What Labour's broadband giveaway means for the telecoms sector
Jeremy Corbyn wants to renationalise parts of BT, offering free broadband for all by 2030. The pledge played well in an election weighed down by Brexit but caused panic in the telecoms industry. The FT's Nic Fildes examines the implications
Filmed by Rod Fitzgerald, Petros Gioumpasis and Nicola Stansfield. Produced by Daniel Garrahan.
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The UK Labour party has ambushed the telecoms sector. It wants to renationalise parts of BT and offer free broadband for all by 2030. The move has played well in an election weighed down by Brexit, but it has caused panic in the telecoms industry. What are the implications of this radical move, and do companies have a future if a government-owned telecoms company gives away the industry's main product - connectivity - for free?
Boris Johnson has promised to connect every home to a full-fibre line by 2025, driven by a £5bn subsidy and a regulatory shake-up. Jeremy Corbyn has gone much further, with a plan to nationalise BT's Openreach. Labour wants to take the business, effectively an infrastructure asset, in house.
A Labour government will make broadband free for everybody.
It sounds radical, but many telecoms companies are seen as break-up targets. It could be argued that Labour is stealing a march on the pension funds and private equity companies that would no doubt pounce on Openreach if a split happened.
The UK's position in the international full-fibre league tables is poor. A paltry 8 per cent of homes and businesses can connect to a full-fibre line. In Japan and Singapore, it's almost universal. And in Spain and Portugal, the ratio is over 70 per cent. But the UK full-fibre ratio has doubled in the space of two years and will speed up as Openreach gets slicker.
Virgin Media is also set to upgrade its network to gigabit speeds by 2021. But millions suffer patchy or poor services. And the question is whether to stimulate the market with more subsidy, or would a government-owned network do a better job?
One issue is what it'll cost the taxpayer. John McDonnell has set a price of £20bn to roll out fibre, on top of the billions needed to buy Openreach out of BT. This plan has been derided by the industry. The National Infrastructure Commission says it'll cost £33bn to roll out full fibre. And BT has argued that the cost could be much higher than that, at almost £100bn pounds.
The cost of running the network has also been highlighted. Labour says it'll generate cash from taxing multinationals and has allocated around £234m a year to run Openreach, despite Openreach's current cost base being 10 times higher than that.
The real controversy in the Labour plan is, however, the broadband giveaway. The UK is one of the most vibrant telecoms markets in the world, and giving away the product for free will wipe out many companies and pose huge questions for the future of foreign investment in Britain, with billions already spent on fibre networks to compete with BT.
Work and funding on new fibre lines across the sector screeched to a halt after Labour's announcement. BT admits that free broadband sounds like an appealing concept, perhaps even a vote winner, but it would have dire consequences for the competitive market.
Back in 2009, Australia's Labour government drew up a plan to fibre up the country on the back of a beer mat on a plane. The NBN was born, as politicians dreamed of a Down Under digital paradise. But the plan ran aground as costs ballooned, and full fibre became part fibre to save money. NBN is now almost complete, with more than A$50bn of government funds spent. But speeds are still yet to pass those of the slowcoach UK.
The arguments about the benefits of radical government intervention are broadly similar to those made in Australia a decade ago. Broadband is rubbish. It's too expensive. The market has failed. Something needs to be done. But sometimes you've got to be careful what you wish for.
