Jeremy Warner's Outlook: Business prepares for a change of regime, but we are still no nearer knowing when

New nuclear build may be on again; Dixons throws down challenge to BT
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The Independent Online

Among the leaders of the big developed economies you quickly get by a process of elimination to just one name. Gerhard Schröder? Come, come. Silvio Berlusconi? Both internationally and domestically, he has been an embarrassment. Jacques Chirac? You cannot be serious. George Bush? Eat my shorts, as Bart Simpson would say.

So the winner is? Many in this country would violently disagree, but despite the disaster of the Iraq war, the name that stands head and shoulders above all others is Tony Blair. Even on Iraq, some sort of a justification might be made for his actions, in that by so wholeheartedly standing behind the US, he prevented American isolationism and kept the fabled bridge between Europe and the US open.

What is a business column doing ruminating on these matters? As Mr Blair gave another triumphant party conference speech, in which he showed few signs of wanting to relinquish the premiership any time soon, it is to try to answer the question of what happens to business and the economy if and when there is a change of leadership.

One of the reasons Mr Blair is admired overseas is that he has presided over a relatively highgrowth, low-unemployment economy these past eight years. Not even the US can boast such stability. Gordon Brown, Mr Blair's assumed successor, would argue this legacy of economic well-being is his, and not Mr Blair's at all.

On one level, he's right. It was Mr Brown who laid the foundations for macroeconomic stability by reforming monetary policy and management of the public finances. In fact, he was only building on the groundwork of his Tory predecessors, but that's another matter.

Yet it is Mr Blair who takes the credit, not just internationally but to some extent domestically too. Despite his very best efforts to dispel the perception, business mistrusts the Chancellor, who is still widely seen as a socialist wolf dressed for the purpose of pragmatism in sheep's clothing. Given the chance, he might drive through a very different agenda to that of Mr Blair.

Of course, the voice of business is as much a cacophony of disparate opinions as any group of self-interested egos. Mr Brown is not without his admirers in the business community. But on the whole he's not as trusted as Mr Blair, who is more obviously a believer in the can-do attributes of business and the benign influence of free markets.

To say that Mr Brown is, by contrast, only grudgingly tolerant of them is to overstate the matter. He's a huge admirer of the dynamism of the US economy, which he would like to see replicated here. But he's also, even after more than eight years as chancellor, something of an unknown quantity, and the belief that at heart he'd like a more overtly redistributive agenda refuses to go away. It's difficult, possibly impossible, to have both, for business cannot thrive if it is constrained by tax and regulation.

Still, on yesterday's showing Mr Blair doesn't yet seem ready to hang up his boots. What's happening to the economy three or four years from now, when finally he does, is anyone's guess. The chances of Mr Brown ending up as a tail-end charlie prime minister are still quite high, which is why he's so determined that by this time next year he'll have grabbed the keys to Number 10. One thing is guaranteed; it won't be a willing or smooth succession, either for the Labour Party or for Britain.

New nuclear build may be on again

The Prime Minister's on/off love affair with nuclear power seems to be on again. The twin challenges of global warming and ensuring security of energy supply means giving full assessment to a new programme of civil nuclear power, he said in his conference speech yesterday. Yet the nuclear lobby would be ill advised to get its hopes up. Only a few months back Mr Blair seemed to acknowledge there was little public appetite for more nuclear. As likely as not, he'll have changed his mind again by this time next year.

Dixons throws down challenge to BT

So is this the end of British Telecom as we know it? The hyperbole with which Dixons yesterday launched its Freetalk telephone service might lead you to think so. Just to give a taste, the press release described the new service as "the most significant development in the telephone market since the launch of the mobile phone". Yeeess.

In fact, BT already offers exactly the same thing, and - depending on how much you use the service - the BT version is arguably cheaper than the Dixons pretender. BT also provides the backbone network which makes all these so called Voice over IP telephone services possible. Indeed, it is investing billions upgrading the network for precisely this purpose. Rumours of BT's death are greatly exaggerated.

None the less, Dixons is right to insist that there is a revolution taking place in telephony. Freetalk, which Dixons can offer through more than 1,000 retail outlets, will no doubt play its part in bringing this revolution about. Yet this is not "Freeserve the sequel", either in terms of its impact on the market or in its likely value creation.

Freeserve, also spawned from Dixons, genuinely did bring about a revolution. As the first internet service provider for which you didn't have to pay, other than through the call charge, the effect was to lead to a massive increase in internet take-up.

Dixons was quick to cash in on the phenomenon by floating the company on the stock market, where - in the mania of the bubble - it soon came to dwarf its parent in terms of market capitalisation. Heady and transitory days, for Freeserve disappeared almost as quickly as it arrived. The advent of broadband made dial-up costly and irrelevant, and in the end Dixons was lucky to salvage anything from the wreckage.

Still, broadband is now creating a whole new generation of services and businesses, Freetalk among them. Buy an adaptor - cost £79.99 - plug it into your broadband connection and you get free UK telephony for the next year, followed by a monthly charge of £6.99 thereafter. But we do that already, says BT, and indeed it does. What's more, it provides the adaptor free. Vonage provides a similar service too, and if you are prepared to sit by your computer all day, there are a whole host of services providing free, or near free, telephony over the internet, the much-hyped Skype included.

The reason BT doesn't promote its own Voice over IP services very much is that it has still got a substantial tail of legacy, metered call revenues to protect. Last year these still accounted for some £3.5bn of revenue, or nearly a fifth of the total.

The advent of Freetalk, Skype and other services like them means that metered call revenues will shrink much more quickly than planned for. The effect isn't disastrous for BT, for as long as the company runs Britain's largest telephone network, it will always have line-rental charges to fall back on. Furthermore, the decline in metered-call revenues is roughly matched by the rise in broadband revenues.

In other words, the business and charging model will change, but the underlying revenues and profits should remain the same or even grow. The big unknown is how successfully BT manages this change. Yesterday the company was forced to announce deep cuts in international charges to meet the challenge of Skype and others. But at least the changes haven't creeped up and ambushed the incumbent from behind, as so often seemed to happen with telecoms innovation in the past. This time around, the company seems largely prepared, even if the revolution is happening a lot more quickly than Ben Verwaayen, the chief executive, would have liked.