A key policy of the Labour party ahead of the UK general election next month is to make broadband ‘free’ by nationalising Openreach.
Renationalising infrastructure is a core Labour policy in the run up to next month’s election and now that includes broadband. The good news for BT, and fans of property rights in general, is that Labour plans to buy the following using public funds it will get from somewhere: Openreach, the parts of BT Technology that deal with backhaul, BT Enterprise and BT Consumer. The bad news is that BT will have no say in the matter and Labour will decide on the price.
“It’s time to make the very fastest full-fibre broadband free to everybody, in every home in every corner of our country,” said Jeremy Corbyn, leader of the Labour party. “Making it free and available to all will open up opportunities for everybody, at the cutting edge of social and economic change. By creating British Broadband as a public service, we will lead the world in using public investment to transform our country, reduce people’s monthly bills, boost our economy and improve people’s quality of life.”
“This is public ownership for the future,” said John Mc Donnell, Labour’s Shadow Chancellor. “A plan that will challenge rip-off ‘out-of-contract’ pricing – and that will literally eliminate bills for millions of people across the UK. Every part of this plan has been legally vetted, checked with experts, and costed.”
Here are some of the ‘notes to editors’ from the Labour announcement:
- Labour will deliver free full-fibre broadband to all individuals and businesses by 2030. We will integrate the broadband-relevant parts of BT into a new public entity, British Broadband, with a mission to connect the country. Labour will aim to deliver free full-fibre broadband to at least 15-18 million premises within five years.
- This will be paid for through Labour’s Green Transformation Fund, with the costs of maintaining the network paid by a tax on multinationals (including tech giants like Google and Facebook).
- To deliver this we will adopt a public mission to roll-out the remaining 90-92% of full-fibre across the country, as well as acquiring the necessary access rights to the existing 8-10% of full-fibre assets.
- All current workers in broadband infrastructure and broadband retail services will be guaranteed jobs in the new public entity and be guaranteed the same or better terms and conditions.
- There is a one-off capital cost to roll-out the full-fibre network of £15.3 billion (in addition to the Government’s existing and not-yet-spent £5 billion commitment), which will be paid for from our Green Transformation Fund;
- The cost of bringing parts of BT into public ownership be set by Parliament and paid for by swapping bonds for shares, as occurs with other public ownership processes;
- Full-fibre has low maintenance costs once rolled out, which can be estimated at around £230 million a year, which will be more than covered by a system unitary taxation of multinationals, which involves treating multinational companies as single entities, and taxing UK-based multinationals on the share of their global profits that reflects their UK share of their global sales, employment and assets.
Unsurprisingly such a radical pledge has provoked some robust responses, especially since McDonnell had said as recently as July that he had no plans to nationalise BT. The company itself is keeping its cards pretty close to its chest, offering only the following statement.
“It should be a top political priority to super-charge the roll-out of full fibre broadband and 5G right across the UK so we can build the digital economy of the future. Whatever the result of the election, we’d encourage the next Government to work with all parts of the industry to achieve that. It’s a national mission that’s bigger than any one company.”
Others have been more forthcoming, however. “These proposals would be a disaster for the telecoms sector and the customers that it serves,” said Julian David, CEO of UK tech sector trade body TechUK. “Renationalisation would immediately halt the investment being driven not just by BT but the growing number of new and innovative companies that compete with BT.
“Full Fibre and 5G are the underpinning technologies of our future digital economy and society. The majority of the estimated £30bn cost for Full Fibre is being borne by the private sector. Renationalisation would put this cost back onto the taxpayer, no doubt after years of legal wrangling, wasting precious time when we can least afford it. These proposals would be a huge set back for the UK’s digital economy which is a huge driver for growth.”
“Today’s announcement highlights the importance of full fibre access for all,” said Lloyd Felton, Chief Exec of County Broadband. “However, it also shows an alarming lack of understanding about the complex nature of full fibre rollouts and the fact that, unlike by comparison the rail industry that operates rail franchises, the industry has already invested billions of pounds in building its own infrastructure over which the service is delivered, in direct competition to BT.
“This proposal would almost certainly lead to delays, or at worst, derailment of existing full fibre investment and new network rollouts. It is a broad-brush, and makes no mention of how customers would be served and supported and provides no recognition for what has been achieved by the many Alternative Network providers who are currently active in providing a competitive full fibre solution.
“The competitive nature of the current market in the UK has meant consumers already benefit from one of the lowest cost broadband services in Europe. Broadband is an essential utility and whilst we share the ambition to bring future-ready full fibre connectivity to every home and business, we believe a mix of public and private investment is the only realistic strategy to deliver the service efficiently, without the need to bring significant cost to the public purse.”
Ofcom isn’t commenting and Openreach is leaving it to BT. We understand that there is an unprecedented exchange of views taking place within the UK telecoms industry, however, and look forward to the outcome of that. We also asked a few industry experts what they thought of Labour’s plans.
“There is no denying that the UK is far from a leader in full-fibre broadband, but the market is really starting to move as Openreach’s rollout plans are complemented by a long list of alternative / competitive network providers – Virgin, Talk Talk, CityFibre, Hyperoptic, and many more,” said Phil Kendall, Analyst at Strategy Analytics.
“A survey of The Independent Networks Cooperative Association (INCA) members showed an aspiration to pass 16 million premises with fibre by 2025. If there is a role for government in this it would be to support pushing broadband coverage out to all communities, so the areas that the private market will struggle to cover profitably, not torching the whole sector.
“If nationalizing Openreach doesn’t kill off some or all of those competing providers or wholesalers then offering free fibre broadband to everyone definitely will. For the average voter, there are good optics on this – free broadband, like free Wi-Fi or free roaming, is a nice populist idea and getting the evil webscale giants to pay for it is perfect. But this is a hugely destructive attempt to fix a sector that isn’t anywhere near as broken as Labour seems to think.”
“On the face of it this is not completely insane,” said telecoms analyst William Webb. “BT was, of course, publicly owned about 30 years ago. There have been state-led fibre deployments, most obviously in Australia, and while this hasn’t gone particularly well, nor had UK fibre deployment under the current model until recently.
“There is always a tension between a competitive market, which we currently have, but which will often not deliver socially desirable outcomes; and a publicly provided service, which will deliver those outcomes but tends to have well known downsides including a lack of innovation, possibly high prices (even if these are charged to taxpayers, not consumers), slow responses to changes and so on.
“But, of course, there are massive issues. The biggest is how we would transfer out of an environment with multiple competing providers in a way that compensates all fairly, that doesn’t slow things down, and that rationalises duplicated resource. Another is the extent to which we really need fibre everywhere and whether a state-led masterplan is reactive to real needs – this was one of the biggest issues in Australia. And as fixed and mobile converge with services like fixed wireless access, intervention will spill across into the mobile arena, potentially destabilising that competitive market.
“Fundamentally, I guess, it comes down to whether you believe in state ownership or market forces. Both can be made to work. But with the market forces approach appearing to work probably as well as it could right now, changing approach feels almost certain to slow things in the short to medium term.”
“It’s great to have bold aspirations but we’ve seen how challenging they are to implement,” said TMT Analyst Paolo Pescatore. “For sure, connectivity needs to improve and so does coverage. There are so many companies laying cables and installing masts. The best way is to forge partnerships which will help lower costs for all including consumers.”
There are coherent arguments in favour of nationalising natural monopolies, but the way Openreach has been regulated alongside the presence of competitive alternative fibre providers means this isn’t one of those cases. There are just so many flaws and pieces of sloppy, wishful thinking in this proposal that if it were a different time of year we’d assume it was a joke.
Firstly there’s the costing alone. Labour not only plans to quadruple Conservative broadband spending pledges, it needs to find the cash to buy over half of BT. Despite the hit to its share price this announcement has delivered, BT’s market cap is still around £19 billion, so that’s another £10 billion or so Labour would have to dig up, depending on how fair it intends to be to BT shareholders. And as for getting US tech giants to pay for the maintenance, good luck with that.
Then you have the underlying concept of forced state appropriation of private property. If Labour is willing to force one of the UK’s biggest companies to sell half of itself to the state, at a price it has no say in, then are any other companies safe? The effect on business sentiment of moves like this is likely to be catastrophic.
But finally, as many people have indicated above, we have the extreme improbability that the state will do a better job of fibre rollout than the private sector currently is. NBN is a great example of the folly of such initiatives and once a Labour government is forced to confront hard financial realities, work on the network would likely grind to a halt.
All politicians try to bribe the electorate in the run up to general elections, but the trick is to at least make it plausible that they will be able to deliver if they do win power. This policy is not only damaging for UK telecoms infrastructure and business in general, it also has no chance of being put into practice as promised. Labour has massively over-reached with this move.