View from City Road: BT puts cat among cable company pigeons

Where does interaction end and broadcasting begin? Much arcane argument on the subject is threatened as the UK cable television industry heads for the courts in an attempt to unplug British Telecommunications' newly launched experiment in providing video-on-demand to its telephone customers.

As far as can be made out the rules state that BT will be allowed to offer full broadcasting down its telephone wires after 2001, subject to an interim review in 1998.

Cable TV companies are extremely upset by BT's move, epecially as it is backed by the big names in broadcast provision. The cable companies have spent pounds 2bn so far in digging up pavements and roads to connect UK households to their services, and they plan to spend between pounds 6bn and pounds 8bn more by the end of the decade.

BT is arguing that video-on-demand is not the same as broadcasting. Customers will interact with the new service to select the timing and content of their viewing rather than gaze at a dumb terminal.

Clearly there is much blurring at the edges between interaction and broadcasting. The Office of Fair Trading ought to take the view that if consumers want the extra services the Government ought not to stand in the way and the cable companies should pipe down.

There are, in any case, one or two hidden agendas behind BT's action. Mercury and the cable companies, which offer low-cost or even free telephone services in the local loop, are eroding BT's market share.

The combination of Mercury and the cable companies is likely, the brokers Smith New Court say, to take about 2.5 per cent of the residential telephone market away from BT every year until the end of the decade, reducing its share to 80 per cent.

It is clearly in BT's interest to slow the rate of attrition in its market share from the more dynamic cable companies. Already BT is marketing BSkyB satellite dishes on the grounds that every home with a dish is unlikely to want cable TV as well.

Video-on-demand is obviously another way of reducing the attractions of cable and so potential loss of telephone custom.

The second hidden agenda is more far-reaching and involves the building of an 'information super- highway'. BT has no intention of spending billions on fibre optic links in the local loop if it can only use it for telephone calls.

Video-on-demand is a way for BT to earn a decent return on an investment in largely fibre optic cable that could cost pounds 15bn. BT will no doubt argue that there would be economic gains for the nation from such a network. It is probably right. If cable companies want to compete with BT's video- on-demand they should deliver better-quality programmes.

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