Gas makes the case for a break-up of BT

Don Cruickshank, the telecommunications regulator, yesterday huffed and puffed and threatened to blow BT's house down. The company will face break-up if effective competition does not develop in the industry.

Mr Cruickshank has the power to cause BT a great deal of trouble, by asking the Monopolies and Mergers Commission to investigate whether the way BT is set up operates against the public interest. He is also drawing breath long enough to ask Ian Lang, President of the Board of Trade, whether he could make a reference under the Fair Trading Act, which would allow the MMC actually to recommend a break-up of BT.

BT is no slouch in dealing with the wolf at its door. Part of Mr Cruickshank's very public frustration is at the company's adroitness in using the rulebook to its own advantage over the years. It is not BT's fault that Mercury, the rival that was given special privileges at the time of privatisation with the aim of increasing competition, has failed to fulfill its potential. But Mr Cruickshank clearly thinks BT maintains the attitudes of an old- fashioned monopolist, and fears it will respond to his new consultation document on competition by building itself even stronger brick walls.

He is probably right. BT is not inclined to submit meekly to a ticking off about its attitudes and competitive behaviour. But BT owes its shareholders and customers careful consideration of whether the network infrastructure should indeed be under separate ownership from the provision of services.

British Gas management made its most serious strategic mistake since privatisation when it rejected out of hand suggestions that public gas supply should be hived off as a separately owned company. The juiciest profits are in running the grid, while gas supply to the private customer shows lower returns, has been a public relations burden and is about to enter a new period of upheaval with the forced introduction of any outside competition.

At BT, the balance is rather different, with the most attractive returns coming from added value services rather than from the infrastructure that carries them. But a case can still be made on competition grounds for an independent telecoms grid open to all comers. For Sir Iain Vallance and the rest of the long-serving BT management, the idea of relinquishing control of an integrated system is as anathema as breaking up British Gas is to Cedric Brown. But Mr Cruickshank's threat of a break-up raises questions that deserve a serious answer, and which in any other company would be looked at very carefully to see if they would increase shareholder value.

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