's return of 6 per cent. is calculated on a real basis; that is, after adjusting for the effects of inflation. The 17.7 per cent. average return quoted by the noble Lord is on a historic cost basis—that is, without adjusting for inflation—so there is no inference that BT's rate of return will shoot up from 6 per cent. to nearly 20 per cent.
The noble Lord, Lord Taylor, suggested that the size of the share sale will disrupt the City, if I paraphrase his remarks correctly. It is true that the scale of the flotation raises certain questions which we have not had to deal with in the past. We are especially aware of 896 the responsibility resting on the Government to ensure that the sale, through its size, does not disrupt the equity market. We see advantage in disposing of a controlling stake in the business in one step, if this is feasible. This would secure the full benefits of privatisation earlier, and it would avoid the uncertainties associated with a second tranche of shares overhanging the market. Our planning is currently directed at investigating ways in which a one-step sale might be possible. One means of lessening the impact of new shares on the market is through payment by instalment arrangements. We are actively considering how this might assist the BT sale.
The noble Lord, Lord Taylor, also asked about the pension fund. British Telecommunications is currently under an obligation, governed by a deed of covenant, to pay some £1,250 million at an interest rate of about 14½ per cent. to the Post Office and the British Telecommunications pension funds. This also was a point raised by the noble Lord, Lord McIntosh, when he wound up for the Opposition. This is in respect of a deficiency in the funds relating to service of Post Office employees before 1969. By a Government amendment at the Report stage in another place to meet the point which the noble Lord, Lord McIntosh, has just repeated, this obligation will not be transferred to the successor company under Clause 56 of the Bill. It will remain instead with the shell statutory corporation. It will be discharged from monies accruing to the statutory corporation from debentures issued by the successor company to the Secretary of State in the course of establishing the company's capital structure, which the Secretary of State will, in turn, have assigned to the corporation. I hope that that disposes of one point referred to by both noble Lords.
The noble Lord, Lord McIntosh, and the noble Lord, Lord Taylor, referred to the question of liberalisation being harmful to United Kingdom manufacturers, and leading to the loss of jobs. It was a point to which the noble Lord, Lord Weinstock, referred in his speech, and I shall come to his points later. May I first say to the noble Lord, Lord McIntosh, on this particular point, that Mercury is not getting most of its equipment abroad, That is not correct. It has bought some microwave equipment abroad, but not its fibre optics system.
As to the question of liberalisation being harmful generally to United Kingdom manufacturers, or leading to a loss of jobs, not at all. It was BTs monopoly over the supply of apparatus which was harmful. It removed the incentive to respond to customer demand, to improve efficiency, and to improve the quality and variety of products. Competition is essential if the United Kingdom industry is to take advantage of the expansion in the telecommunications industry. Liberalisation has not meant a flood of imports, either. On the contrary, the average United Kingdom content of all the 292 products so far approved has been 74 per cent.
The noble Lord, Lord Molloy, asked a number of questions. He particularly asked: why Mercury? Why was Mercury selected as the competitor to British Telecommunications? The answer is that the Mercury partners—Cable and Wireless, British Petroleum, and 897 Barclays Merchant Bank—came to the Government with worked out proposals to risk many millions of pounds to set up a network in competition with BT. They demonstrated that they had the technical and financial resources to challenge BT, and the Government accepted their proposals.
§ Lord Molloy
My Lords, would the noble Lord tell me: who did they defeat in their applications to the Government?
§ Lord Glenarthur
My Lords, I think I said just now that it was Mercury which came to the Government with a proposal. I do not believe that they, so far as I know, defeated anybody, but if I am wrong I shall let the noble Lord know. The noble Lord, Lord Molloy, and his noble friend Lord Bruce asked about privatisation threatening national security. The noble Lord, Lord Bruce, said that public security could not be served by a private monoply, if I heard his words correctly. No, my Lords; there are arrangements in both the Bill and the draft BT licence to safeguard the telecom requirements of defence and national security. For example, Clause 87 of the Bill empowers the Government to issue directions to operators in the interests of national security; for example, to require BT to take such steps as the Government consider necessary in the interests of national security.
The noble Lord, and the noble Lady, Lady Saltoun, also asked about foreign control. What I can say here is that Article 37 of BT PLC's articles of association provides against a foreign or British interest acquiring a shareholding of 15 per cent. or more in the company. If such a person or group of persons acting together seek to acquire a shareholding above the permitted 15 per cent. limit, the articles provide for the directors of the company to require them to sell the excess. If they do not, the articles require that the directors execute the sales themselves.
The noble Lord, Lord Weinstock, with his special interest in the industry, made a powerful speech, and I look forward to reading that speech in Hansard tomorrow. I should like to deal with the two substantive points I think he made. The first was that the licence should be subject to Parliamentary approval. We feel that this would be wrong for reasons both of practice and of principle. On practice, there are first a vast number of licences to be issued under the Bill—some 3,000 or so in all. It would be quite impractical to put all these before Parliament. Secondly, to require parliamentary approval would make licences rigid and inflexible in the light of changing circumstances. Every time the director thought a change was needed—for example, to prohibit a new anti-competitive practice—he would have to put it to the Secretary of State, who would put it before Parliament. So there would be considerable delays.
On principle, the Bill, which has been subject to extensive debate and will be subject to further debate in your Lordships' House, gives the Secretary of State the powers and lays down statutory duties by which he is bound in exercising those powers. Parliament has given him these powers, and it is inappropriate for Parliament then to interfere with their execution.
Lord Bruce of Donington
My Lords, I am grateful to the noble Lord for giving way. Does the noble Lord not recall, when he was indicating that there would be an infinite variety of licences and therefore it would be impracticable to incorporate them in the Bill, that one of the principal points made by the noble Lord, Lord Cockfield, was that there should be competition by way of licence on exactly equal terms?
§ Lord Glenarthur
My Lords, I am not entirely sure what point the noble Lord is making. Perhaps I can take him up on that particular point in due course.
§ Lord Weinstock
My Lords, I am sorry to interrupt the noble Lord, but does he realise that the terms of the licence which will be granted to BT are a vital part of the financial consideration which will be paid over by outside investors to the Government for the shares in BT, and will deal with precisely those criticisms which the noble Lord, Lord McIntosh, was making earlier about how much it will in fact cost the community to privatise BT?
§ Lord Glenarthur
My Lords, I think I follow the noble Lord and the point he was making, but I stand by what I said about the sheer impracticability of trying to put 3,000 or more licences before Parliament every time a change has to be made or someone has to be licensed. There are finite limits to the amount of work which can be undertaken. I stand by what I said earlier, but I shall study the noble Lord's remarks.
I lead on to his next point, which was that BT should be prevented from manufacturing. The Government have decided that BT should not be prevented from manufacturing but should be free, like other PLCs, to decide on its areas of business. However, like other PLCs, BT's manufacturing interests will be subject to the normal commercial law on monopolies. In addition, BT's licence will oblige it to set up a separate subsidiary with separate accounts for its apparatus manufacturing business, and will prohibit BT from using any profits from its network activities to subsidise its manufacturing activities.
§ Lord Weinstock
My Lords, I am sorry to interrupt the noble Lord again, but I did not say that BT should be prohibited from manufacturing. I asked only for the same assurances for our indigenous manufacturers as are given by foreign telecommunications authorities to their manufacturers.
§ Lord Glenarthur
My Lords, again, if I have the noble Lord wrong, I shall study it and comment by writing to him about it.
I should now like to deal with the effect of the Government's proposals on competition. It has been suggested by my noble friend Lord Orr-Ewing and others that we are not doing enough to open up the market to new entrants. We are criticised on two grounds: that this policy is too restrictive in not envisaging the licensing of more telecommunications operators under the Bill, and that the regulatory system envisaged in the Bill should ensure that BT does not abuse what will be its dominant position in the market for some time to come. Unrestricted competition, which would almost certainly focus on business customers, could jeopardise some of the basic 899 services like public call boxes and "999"services. Nonetheless, it is the Government's intention to ensure that BT is subject to real competition. This was referred to also by my noble friend Lord Mottistone. Such competition will require very heavy investment over a long period, and a competitive free-for-all would be likely to result in a series of under-capitalised and ineffective competitors. The Government want effective and fair competition. This Bill is designed to achieve both. Innovation is to be encouraged, but competition must be fair.
Under the Bill the director general, quite independent of ministerial control, will have duties to promote competition and to ensure that BT and others do not engage in anti-competitive practice. Here I should make the point that the director general and his team at Oftel are not part of the Department of Trade and Industry, as my noble friend Lord Glanusk said. They are divorced from that department; they are a separate entity.
My noble friend Lord Orr-Ewing suggested that Oftel would be too weak. To that I say, no; the Government fully recognise the importance of Oftel's role and will ensure that Oftel has sufficient staff resources to carry out its functions effectively. Eventually Oftel will have 50 staff, as my noble friend said, but the Government will look carefully at the adequacy of this figure in the light of developments that take place.
The effectiveness of the director general's enforcement powers depends to some extent on what is in the licence. The draft BT licence contains several conditions designed to promote competition, and I hope this will set my noble friend Lord Glanusk's mind at rest. For example, BT will be obliged to connect other systems to its own system and the director will have power to arbitrate on commercial and technical disputes. BT will also be obliged to let others provide services—for example telebanking—by means of the BT system. There is a condition obliging BT to publish the standard charges so it will not be possible to offer hidden discounts for telecommunication services. BT's network activities must be separated from its apparatus supply activities. Against this background the Government believe that the duty that the director general has to investigate complaints he receives will prove an effective check on anticompetitive practices.
My noble friend Lord Mottistone raised the question of whether we could not have made the job of the regulatory authorities easier by breaking up BT into its constituent parts. The fact is that it is impossible to breakup BT without doing considerable harm. Its national network has been developed over a long period as an integrated whole. Apart from engineering considerations, there has been no separation into distinct operating and financial units as has been the casein America. It is impractical to introduce separate local and trunk operating companies without severe disruption. However, there is scope for improving BT's accounting, and my noble friend Lord Orr-Ewing will be interested to hear that the chairman of BT is taking positive steps to achieve this by establishing separate regional accounts and 900 profit centres, and there is a specific requirement in the draft licence that BT should establish separate accounting and reporting arrangements for its system business and its apparatus supply business.
§ Lord Orr-Ewing
My Lords, can my noble friend assure us that when the prospectus is put before the country this autumn it will be fuller in its accounting and not in any way be modified or qualified in the accountant's report? Shall we have firm figures rather than qualifications in the report?
Lord Bruce of Donington
My Lords, on that point—if the noble Lord will excuse me—may I ask whether the noble Lord will give the House an assurance that as and when BT has reorganised its accounting system the observations and report of the company's present auditors, Coopers and Lybrand, will also be published on the adequacy of the changes that have been made?
§ Lord Glenarthur
My Lords, that is rather wide of the point that my noble friend Lord Orr-Ewing made, and in the interests of time I should get on with some of the other points that have been raised.
My noble friend Lord Orr-Ewing asked about the question of radio telephones. He made a number of criticisms of the Government's policy. We have licensed two cellular systems because that is the best way to combine competition with frequency efficiency. We shall have competition and more people able to get hold of radio telephones. The Government are not driving small radio telephone companies out of business. Small firms, including one led at the time by my noble friend, were encouraged to compete for the licence, and we cannot change the result now.
My noble friend referred to 47 radio telephone companies. In fact there are some 100 companies active in message handling, and so on. Their position is fully safeguarded in the two cellular licences which contain special safeguards to allow small firms to compete in providing services. The noble Lord suggested that there were substantial amounts of frequency available to small firms but I am afraid that this is not so. The Merriman Committee carefully examined the position and refuted the claims which the noble Lord has repeated today. There are a few frequencies in the maritime bands and we are discussing how to allocate these. The Government are shortly to publish a consultative document on the reallocation of the frequencies now used for 405-line television which in due course comes to an end.
§ Lord Orr-Ewing
My Lords, will my noble friend allow me to make one very important point, if he wants competition? These companies, whether they amount to 100 or 47, do not want to be dependent on BT. They are competitors to BT and to Racal. Why are they not allowed to continue with the operation on the VHF bands which they pioneered and have used for 25 years? Can he give an assurance that when the 405-line transmissions are closed down first priority will go to these pioneering small companies?
§ Lord Glenarthur
My Lords, I told my noble friend just now that the Government intend to publish a consultative document on what to do with the frequencies when they become available when 405-linetelevision goes. No doubt he will be able to respond to that document when it appears.
My noble friend Lord Glanusk and the noble Lady, Lady Saltoun, asked about overlap between the two licensing authorities. Here I am referring to cable. No, my Lords, the two licensing functions are separate and are concerned with different activities. The Secretary of State's licensing function under the Telecommunications Bill is concerned with telecommunications systems and telecommunications services. These are services for the conveyance of signals by means of such a system, and the installation and maintenance of the system. The Secretary of State is not concerned with the content of signals. This is quite different from the cable authority, which has no interest in the running of the system but is concerned with the licensing of cable programme services.
I should like now to turn to the interests of the consumer. The Government believe that competition benefits the consumer. But under the Bill there will be stronger guarantees than at present about the essential services. At present, there is no mechanism by which POUNC can enforce its views on BT. In future, the director general will be under a statutory duty to promote the interests of consumers; he will be under a duty to consider all complaints made by consumers; he will be required to monitor and collect information on telecoms; and he will be in a position to publish information and advice to consumers. In other words, he will be POUNC with teeth.
But the Bill also improves the position of consumers in a more direct way. At present, BT consumers do not have a contract of service. In future, BT will be required under the Bill to enter into proper contracts which will be enforceable in the normal way and, if necessary, in the courts. This will give customers legal rights they have never had before and put BT in the same position as any other commercial company.
The noble Lord, Lord Taylor, and others referred to essential services. It is quite clear that some of your Lordships are still not entirely convinced by the assurances given by the Government that essential services will be protected. The licence guarantees the continued provision of these services, and, for many of them, this is the first time that there has-been such a safeguard. Condition 1 in the licence, reflecting Clause 3 of the Bill, sets out the universal service obligation. Condition 2 repeats the obligation with specific reference to rural areas. Condition 6 obliges BT to continue to provide a free "999"service. These are very real safeguards; and if the director general finds that these conditions are not being observed, he will be obliged to take action by issuing orders requiring compliance—orders which he can ultimately enforce in the courts.
It has been argued by the noble Lord, Lord McIntosh, that, "reasonableness", certainly, and to some extent "practicability", as far as I can tell, undermine some of these safeguards. But this limitation is no let-out. On the question of 902 reasonableness of demand, it is perhaps more subjective than practicability. But Condition 42 in the draft licence makes clear what it is intended to cover. It is designed to ensure that the licence does not become a mechanism for bankrupting any telecommunications operator. It would be ludicrous, for example, for an operator to provide a service for a customer who will not pay his bill. Here, I am not in any way referring to the noble Lord, Lord Spens. I am not, like him, totally unfamiliar with the red notice to which he referred. Where there is a dispute about either the practicability or the reasonableness of the demand for a particular service, it will be for the director to decide in the first instance guided by the licence conditions; but ultimately his interpretation is open to challenge in the courts.
I am aware of the fact that I have been on my feet for 27 minutes. I wanted to talk about access charges, and perhaps I might do so briefly.
§ The Earl of Longford
My Lords, I wonder whether the noble Lord will say a word about the disabled?
§ Lord Glenarthur
Yes, my Lords; that is why I hesitated before getting involved with access charges, which is the next section of my speech. I know well of the noble Earl's interests and of the speech he made just now, but, if I may, I shall cover access charges, because they are important to the noble Lord, Lord Taylor; and the noble Lord, Lord McIntosh, referred to them.
We envisage access charges being introduced to help meet the costs of the "999" service, public call box services, apparatus for the disabled and any losses made in rural areas. Access charges are intended to be a safeguard, and it will be for BT to decide whether it wishes to levy a charge of this kind over and above the direct cost of inter-connection. Where it does so, however, access charges will be paid both by other operators and by the relevant parts of BT's own system. In practice, for many years ahead the bulk of access charges will be paid out of the revenues received by BT from its own trunk and international services. But applying them on equal terms to other operators who connect to the BT system will ensure that we have a non-discriminatory way of providing a subsidy for the essential services. Before any access charge is levied, the Director General of Telecommunications will have to approve it, or the method by which it is calculated.
May I now turn to the disabled, and set the record straight so far as that matter is concerned. The noble Earl, Lord Longford, devoted his speech to it, as did my noble friend Lady Macleod. We fully recognise the importance of telecommunications to disabled people, and for that reason special provision has been made in the Bill and in the draft licence to ensure that disabled people will continue to be able to obtain telecommunication apparatus and services adapted to meet their needs.
Clause 3 of the Bill imposes a duty on the Secretary of State and the director general to,promote the interests of consumers, purchasers and other users…(including, in particular, those who are disabled) in respect of the 903 prices charged for, and the quality and variety of, telecommunication services…and…apparatus".This is the first time that the interests of disabled people have been recognised in telecommunications legislation. This duty, along with other Clause 3 duties, will be given effect in the form of licence conditions. In the draft BT licence, Conditions 31 and 32 ensure the continued provision of a range of apparatus designed for use by the disabled, in particular the hard of hearing, and for continuing consultation between BT, the director and interested groups. Condition 33 ensures that in due course all public call boxes will be fitted with inductive couplers for use by the hard of hearing; and Condition 34 ensures that if BT ever introduces charges for directory inquiry services, the blind and other disabled people who are unable to use printed directories can obtain directory inquiries either free of charge or have their costs reimbursed. I hope that that allays the worries of the noble Lady, Lady Saltoun.
The Government will protect and improve the position of visually handicapped telephonists. From a date which has yet to be specified the Secretary of State will not approve any operator-controlled PABX for connection to any public network unless within two years of the approval the supplier of the PABX demonstrates that it can be adapted for use by blind telephonists. Furthermore, a working party has already been appointed by the Secretary of State to consider the problems of the hearing impaired. And, in order to provide support for this approach, Clause 83 of the Bill enables grants to be made to fund research into and the development of apparatus to be used by disabled people.
My noble friend Lady Macleod asked a fairly specialised question about emergency call systems for use by elderly or disabled people living alone in their own homes. Clearly there are circumstances in which this equipment can enable elderly people to stay in their homes secure in the knowledge that help is readily at hand. I cannot go into a great deal of detail with her on this now, but several authorities have provided a community communication system by installing equipment in individual homes, linked, usually, through the British Telecom network, to an essential and properly organised answering service. Private individuals, too, can buy the systems, and will usually choose to be linked directly to relatives or friends.
In conclusion, I hope that I have illustrated the Government's fundamental overall approach. There is no contradiction between public service and private profit. The drive to make a profit provides the most effective incentive to greater efficiency and better service. It is not true that we are selling a public asset for private profit. BT will remain a national asset, but its ownership will be made much wider than it is now. We are setting a framework for this major industry for the future so that it can expand to the benefit of everyone in this country. That is why this piece of legislation is of profound importance.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.