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BT and Big UK Telco’s Warn of Increased Costs for an Independent Scotland

Monday, September 15th, 2014 (8:12 am) - Score 883

The heated debate over Scottish independence, which is due to be decided in a referendum this week (Thursday 18th Sept), took another twist over the weekend as national telecoms and broadband operators including BT, TalkTalk, O2 (Telefonica UK), Vodafone, EE and Three UK united in a rare show of unity to highlight some of their considerations.

Many people, on all sides of the divide, are still unsure about precisely what independence will truly mean and that’s equally true in the telecoms sector where splitting the United Kingdom will undoubtedly trigger a number of significant changes.

In that sense the new Open Letter from some of the UK’s major operators is partly an attempt to put people at ease by initially reaffirming their commitment to the provision of “high-quality” and “affordable services“, even if Scotland votes to become independent.

But the letter is somewhat of a double edged sword as it also warns that a number of “strategic and operational factors” would need to be resolved if Scotland votes to go it alone, which officially warns that the country’s “relatively demanding topography and relatively low population density” may result in more expensive services due to higher costs.

The Open Letter

As individual companies and as an industry, we are committed to providing and investing in high-quality, affordable services to all of our customers in the UK. We are clear that this commitment will be completely unaffected by the outcome of the referendum on Scottish independence, which is entirely a decision for the Scottish people. Whatever the result, we remain fully committed to our customers, employees and operations in Scotland.

Should the majority of the people of Scotland vote for independence, there are a number of strategic and operational factors which would need to be resolved for our businesses.

Specifically, we would need to know how a Scottish telecoms industry would be regulated. Would there be continuity with the current European Union regulatory framework so that we would continue to operate across the border with common infrastructure under a single set of rules? What approach would the government of an independent Scotland take to the radio spectrum – currently licensed on a UK-wide basis – without which mobile networks cannot operate?

We may also need to modify our networks to reflect the reality of an independent Scotland; and we may need to consider whether to modify the services offered in Scotland, given its relatively demanding topography and relatively low population density. Any of these factors could lead to increased industry costs.

Finally, we reiterate that, whatever the outcome, we pledge we will continue to work hard to deliver the best possible services for all our customers and remain committed to our employees and operations in Scotland.

Gavin Patterson, Chief Executive Officer, BT Group
Dido Harding, Chief Executive Officer, TalkTalk Group
Ronan Dunne, Chief Executive Officer, Telefonica UK (O2)
Jeroen Hoencamp, Chief Executive Officer, Vodafone UK
Olaf Swantee, Chief Executive Officer, EE
David Dyson, Chief Executive Officer, Three UK

The letter appears to echo some of the issues that smaller broadband and phone providers have already raised (here and here). Consumer Internet access and telecoms is somewhat of a low margins business, which means that smaller providers are particularly vulnerable not least because they’re only setup to cater for one country (the UK) and adding a second means separate administrative, legal and regulatory considerations (higher costs).

Add to this the concern, as highlighted above, that Scottish consumers could also face higher chargers due to the increased cost of maintaining networks and the price you pay in Scotland seems almost certain to rise. On top of that the Scottish Government has already signalled its desire to investigate making other changes, such as the introduction of a Universal Service Obligation (USO) for broadband (here).

The idea of a broadband USO is good but such things usually carry additional costs, which would risk coming at a time when telecoms firms may already be facing a huge change with independence that could require several years before they’re fully adapted. Suffice to say; assuming Scotland votes ‘Yes’, we don’t see a USO being forced into existence for a little while.

The unknown element, one of many in fact, is what the Scottish Government might do to balance against these very real issues. Indeed it seems unlikely that an independent Scotland would just sit back and let the industry sort itself out, which might perhaps leave the door open for tax breaks on infrastructure or some other form of transitional subsidy. But so far nobody has even hinted at such things.

Equally Scotland would need to clone Ofcom’s model and then the new telecoms regulator would have to conduct several reviews to assess how the market, from a regulatory standpoint, should function. The political transition may be short, yet it seems clear that the industry itself cannot be split quite so rapidly.

It’s important not to forget that the rest of the United Kingdom would, while not needing to change as aggressively, also face adjustment and perhaps some degree of regulatory review. But with a higher population density it’s also just possible that, given enough time, what remains of the UK may benefit from lower prices.

Admittedly commercial businesses probably wouldn’t go out of their way to slash retail prices, especially as some may initially use this to balance against the higher costs of catering for an independent Scotland. But quite how tolerant UK consumers would be of this remains to be seen. Certainly nobody would be happy if they had to help pay extra for consumers in, for example, Spain, to get cheaper access.

Leave a Comment
20 Responses
  1. Just think…

    Maybe they will nationalise BT north of Hadrian’s Wall! 🙂

    • Avatar Gadget

      They would probably have to pay for it by printing some more groats http://en.wikipedia.org/wiki/Scottish_coinage

    • I hope they do vote to break free – and I wish them well if they do.

      (and yes I am English!)

    • Avatar Steve Jones

      Nationalising part of a heavily integrated company like BT will be tricky. The first problem is that it’s not actually within the power of the Scottish parliament to nationalise part of BT as it will be a foreign registered company. What is in their power is to nationalise the assets in Scotland (for which they’d have to pay a fair market rate – if they failed to do so, the repercussions, both legal and international, would be dire). Then there’s the extremely tricky problem of generating a working, operational company. One big issue will be IT systems. It can’t be emphasised enough just how modern telecommunication companies are dependent on IT. In essence, it’s nearly impossible to separate a modern telecommunication system for IT systems.

      Nationalising the assets of BT north of the border would not give the Scottish government ownership of any of the group IT systems (the IPRs of which will remain with the parent company). There will also be a myriad of software licensing deals which will have to be unpicked and renegotiated. You can absolutely guarantee that suppliers will see this as an opportunity to increase revenue. No doubt deals can be done, but at a price and not quickly.

      Then there are staff issues (not all BT staff in Scotland will be engaged solely on support of the Scottish network). Which BT employees would transfer to the new organisation. There’s also the little issue of responsibility for the pension deficit applicable to BT pensioners in Scotland. One possibility would be to notionally split the pension fund and for the nationalised outfit to accept the responsibility for Scottish BT pensioners (past and future.

      In all, it would be a very tricky and expensive operation. Expect a lot of money to be spent on lawyers.

      A more credible option might be separate and tight regulation, but if the services and conditions are to vary a lot from the rest of the UK, and systems diverge, it will be expensive. Such systems will be spread over relatively few customers and it seems likely it will introduce further costs.

      Of course what applies to BT will apply to any other company with assets north and south of the border where there is a “threat” of nationalisation. Witness Jim Sillars’ comments with regard to BP (albeit not official SNP policy). I believe it’s SNP policy to re-nationalise Royal Mail north of the border as well as Network Rail. (The latter should be relatively easy as Network Rail is de-facto nationalised).

      So I think BT Scotland nationalisation is unlikely (although I suppose it can’t be discounted).

  2. Avatar Colin

    I don’t know. But I think Alex Salmond does not realise the ins and outs of going independent. He thinking about the big things, but not the small things. After watching BBC yesterday, I think he could well be making up as he’s going along. That’s a bad idea..

    I’m grateful that I live in England don’t have the choice. You never know if East Anglia may decide to go independent one day.

    finally I don’t think the EU competition regulator would allow us to pay more for our services to subsidise a country which is outside the European Union. It is similar as us paying extra on our bills for subsidising Canada utility bills.

    I know it sounds a bit far-fetched, but basally Scotland would be outside the European Union if they vot for independence. I don’t think it would be that easy to split up ISPs and other utilities. As easy as people think it may well be. When the Republic of Ireland split up it was before everything got complicated.

    • I think all sides are making it up as they go along to be honest.

      In my view, at this stage it really is about the big picture – does Scotland wish to be fully in charge of its own destiny? Or at least to the extent that EU membership would allow. 🙂

      All of the comments being made by all sides (EU included) are just posturing at this stage. IF Scotland does vote for independence, then I would fully expect different attitudes etc to kick in as the realism takes hold.

  3. Avatar Sledgehammer

    If Scotland decide for independence, then all of the telco’s don’t have to provide any of the fibre roll-out or bduk funding or any other infrastructure. Would that be correct?

    • We understand BDUK’s current plans won’t be affected, although if more funding is allocated to fill the last 5% (it almost certainly will be.. and perhaps sooner than you think) then that may be another matter as it would fall after 18th Sept.

  4. Avatar DTMark

    It might become more expensive for England-based, essentially foreign providers, to supply. But then the reverse of that, if true, is surely that it opens up opportunity for domestic (Scottish) providers.

    The net change to the customer could then potentially be nil.

    The rest of the arguments seem like the classic “change might be bad” kind of tittle-tattle. Who knows, Scotland could even commission their own broadband network with an eye to the future which would disadvantage those on the BT platform and BT itself, but would be a Good Thing for Scottish people and Scotland.

    • Avatar Raindrops

      “The rest of the arguments seem like the classic “change might be bad” kind of tittle-tattle.”

      Ah you have to love change and those that do not love change. All you scots better fear the “implications” or rather laugh at the likes of BT and Talk Talk trying to scare you.

      After all they can provide services so cheap in the England already its not like they even have to farm support out overseas, employ dingbat script readers and take other measures to make as much profit as possible. Some of which may be diluted if they suddenly have to spend more providing their product.

      Funny isn’t it the way a many smaller business in Scotland that spend every penny they can on providing a good product with decent support are split as to be in favour or not while the big boys like BT who may suddenly face new rules and their life being made hard for a change deploy their fear tactics and hope for the best.

      But i gest you Scotland, BT and the likes of Mr Cameron do really care about every single one of you… They have just waited till the last minute to tell you how much they care and script some fear at the same time, to hope you are stupid enough to believe it.

      No more claiming 30p in expenses for a doughnut if you visit Scotland Mr Cameron… It will kill him to visit their a whole day once Scotland is independent and actually pay for a entire meal.

      Likewise BT no more free lottery like sums, to upgrade your copper broadband along with actually having to provide REAL next gen speeds and not 2Mb.

      Or the short version…
      When any politician and big business starts pretending they care about others and not their own pocket you know they are indeed in a state of blind panic.

      Im English and actually wish Scotland all the best, in many ways you can not end up worse than you already are with UK parliament and big UK business which has been crooked for years. If they ain’t robbing you they are turning a blind eye to kids being sexual abused in care, and police forces which are more bent than a dodgy one pound coin will be in Scotland once you break free.

      Good Luck to your freedom i say. Be the catalyst for more to follow.

    • Avatar FibreFred

      They’ll need all the luck they can get !

    • Avatar Bob Johnston

      @Raindrops
      xD you are a sad little human, hope you enjoy sitting in your bedroom with your computer, “policing” the internet. And btw, I am Welsh before you spout more racist remarks you sad man, also I will not reply hurtyn…

    • Avatar No Clue

      Who was he racist to?

      Oh and everyone say welcome back to fred.

    • Avatar Raindrops

      Maybe like counting and science he has issues with the meaning of words.

  5. All this hoopla about Scotland leaving the Crown is a sideshow. This will not happen. I don’t know why they are still talking about it. Deals have already been done. They were done many years ago. People need to stop wasting their time on this issue. Scotland will remain part of the Crown. You will know this officially in a matter of months, believe me.

  6. Avatar Owl.

    BT could be Bye Tosh

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