BT squeezes suppliers
Chief demands 20% price cuts after regulator proposes new curbs
Sunday 24 March 1996
Hardware manufacturers such as GEC, Siemens and Northern Telecom could be badly squeezed, along with their components suppliers, and a tail of smaller equipment makers. BT spends pounds 2.5bn a year on capital investment, much of it with equipment suppliers.
Sir Peter, who was drafted in from computer maker ICL in January, said at the weekend that the cost of telephone hardware has not fallen as fast as similar equipment in the computer sector. "We've told all our suppliers their product prices are out of line by 10 to 20 per cent."
Such cuts could be obtained if the industry were restructured in the way computers were in the early 1980s. "We need more standardisation at the hardware level and more open systems," he said. "Right now most of the equipment is proprietary."
Open systems were introduced when IBM decided to publish its specifications for PCs, allowing other manufacturers to clone the hardware under licence and encouraging programmers to write software that took full advantage of the design's characteristics. As a result, PCs have swamped the market, threatening to sink Apple, which stuck to a proprietary system.
Britain's largest telecoms supplier, GPT, a joint venture between GEC and Germany's Siemens, would not comment on Sir Peter's call, but Northern Telecom, a Canadian manufacturer of switching equipment, said it has "very rapidly gotten engaged with his people to find ways to reduce BT's costs".
The company agreed with his vision of the industry and said it was already moving in the direction of an open systems architecture. "We're absolutely in sync with him on this," said a company spokesman.
The move shift should lead to more advanced equipment, although it takes far longer to introduce better gear into a tele- communications network than it does to replace a computer system. "We've got a patchwork quilt of different technologies that we have to manage," said Sir Peter. "If we were starting out as a green-field business, we wouldn't have some of the equipment that we do have."
David Yedwab, a telecoms consultant based in Parsippany, New Jersey, predicted that the first pieces of equipment designed for a standardised, open communications system will probably be available by the end of the decade, and a full set five years later, but he agreed that it will take much longer to replace established phone networks with a fully integrated system. "Until now there has been no real demand from service providers."
Sir Peter's demands have partly been sparked by the tougher stance being taken by Don Cruickshank, director-general of Oftel. His latest consultative paper, published on Wednesday, called for customers to save 27 per cent on their bills - equivalent to pounds 80 a year off an average bill. BT's chairman, Sir Iain Vallance, has described the regulator as "prosecutor, judge, jury and executioner".
The next paper, Fair Trading in the Telecommunications Market, will set out Mr Cruickshank's demand for the power to fine anti-competitive practices, and to call an instant halt to predatory pricing. At present, he has the power to investigate cases of predatory pricing, but one industry insider said: "The best he can do amounts to little more than a rap over the knuckles."
BT's first response to win back some of the lost ground will be to refuse to accept the report's findings. That will automatically prompt an inquiry by the Monopolies and Mergers Commission, which will take up to six months to report. It would be a no-lose move for BT, as the commission could only reduce Mr Cruickshank's demands.
If BT's campaign against the regulator flags, it could follow another privatised utility, British Gas, down the path to demerger. "It's a possibility, even if it's quite a long way off at this point," said one City analyst.
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