CMP.WERNER@R20.UTEXAS.EDU (Werner Uhrig) (02/13/86)
[ from The Economist, Vol.298 #7432, February 8, 1986 ] BRITAIN'S TELECOMS: Value-added regulation -------------------------------------------- Britain's telecoms regulators are trying to ring a change. Although British Telecom and its officially sanctioned competitor, Mercury, are guaranteed until at least 1990 a duopoly of basic telecoms services (including voice and telex transmission), politicians propose to cut the red tape tying data-transmission services, the fastest growing part of the business. To do so, they must stand the regulation of Britain's telecoms on its head. The regulators are gathering comments on the second draft of their proposals to put their political masters' wishes into effect. Criticism of the first draft centred on the proposed rules for newcomers and the distinction between regulated basic services - like residential telephone services - and "value-added" ones, such as videotext and electronic mail, in which more competition will be allowed. The line between basic and value-added services is nigh impossible to draw. When BT was privatised in 1984, regulators drew up a definition of value-added services, and then decreed that everything that did not fall into that category should be regulated as basic service. Now they propose to turn the approach around by defining basic services, and allowing competition everywhere else. Chief beneficiary of the new rules will be "managed data networks". First proposed by a joint venture between BT and IBM - but turned down by regulators for fear that these two giants would suffocate the market - managed data networks typically provide higher quality data transmission than is afforded by BT's usual service. They include, for example, more security against errors or snooping, more facilities to allow different sorts of computers to talk to each other. Today, managed data networks fall into the regulated telecommunications category simply because nobody had thought of them when the definition of value-added service was written. But reversing the regulatory burden of proof is not the only way in which the new rules would promote such services. The official idea now (prompted by the telecoms industry) is to allow managed data networks a special class of licence. Instead of licensing the individual supplier of a MDN, the government would limit itself to approving the service itself. Anyone would then be allowed to offer a similar package. IBM (without BT), ICL, and GM's subsidiary EDS are all designing such networks that - pace, the regulators - could eventually be offered to the public. Where these firms lead, others follow. BT has little to fear from this new competition in the short term. Although the new MDN will take some business away from BT services like Packet Switch Stream, they must send their data over BT's basic telephone lines. By extending the range of services, competition should boost sluggish growth in demand for BT's basic services. But MDN could evolve into a more serious threat to BT. To provide the new services, operators of MDN must build up switching and message-processing capabilities outside BT's network. They will use modern digital equipment and aim at the most profitable high-volume customers. The result could easily be a group of mini-Mercuries all ready to jump into the more direct competition with BT - and waiting to be unleashed by tomorrow's regulators. -------