How Thatcher Helped The Telecommunications Revolution

As the funeral of former British prime minister Margaret Thatcher was held in London on the morning of April 17, the thoughts of BMI’s Telecommunications research team turned to her legacy in this fast-evolving sector. While much has been written about her government’s controversially aggressive privatisation policies and their long-term effect on the UK and European economies, we would argue that without those aggressive policies, today’s global ICT industry might have assumed a very different form.

Prior to the election of Mrs Thatcher’s Conservative government in 1979, the UK telecommunications system was in much the same condition as in every other country around the world. Part of the century-old postal service, it was a state-run utility, financed by tax- and bill-payers, operated via ageing infrastructure that had last benefited from investment and modernisation during the mid-1960s. The utility was an inefficient, over-staffed, loss-making operation that was more of an economic drain than a boon.

Under Thatcher’s watch, the telephone business was spun off as BT in 1981 and privatised in stages between 1984 and 1993, while the international cable company Cable & Wireless was also privatised in 1981 and given a licence to provide fixed telephony services in competition with the incumbent. Despite the opportunities, C&W’s Mercury had a short life, but the lessons learned from its short existence informed the thinking of other governments worldwide, when contemplating the dismantling of a state monopoly and the introduction of competition. Japan deregulated its telecoms in 1985, the US Bell System was broken up in 1984 and Hungary’s Magyar Posta was privatised in 1989. The list goes on.

The mobile phone turned 40 earlier in April, but it was not until 1982, when Racal Vodafone was awarded the first commercial mobile network operator licence in the UK – to compete with BT, naturally – that the impetus to refine and develop the technology for mass market purposes came about. The model of licensing competition, establishing fair business practices such as open access and separate and transparent retail/wholesale service models, governed by an independent regulatory body, has its foundation in Thatcherite policies. And it has been replicated globally since then. There are now well over 1,000 notable mobile operators worldwide.

It is estimated that there were 6.4 billion mobile phone subscribers worldwide at the end of 2012 (nearly one phone for every person in the world), up from 700 million in 2000. Of that number, 1.6 billion were mobile-broadband users, up from almost zero (depending on the definition of what constitutes mobile broadband) in 2000. Meanwhile, the number of fixed telephone lines is generally declining, although numbers are being propped up by voice over broadband accesses, often provided by the kind of cable TV operators that were first allowed into the telecoms sector towards the end of the Thatcher era.

To reach the largest possible audience, services increasingly have to be affordable, devices need to be more multifunctional, and service providers need to be increasingly competitive, yet still answerable to dedicated regulatory and competition watchdogs. All the while, governments can benefit through increased income taxes from operating companies, and increased business and efficiencies derived from the application of modern communications systems.

The Thatcher modus operandi, which centred on aggressive privatisation, had – and still has – its critics in political, economic and business circles. But with frontier markets in Asia (Myanmar), Europe (Kosovo), the Middle East (Lebanon, Libya, and Syria) and Africa (Eritrea) still beginning to open up to competition, it is a template that is still being followed.

Without the pioneering efforts of the early Thatcher government, it is possible that it would have taken longer to turn a dull utility service into the cutting-edge, consumer-driven industry that we have today.

This blog is tagged to:
Sector: Country Risk, Telecommunications

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