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Policy Development document - Unchallanged domestic monopolies
#1
The regional BT broadband outage in July 2016 has highlighted one of a handful of unchallenged domestic monopolies still functioning in this country, and how dependent we are on keys infrastructure suppliers.


BT’s issues on consecutive mornings involved two different third party broadband providers having data centre failures. The fact is that for all the new entrance into the UK broadband market, companies such as Sky, TalkTalk and VirginMedia only actually provide a service from your doorstep to their local exchange.

All companies’ exchanges then connect to BT’s national Broadband backbone. This is a legacy of BT’s previous exclusive presence in the country. Despite the much lauded local loop unbundling, BT is the only company with a national infrastructure via its Outreach subsidiary, reportedly concentrated in 4 regional data centres.

The two other unchallenged monopolies with the same influence are National Grid PLC, which is a private company and Network rail, which is effectively in public ownership. These maintain the transmission grid and national railway infrastructure respectively.

The issue is how do you subject these sorts of domestic monoliths to competition at a domestic level? Dues to the modest size of this nation, regional based solutions may not be appropriate.

The US example where by AT&T was broken up into the ‘baby Bells’, probably wouldn’t work in this country do to the size of the domestic market. The breakup of BT into broadband and wholesale businesses has been rejected by the regulator.

For the national grid, there is no one regional customer base, and so no obvious way of dividing up the network. In fact having a single network has advantages in economies of scale and standards.

In Japan, for example the nuclear accident at Fukushima belatedly highlighted the fact that the countries two main islands have separate transmissions grids, running at different voltages and no feasible way of connecting them to share energy in times of acute need.
Network Rail is already in the public domain, and running at an arm’s length from government re-investing any profits, but is judged to be inefficient and passing on excessive charges to franchise operators and hence customers.

One solution might be nationalisation, on the grounds for example that communications are a natural monopolies and should be run in the public interest.  The counter argument raises objections to nationalisation on the grounds that this would mean significant capital borrowing to pay compensation, pushing up borrowing, and potentially depriving alternative infrastructure investment of funding.

Another potential solution is the creation of a franchise arrangement, but applicants may want more than a 5 year term. There is then the question of would we want regional train companies or electricity generators managing key pieces of infrastructure singly or collectively?

One answer may be more robust regulators. But imposing charging and pricing structures defeats the idea of free market forces. It would also require a fundamental change of philosophy for regulators and presumably changes to parliamentary legislation managing the regulators statutory role.
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#2
I think the main point of contentions for many people is extortionate pricing in the face of poor service and large profits for directors and shareholders. We have to ask questions of the morality of this, especially as privatisation has not always worked in the interests of the consumer.

There are really only two options, nationalisation of more robust regulation.

Admittedly there is a cost to nationalisation, but it would provide services solely run in the interests of the country as a whole. Therefore the outlay could eventually be returned if managed correctly.
Robust regulation would work, and the difficulties of bringing this about are quite easily addressed. It would provide the competition and market forces to reduce costs to the public, whilst at the same time not allow companies the freedom to exploit their position.

Looking at things another way, without robust regulation the country becomes the servant of business, a tail wagging the dog situation. Something we simply cannot afford.
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