Blair, BT and smoke-filled rooms

Mathew Horsman explains why the Labour Party's sweetheart deal on the superhighway is a mistake

There is more than a whiff of old Labour in new Labour's pact with BT, whatever the distinctly high-tech, modern features of the increasingly controversial deal.

By giving in to BT's loud and long lobbying, and promising to allow the telephone giant into entertainment broadcasting by 2002 at the latest, Labour says it can meet its prime objectives in the development of an information superhighway: guaranteed access for schools, libraries, universities, hospitals and local authorities, provided free of charge by BT.

The aim, say Labour's young technocrats, is to avoid the creation of an information elite, able to pay for the privilege of membership in the information society, and an information ghetto, cut off from the network.

The goal is laudable but the method faulty. For a start it is oddly (and uncomfortably) reminiscent of the "pick-the-winners" strategy that won favour with the interventionist politicians of the Seventies, and from which Labour has been retreating. Why should BT get special attention? Admittedly it is a company of international reputation, and provides proof even to many of Labour's own traditional supporters that privatisation can - sometimes - work. But what about the cable companies, already building a pounds 10bn fibre-optic network to which hundreds of schools have been connected?

Rather than create a policy framework in which all companies know the rules, and where firm regulation is married to open competition, Labour has now opened itself to accusations that it is stitching up deals behind closed doors - dangerous enough for governments in power, but a desperately risky approach for a party not yet elected.

But just how concerned should we be about the deal as it now stands? After all, since the Labour leader Tony Blair made his first reference to the agreement, at the party conference on Tuesday, the spin doctors have been hard at work. Already the issues look far less clear than first reports might have suggested.

It is worth remembering two things. First, Labour has stated openly since the summer that it was minded to see restrictions on BT lifted, allowing the company to offer broadcasting across its own network. This week's announcement, then, could hardly have come as a surprise.

Second, BT has been lobbying for the right to compete with the cable industry using its telephone network, ever since it decided to abandon its own cable licences in 1990. No surprise here, either. Indeed, the present government is itself likely to let BT in eventually, and probably as early as 2002, just as Labour is promising.

The difference is that Labour was willing to promise, in exchange for BT's public spiritedness, to grant the freedom, whereas the Government talked only of a "review" of the restrictions some time around the turn of the century.

Even this "deal" looked less than airtight last night. Chris Smith, Labour's shadow heritage secretary and a leading light of Labour's information highway policy, made it clear that he is ready to talk to the cable operators, to see how they might fit into the information superhighway model Labour envisages.

BT, too, is now putting a different spin on the "deal". It acknowledges that the rules would have to be changed in order to allow it to offer concessionary terms to public institutions. It now concedes, too, that the marginal cost of linking up hospitals, schools and the like would be negligible next to the pounds 15bn it says it would spend building a national all-fibre optic network.

Moreoever, BT would get paid every time a school or hospital used the service, just as it is now paid every time a customer makes a telephone call. Small wonder that BT likes the idea.

Labour's central objective is political. It wants an information highway that reaches out to all members of the community. The best way forward is to set about creating the transparent and consistent environment in which the private sector can operate efficiently but in which the non- market goals are equally respected. Fair regulation, not "deals between the boys" on the eve of a party conference. If this is Labour in opposition, how might it act in power?

Labour has made much of its modern image. Unlike its statist predecessors, Labour wants to do more "steering" and less "rowing," to employ the phrase coined by David Osborne and Ted Gaebler in their book, Reinventing Government.

But to do this, it must make sure its rules are the same for all companies - giant BT, the dominant telephony service provider; Telewest, the biggest of the cable operators; even tiny International CableTel, an operator with a paltry 25,000 customers in Britain.

Cable has already shown it is willing to submit to public service criteria, even where they are not mandated. The industry combined has wired up 500 secondary schools in the UK for free. In addition, it counts hundreds of schools, hospitals and local authorities among its customers already, even if the institutions have to pay for the service. Over the cable network, these customers get television signals, of course. But they can also get broadband links to the Internet, video conferencing, remote medical diagnosis - in short, everything that BT is promising.

Whether Labour or the Tories win the next election, the market for entertainment broadcasting is inevitably going to be opened up to all-comers. Movies, sports and other light programming are perhaps the only sure-fire software capable of driving network development - the so-called "killer application" - as satellite company BSkyB has so conclusively proven in its use of movies and sport to drive satellite dish sales. If they are to supply the worthy services, providers will want to sell us the popular offerings too.

But if that is the case, then why should BT be forced to wait? Why not allow everyone to pile in immediately, as soon as a Labour government is elected (or even, if the Tories can be convinced to change their minds, right now, under the present government)?

Labour will concede the answer. Cable operators launched their network building on the understanding they would be protected from BT's might for at least several years. As the experience with Mercury, the second telephone service provider, attested, it is extremely difficult to contain the might of a monopoly - public or private. Cable, on the other hand, has been stealing 50,000 phone customers from BT every month, using lower prices and more flexible services as the bait - proof that regulation can enhance competition.

It is patently unfair to change the rules in mid-game. Cable operators sold shares to investors on the understanding that BT would be kept out of the entertainment market until at least 2001. Changes to that approach without close consultation with those affected, would seriously undermine investor confidence in the sector, and jeopardise its continued funding.

BT is keenly interested in having a precise timetable and less concerned (within reason) about exactly when it will be free to enter the now restricted market. It is the uncertainty about future regulation that most bothers BT management.

Finally, if there is to be one big market for telecommunications and broadcasting, with companies from either sector able to compete, then the current regulations are not enough. Rather than an Oftel for telephony and an Independent Television Commission for broadcasting, Labour is surely on the right track with its suggestion of an Offcom, an office to deal with all the competitive issues arising from the construction of an information superhighway.

The lesson? Fair regulation, consistently applied, must be better than stitch-ups in back rooms.

SCHOOLS

Technology in Britain's 54,711 schools is patchy: few have independent links to the Internet. So BT's information superhighway would be invaluable.

Children from around the world could work together on science - or Sartre.

COLLEGES

Students would benefit from BT's technology, but most academics in Britain's 139 universities and colleges of higher education are already on-line with a system named Janet - the Joint Academic Network.

Janet is a government-funded system which links academics worldwide.

SuperJanet has now been launched: a bigger and better multi-media version of Janet. BT's superhighway may seem slightly redundant.

LIBRARIES

The 1995 Public Library Review recommended that the nation's 4,363 libraries should be connected to the information superhighway.

Libraries have their own community information modules and PCs linking to the Internet. But the BT network would offer more extensive information to the public and would connect libraries nationwide.

On-line interactive courses, based on the Open University model, would be available: computers would "teach" library users.

HOSPITALS

1,600 hospitals throughout Britain want access to SuperJanet and are worried that BT's network may be second class.

An NHS-wide network - comparable with BT's superhighway - was scheduled for launch this autumn but has been delayed.

Hospitals are determined to update their technology whether or not a Labour government comes to power.

BT'S ROLE

It would cost BT an estimated pounds 15bn to create a high-capacity nationwide superhighway. Additional cost to wire up hospitals, schools, libraries and colleges would then be nominal.

A superhighway would provide multi-media services faster than possible with a PC, modem and phone line. These would include: two dozen TV channels, armchair shopping and banking, access to the Internet, access to databases and video-conferencing.