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Thatchers Legacy for Telecommunications

1 · MAY ·2013

In death, as in life, Margaret Thatcher divided opinion. Obituaries penned celebrating the ‘savior of the nation’, while others celebrated the demise of a merciless class war commander. What we can perhaps all agree on is she was fundamental to shaping the world we live in now; as citizens, as workers, as business’s - our lives, for better or for worse, owe much to her actions. Of course in some quarters her legacy is more marked than in others, unbeknown to some the telecommunications industry is one such place.

The privitisation of BT in 1984 represents both a watershed moment for Thatcher and her government as well for our industry. Whist it also reveals much about how the ‘Thatcher Revolution’ gathered pace. Before 1981, all telecoms services in Britain were provided through the Post Office Telecommunications (known as BT from 1980). Widely considered a ‘natural monopoly industry’ ( due to the high infrastructure costs associated with it)  liberalisation of the market had been given little consideration up until the late ‘70s. However against the backdrop of public dissatisfaction with increasing delays for telephone line installation and with new technologies reducing capex costs required to enter the industry, this was soon to change under the first Thatcher government.

The 1981 Telecommunications Act removed BT from the Post Office and this was followed in 1982 by BP, Cable and Wireless and Barclays setting up Mercury – injecting competition into the market place. However at neither of these junctures is there evidence that privatisation was the ultimate vision of Thatcher or her government. Denationalisation was still viewed as a radical and risky policy against the backdrop of 30 plus years of state ownership consensus and state sales prior to ’84 reflected this tentativeness; in that they were small and discreet. The reasons for the sale coming to fruition were on the most part pragmatic; responses to the problems of the time formed gradually through multi-stakeholder negotiation.

Modernising BT was a key objective under the move to separate it from the post office, however financing that moderinisation was a challenge; in 1983 the government's finances were deep in the red, with a deficit of around 4% of GDP and nationalised industries were competing with key services (health, education etc) for the treasuries limited coppers. Transferring assets into the private sphere not only opened up the options to find investment via other sources (i.e the city) but also raised money for the public purse.

Whilst the primary motivation for the sale of BT was raising funds for future investment, public shared ownership was also attractive to Thatcher for both pragmatic and ideological reasons. Knowing that both Labour and the unions were likely to be opposed to privitisation, the government was able to offer BT employees pre-registered share options (of which 90% took them up on) as a populist bulwark to any attempts to reverse the trend. In tandem with the ‘Right to Buy’ policy, it also began to shape the neo liberalist narrative Thatcher was developing on ‘rolling back the frontiers of the state’ and empowering the people through private equity purchases.

The sale of BT encapsulates how Thatcher’s early pragmatically reasoned social and economic policies evolved into a political ideology. Arriving at the conclusion to privatise was a policy building process over a number of years, which always kept a firm eye on what was considered acceptable. When, in November 1984, more than 50 percent of BT was sold to the public through share option, it became the largest ever most successful SOE privatisation exercise in the history. It was also an almost immediate political success, popular with the millions who purchased shares, invigorating the UK stock exchange (very much the beginning of the ‘Big Bang’ in the City) and raising money for the government. The sale would pave the way for a further 40 mass market sell off’s during the Thatcher years and irrevocably altered the relationship between state and market. In many ways the embryo of ‘Thatcherism’ was also hatched during the process - setting a template that one could argue has been followed by all subsequent British governments, as well as many others internationally.

As for the impact on telecommunications, opening up the sector allowed for other operators to enter the market, challenge BT, and invest in new technologies (such as mobile and Internet services). Of course without regulation BT’s ‘natural monopoly’ ( i.e owning the underlying infrastructure) would have made for an uneven playing field so Oftel ( later Ofcom) was established at the point of denationalisation to introduce price caps and optimise BT’s levels of efficiency. Ofcom oversaw further moves to liberalise the market in 1991; when authorising independent companies to bulk-buy telecommunications and sell in packages to customers, and again in 2003 when opening up the telephone exchange for LLU operators.

As of 2012, there were over 200 fixed telecommunications providers, over 100 mobile service providers and over 1,000 Internet service providers operating in the UK. For most consumers there is a wide array of services and providers to choice from and value for money to be gained from doing so. But not for everyone. Many areas of Britain (mostly rural) are without access to fast broadband; for those the wrong side of the ‘Digital Divide’ , in an increasingly digital world, there are serious social and economic consequences, for communities and individuals. The reasons for this divide? It’s hard not to arrive at the conclusion that privatisation constitutes the root cause; given that historically operators have reframed from investing in areas where there are unable to identify significant ROI. The establishment of BDUK (Broadband Delivery Fund) in 2009 represents a move from the government to intervene in the market and initiate state led solutions to this problem.

When Margaret Thatcher set the wheels in motion for the liberalisation of the telecommunications, she did so with more modest than radial intentions. Just a few years later, she would find herself presiding over change which would not only revolutionise the telecommunications industry, but which constituted a seismic shift in the relationships between the state, individual and market and had both immediate and long lasting economic, political and social consequences across the UK.

When people now debate Thatcher’s legacy, they debate the merits of policies and philosophy’s which were sharpened, developed and ultimately given momentum, by those changes to our industry, over 30 years ago.

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Posted by Sanita Karra