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Bland refuses to go the last mile with US bidder

Sandler's list; Water fight

Tuesday 31 July 2001 00:00 BST
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What am I bid for British Telecom's local loop? Earth Lease, a financial consortium headed by the unlikely combination of a US investment banker and the former Labour leader of Lambeth Council, reckons it is worth £8bn. Analysts think the figure is north of £10bn. BT itself says the value of its local telephone network, the copper wires that connect 25 million homes to the nearest exchange, is incalculable, which it would since the local loop lies at the very heart of its domestic monopoly.

Whatever the true value of the business, the fact is that BT no longer needs the money. It did when JP Morgan's Jimmy Lee and the former political firebrand Heather Rabbatts first made their approach to Sir Christopher Bland in early May. Since then, the BT chairman has successfully completed a £6bn rights issue and raised a further £7bn from disposals, putting its debt crisis firmly behind it unless the situation at BT is about to become much worse than anyone dared fear.

All of which makes last weekend's disclosure of the Earth Lease approach all the more curiously timed. Perhaps it was because Sir Christopher only slammed the door firmly shut in the last week.

The hiving off of BT's local wires makes sense for all sort of reasons. Elsewhere, the unbundling of the local loop has been the catalyst for a broadband explosion, bringing high-speed internet access and video-on-demand to consumers at prices they can almost afford thanks to the wonder of ADSL technology. Here, the exercise has been a flop.

Partly this is because BT has little incentive to make its wires available to rivals who will then provide a service which competes with its own offering. Partly it is because local loop unbundling began later in the UK, and was therefore caught in its infancy by the meltdown in the telecoms sector.

For those reasons, an independently owned local loop renting access to any operator on a fair and transparent basis would be a big step forward for the broadband revolution Tony Blair promised us at the last election. It would also be a bonus in the long term for BT, getting the regulator out of its hair once and for all. The monopoly may once have served BT well but it long since became a drag on innovation because every time BT attempts to launch a new service, its rivals call foul.

Earth Lease may have some impressive financial backers in the shape of five of the world's biggest investment banks. But it lacks a credible management team and crashing in with a low-ball bid and then seeking to embarrass BT into re-opening talks is unlikely to win it many friends. At present BT has bigger tasks to hand in restructuring its balance sheet, spinning off BT Wireless and working through the regulatory chicanes of separating its wholesale and retail businesses. But once these have been resolved, a full demerger of the local loop could just be what its shareholders and UK plc need.

Sandler's list

Ron Sandler's consultation document on medium and long-term retail savings is properly designed to raise questions rather than provide answers, as the former chief executive of Lloyd's insurance market is inviting public comment. But inevitably, the nature of his initial questions drops broad hints about the direction of Mr Sandler's thinking. Right from the outset he declares that the long-term savings industry is of crucial importance to the UK economy, and that it has been an undoubted success. Success for whom is the issue, as Equitable policyholders would surely be the first to ask.

Mr Sandler's very first question sets the tone. He asks artlessly whether consumers of long-term savings have weak influence on the industry, fail to understand investment and savings issues, do not research before making a decision nor monitor the results of that decision and have a poor grasp of risk.

This is the sort of loaded question that is all too familiar to journalists. It falls into the category marked "Have you stopped beating your wife?"

The presumption of the document is that the savings industry is akin to a few Goliaths selling their wares to millions of Davids – and that those goliaths sometimes take unfair advantage of their strength.

Their knowledge and expertise, Mr Sandler is implying, give the providers the power to pull the wool over consumers' eyes, and take decisions which suit themselves rather than their customers.

Mr Sandler suggests that consumers' lack of understanding inevitably thrusts them into the hands of financial advisers. As he delicately puts it: "To the extent that advisers' incentives are not aligned with those of their clients, competition within the industry may not lead to optimal outcomes for consumers." A less delicate translation might be that consumers are liable to be fleeced.

Anyone who is interested can send comments to Mr Sandler via the Treasury by the end of September. The insurance and investment companies are bound to make their voices heard. It would be only right for consumers to mail Mr Sandler in their thousands to tell him exactly what they think.

Water fight

Hope springs eternal in the water industry and the latest company to fancy its chances of getting a break-up plan past the regulator is AWG, the supplier formerly known as Anglian Water until it transmuted into a set of initials.

So far only Welsh Water has been allowed to split the ownership and operation of its assets but that was largely because the previous owners, Hyder, had brought the business to the brink of collapse. Kelda proposed turning Yorkshire Water into a customer-owned mutual but was told to clear off when it became clear that shareholders would reap the benefits while consumers bore all the risk.

Despite these precedents, AWG's boss Chris Mellor appears supremely confident of getting the green light from Philip Fletcher at Ofwat. So confident, in fact, that he has already transferred staff to Fountain, the new debt-financed company created to buy Anglian's assets and then hand a nice fat operating contract back to AWG.

Mr Mellor believes this is the only way for the water industry to survive the draconian price controls imposed last year by Mr Fletcher's predecessor. Unfortunately, Ofwat has rather shot Mr Mellor's fox. The analysis it published yesterday shows that suppliers are living quite happily with the new five-year price curbs without poisoning their customers. Profits may be down. But so are complaints and, more importantly, levels of capital expenditure, which have undershot the amount assumed by the regulator by some £700m in year one alone. Quality of service, meanwhile, has continued to improve across the industry although Mr Fletcher remains worried about the failure of some suppliers to get to grips with foul flooding (don't ask).

Overall, it looks as if Mr Fletcher will need some powerful persuasion before he abandons the equity model of water ownership. Regulatory approval is by no means a foregone conclusion. And after the débâcle of the Morrison Construction takeover, Mr Mellor can ill afford another slip up.

m.harrison@independent.co.uk

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