Another day, another blast at BT. The company has been “significantly underinvesting” in its broadband network, perhaps to the tune of “hundreds of millions of pounds” a year, say MPs on the select committee for culture, media and sport. It may have preferred the thrills of BT Sport over the hard graft of providing the country with slick broadband connections. BT should put its house in order or be broken up, they conclude.
If the judgment sounds painful for BT, it’s not quite that. Despite the dramatic tone, in the end the MPs’ report fell squarely behind regulator Ofcom’s view that full separation is an option to be kept in reserve. In the meantime, the MPs want the regulator “to remain resolute” in its negotiations with BT in pursuit of plan A, a beefed-up version of the “functional” separation of Openreach that has been in place since 2005.
As far as it goes, that’s fine. Ofcom was right not to demand a breakup since the costs and hassle could easily be counter-productive. But the details of the regulatory plan, due to be unveiled next week, are crucial.
BT may be told to create an independent board for Openreach with powers to command investment or to pursue co-investment projects. Jolly good, but that new board has to be seen to have real clout.
The MPs think they have discovered where investment in broadband has been lost. It’s in the gap between Openreach’s cost of capital of 8.8% and a rate of return of 10.4% demanded by BT on investments. One suspects the tale may be more complicated, but BT ought to be explain the arithmetic to sceptical MPs and others.
Nor should BT grumble about the demand for extra transparency. The trade-off for leaving the company intact (for now) should be more visibility of how it spends its money. The pledge to boost investment in broadband is welcome – but we’d still like to see the calculations.
Roll up, roll up
What would the government do if Exxon bid for BP tomorrow? The question feels more urgent in light of SoftBank of Japan’s agreed £24.3bn takeover of microchip designer ARM Holdings. The prime minister, Theresa May, is resolved to be more interventionist on foreign bids but hasn’t set out firm principles, beyond saying she would have blocked Pfizer’s tilt at AstraZeneca in 2014.
On the evidence of Downing Street’s enthusiastic welcome for SoftBank, Exxon would merely have to promise to sustain investment in the North Sea for five years to receive a thumbs-up. SoftBank’s equivalent pledge to keep investing in ARM in Cambridge brought forth tributes about the UK being open for business.
But, come on, Exxon/BP could hardly be like that. The government would face deep questions about how many UK firms it would be prepared to see sold. Five-year promises, untested in the courts, would be denounced as a sideshow. The fuzzy question of national champions – and their ability to attract investment – would be debated in parliament.
As it happens, on a 20-year view, the UK’s future in technology is probably at least as important as its prospects in fossil fuels. It’s just that SoftBank was always going to win approval. The government wanted to show foreign investment is still flowing after the referendum; and the Japanese crafted their pitch well, volunteering their employment pledges rather than having them extracted.
But the next test of May’s new thinking may be trickier. Pfizer, viewed as a tax-minimising slasher of research budgets, would have failed. But who else would? Or, since bids will always be examined on a case-by-case basis, what is the process for making judgments and enforcing them? Will the government legislate for a power of veto?
Whatever the answer, it has to be more substantial than the bidder getting an audience with the chancellor on a sunny Sunday afternoon to sell its wares.
Fix this, Mr Fix-It
As Andrew Bailey, the new Mr Fix-It at the Financial Conduct Authority, mulls his mission statement, here’s a suggestion: refrain from lofty moralising and just promise to get your reports completed more quickly.
The official report into the failure of HBOS took an age. Now, we learn, we will have to wait a little longer for the FCA’s verdict on how Royal Bank of Scotland treated its small business customers.
Lawrence Tomlinson, entrepreneur and former adviser to Sir Vince Cable when business secretary, published his highly charged report in November 2013 and the FCA started its own investigation soon afterwards. Too slow: this was supposed to be a high-profile inquiry into serious allegations of deeply grubby behaviour.
