British Telecommunications Plc is determined to become a global player and share the international limelight with the likes of AT&T Co and Deutsche Bundespost Telekom, the world’s biggest international telephone companies. Telecom currently comes a distant third in the inter-national stakes and it would like to close the gap – not simply for prestige, but to cash in on the considerable profits to be made along the way. Telecom recently launched Global Network Services, pulling together its value-added services worldwide and adding gateways to 84 other countries (CI No 1,519).
Dinosaurs
But even putting together a global data communications network requires British Telecom to strike carrier deals with telecommunications companies outside the UK. Building up communication infrastructures on foriegn soil is not possible or practicable and so carriers must pay one another to use the foreign lines if they want to provide their customers with an international service. And in the eyes of those monitoring international pricing, this is where the difficulty and controversy arises. Those already in power, the state-owned dinosaurs like Bundespost Telekom, and Japan’s Kokusai Denshin Denwa Co, all belong to an economic division of the Geneva, Switzerland-based Consultative Committee of International Telegraphy & Telephony, which controls the prices of international calls. A complex and restrictive accounting system penalises any company that unilaterally tries to lower prices, by forcing it to pass on a higher proportion of its call profits to the phone company completing the call. The CCITT oligopoly artifically inflates international call charges to the extent that UK users end up paying three times the amount that they should for calls – which some consultants have claimed should cost only 25% more than local rates. When the furore over international pricing began back in April, Telecom’s managing director Iain Vallance sent an indignant letter to the Financial Times, claiming that if British Telecom was made to cut inter-national prices, domestic rates would have to rise, as the former acted as a domestic subsidy. This is the same tactic employed by AT&T when threatend with rate capping by the Federal Communications Commission back in 1980. Telecom officials refuse to give out details on exactly how much residential exchange line rentals – home phones – are subsi-dised by UK long distance and international calls, but it is believed to be around UKP1,000m. Over-priced international calls made British Tele-com UKP445m in profit in 1988 – and since then profits have increased sharply, according to the UK Office of Telecommunications watchdog. –
By Sonya McGilchrist
Oftel’s report on international prices, published last week, therefore recommended that international call prices should be cut, but it did not specify by how much. The report, compiled for the UK Secretary of State for Trade & Industry by Sir Bryan Carsberg, says that Telecom’s profits from international calls have actually increased instead of being eroded by the competition from Mercury Communications Ltd. He therefore recommends that the pricing be brought under a cap and adds that if British Telecom won’t discuss this with him, the matter should be referred to the Monopolies & Mergers Commission. British Telecom’s knee-jerk response to the report echoes Iain Vallance’s letter to the Financial Times back in April. It claims that Sir Brian has been unfair in his assessment of British Telecom’s position by not considering its restrictive obligation to provide residential exchange lines at a cut-price level. But Sir Bryan does mention exchange lines and specifically in relation to international calls. He states that the two must become balanced. International calls must be expected to make a contribution to the costs of providing exchange lines and the desirable level of this will be a matter for further consideration during the additional work which my staff will be undertaking. But British Telecom Plc, just like the old state-owned pre-split Post Office,
seems to regard the provision of residential exchange lines as more of a niggling nuisance than a basic function of the national Public Posts and Telephone company – and despite the fact that the Baby Bells in the US are all highly profitable – regulated – companies offering almost nothing but local telephone service. Its outlook is encapsulated by the response that it is an ordinary company service provider just like any other, and that it should be allowed to reflect costs in its pricing structure, not only in international calls but in residential ones too. British Telecom’s desire to enforce a realistic pricing structure was demonstrated in the last price rises, when residen-tial calls increased 9%, against the 4% to 5% rise for business rates. Decent telecommunications is vital to a thriving business community.
Cosy club
But as Sir Bryan has recognised, telecommunications for residential users is also important. And being in a near mono-poly position in UK telecommunications is not quite the same as being a service provider in the properly competitive world. As the so called cosy club of the CCITT has become more discussed, British Telecom has pleaded that it simply cannot afford to aggravate the big players too much by slashing international prices. Talking about his international ambitions, Vallance recently commented It might not be in our best interests to see a clash of the Titans. Although the Germanys are now one, rates to the old East Germany will still cost more than those to what was the West. Telecom is still negotiating the change. Certainly, as things stand, upsetting the status quo by setting lower prices would be penalised by telecommunications giants through the CCITT. And of course, as a member of the club, British Telecom gains its inflated profits from things remaining as they are. But if British Telecom truly wants to become an inter-national player – new logo an’ all – it must take on the competition head on becoming an agressive not a passive member of the CCITT. Reduced profit as a result of lower prices and punitive CCITT practices should eventually be offset by increased traffic for a truly competitive British Telecom.
