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

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.