Outlook: Energis leads the assault on Broadband Britain

Excessive IPOs; Mario's step too far
Click to follow
The Independent Online

As anyone who's tried to get high-speed internet access installed at home already knows, broadband Britain has been shockingly late in coming. It's easier to get high-speed access in Brazil than it is here, and disgracefully, Britain has fewer high-speed connections than even quite tiny countries such as Norway. Broadband is the communications infrastructure of the future, and to fall behind at this early stage in its development is to put Britain at a significant competitive disadvantage to others.

There are essentially two reasons for it. First British Telecom, with its still dominant position in the domestic telecoms market, has been dragging its feet. It's difficult and expensive to get broadband access out of BT. Second, the regulator has been equally slow in forcing BT to open up its network so that others can supply broadband in BT's stead. As things stand, BT charges almost exactly the same wholesale price for broadband as its own Openworld proposition offers retail, making it uneconomic for others to enter the market.

Oftel's director-general, David Edmonds, has been under pressure from Energis and others to correct the position and, better late than never, he'll shortly be announcing his determination. The wholesale charge will be substantially reduced, allowing internet service providers such as Freeserve and AOL for the first time to provide high-speed access at a reasonable price. BT claims that the reason why there are so few connections – around 65,000 at the last count – is because there simply isn't the demand, but that's little wonder with the service priced at close to £40 a month. Charge a premium price for an invisible service and no one's going to buy it.

Bring the price down, give the punter what he wants, open the market up to competition, market the service properly, and it's amazing how the demand takes off. Mr Edmonds' determination is likely to prove a real turning point for broadband Britain, greatly expanding the number of high-speed connections. It's only a shame it's taken so long in coming.

Excessive IPOs

Since the turn of the century, the London stock market has lost around 24 per cent of its value. As those of us with a stake in the stock market's performance – either directly or through our pension plans, unit trusts and other equity linked savings – survey the damage, the obvious question is where did all that money go?

Value is in the eye of the beholder, and most of it didn't really go anywhere. Shares are just worth less today than they were then. However, there were a lucky few who did manage to capitalise on the giddy heights to which stock markets were driven towards the end of the last century, and to that extent there was a real transfer of wealth – from the savings of ordinary people to the coffers of the already very wealthy. That minority, you won't be surprised to hear, is largely found in investment banking and supporting services.

It is impossible to exaggerate the part fee-hungry investment bankers and their paid hands played in the technology bubble and the capital markets mania that went alongside it. By lending credence to ever more fanciful, self-serving valuations, pegged to ever more dubious business ventures, they were a key part of the hype that allowed it to happen. So long as the fees kept rolling in, nobody much cared that many of these ventures weren't real businesses at all but just ideas.

The bankers would argue that they were only satisfying a demand, but as the pace of activity quickened and the valuations got ever more puffed up, the investment bankers were always there with a fancy justification for the apparently unjustifiable, a stratospheric "target price range" and a five-year earnings forecast to back it up. They were heady, exciting days, but they were also a scandalous rip off, a sleight of hand perpetrated by the privileged few on the the gullible many. It was real money that was squandered on all that uneconomic investment, and it is real jobs that are now being lost as everyone struggles to cope with the aftermath.

In the United States, the little man refuses to take these things lying down, which is one of America's most admirable traits. Some 300 separate class actions have been filed by aggrieved investors, and there are many more pending. As our story on page 17 shows, one of them involves Andrew Rickman's Bookham Technology, a British company that was part of the Goldman Sachs turbo-charged crop of IPOs as the tech bubble reached its zenith in the early part of Y2K.

Bookham followed the usual pattern. The IPO was hyped out of all recognition, the available stock was placed entirely with friends of Goldman Sachs, it shot up like a rocket in the aftermarket, allowing many of the original investors including Mr Rickman to get out at a big profit, and then eventually it fell back down like a lead balloon, leaving many with huge losses.

What's alleged in Bookham's case is much more than simple over enthusiasm. According to the law suit, those who paid big commissions to Goldman Sachs got privileged treatment in the IPO, and those who agreed to buy more stock in the aftermarket got a bigger allocation, a process known in the trade as "laddering".

Bookham and Goldman dismiss the allegations as groundless, but whatever the truth it's good to see the investment bankers being held accountable for the excesses of the late 1990s. When you look at your dwindling pension returns, you know who to blame. It's the guy who's just bought the mansion down the road out of last year's bonus.

Mario's step too far

It's all very well taking on powers of search and sequestration for the purpose of cartel busting, but should Mario Monti, the Competition Commissioner, really be allowed to carry out "dawn raids" on companies whose mergers he is investigating?

The European Commission can already demand all relevant documentation in conducting its examination of mergers, and it is illegal not to supply it, or to destroy anything that might undermine the merger. The Competition Commission in Britain has similar powers, allowing it access during its investigation of the Lloyds TSB bid for Abbey National to a confidential boardroom paper which admitted the bank would be unassailable if the deal went through. These powers would appear quite sufficient.

Mr Monti insists that companies with nothing to hide have nothing to fear from his proposed "dawn raids", but that's not really the point. The presumption in seeking these powers is that companies are prepared to act illegally in pursuing their mergers, which is an extraordinarily anti-business view to take and is not born out by the facts. And in any case, a merger is not the same thing as an illegal cartel. It is not the function of policy makers, European or British, to stand in the way of takeovers unless there are good public interest reasons for doing so.

Mr Monti, a softly spoken Italian law professor, needs to tread carefully. He's already right on the edge of the line that separates legitimate policy making in anti-trust cases from unwarranted meddling and interference. This proposal pushes him decisively over it.