British Innovation

Several months ago blogging colleague, The Brexit Door, published a very readable piece explaining the global dynamic underlying the European Commission’s claim to have removed roaming charges throughout the EEA/Single Market. That post was based at least in part upon the exemplary work of long-time Brexit blogger The Boiling Frog whose writing on the telecommunications field sets the standard for the genre. Part one of his two part series on EU telecoms regulation can be read here and the second part is available here.

Prior to Maastricht, however, telecommunications regulation was a matter for national governments and, unsurprisingly, it was during that era that many of the most important foundations for the broadband revolution, and especially for the mobile revolution, were laid, with Britain playing an important global role, setting an example that was later followed by others in Europe, America and Japan, and then replicated around the world.

In 1979, British telecoms were similar to every other telecommunications system around the world. Prior to market liberalisation, handsets, subscriptions, trunk lines, regional and local exchanges, network operations, maintenance and billing were all managed by the Post Office Telecommunications Service, which had existed since nationalisation in 1912. Financed by tax and bill payers and equipped with ageing infrastructure in need of upgrade and expansion, the British telecoms market was more ‘closed’ than any of its equivalents in the developing world prior to deregulation the 1990s and 2000s.

The British Telecommunications Act 1981 changed that, opening the industry to competition in three main areas: licensing an additional network in the form of Mercury; licensing private sector firms to provide services using British Telecoms networks; and allowing competition in the supply of connecting equipment. The lessons learned by the British informed governments around the world which followed Britain’s lead. The US Bell System was broken up in 1984 and Japan deregulated its telecommunications in 1985.

The World Trade Organisation (WTO) agreement to liberalise basic telecommunications came into force in February 1998 and despite worries about lower revenue streams for incumbents, international competition benefited and continues to benefit millions of ordinary consumers around the world. Private sector participation in joint ventures and subcontracting of installation and maintenance work improved network conditions, with high circuit costs and persistent lack of investment being at least partially arrested by restructuring traditional monopolistic entities to create independent commercial businesses.

The award of the first commercial mobile operator licence to Racal Vodaphone in the UK in 1982 likewise spurred interest in refining and developing that technology for the mass market. The model of licensing competition based upon fair business practices—governed by an independent regulatory body—has since been replicated globally, with well over 1,000 notable mobile operators worldwide.

As of 2012, there were over 200 fixed-line telecommunications providers, over 100 mobile service providers and over 1,000 ISPs operating in the UK. Opening the sector to other operators spurred investment in new technologies—many of which BT played a role in developing, yet lacked the energy and entrepreneurship to sell—including mobile and Internet services.

Those innovations and the lead that Britain took, especially with respect to licensing, was only possible because of the policy control that this country has since surrendered to supranational EU institutions. The certainty of having to find accommodation with 27 other national regulators—or surrender still more power to the centralising Commission—may mean “stability”, but it is also puts a brake upon further innovation and the kind of dynamic leadership that transformed telecommunications from a dull utility service into a cutting edge consumer business providing information, entertainment and genuine opportunity to (without exaggeration) billions of people around the world.

The switch from fixed-line to mobile phone packages, which are customer-oriented rather than subscriber-driven, also increases the economic and political clout of users, forcing utilities to become more responsive. Roughly 60 percent of mobile sales in sub-Saharan Africa are now smartphone sales—in Kenya, the ratio of smartphone to feature phone sales is 70:30—as people who have never used landlines ‘leapfrog’ their counterparts in the West.

The quality of Internet services has also been transformed over the past five years, as the submarine cable systems that encircle the globe begin to light up what Joseph Conrad once called ‘the dark continent’. For 10 years prior to the landing of SEACOM, EASSy and WACS, the only submarine cable system connecting West Africa to the Internet was SAT-3/WASC/SAFE, which enjoyed monopoly pricing. Today, new cable system entrants increase broadband coverage and lower connection costs for new subscribers.

Whether the smartphone would have found its way into those people’s hands without the bold regulatory initiative of the Thatcher government in the UK is something for academics to debate, the fact of the matter is that the global telecommunications industry was fundamentally transformed for the better because this country—America and Japan following soon thereafter, and the rest of Europe following after them—took a lead and showed that private enterprises (properly regulated) could provide better services at lower cost. Remaining in the EU may provide “certainty”, but it is the “uncertainty” associated with making your own decisions and, when necessary, charting an independent course, that brings forth the kind of positive change that is part of Britain’s history and which should be carried forward into Britain’s future.

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