The issues with Labour's broadband policy
Updated: Mar 10
In a recent article in The Oxford Student (“Labour’s Broadband Policy: An Intriguing Idea”, 22 November 2019), Labour’s pledge to part-nationalise BT was lauded as “intriguing” and “interesting”. The article noted that it could increase productivity while fulfilling what many would now regard as a right to digital technology.
At the same time, it dismissed opposition to the policy as merely claiming that the pledge “deflect[s] from the party’s rather more muddled positions” or adds to other exorbitant spending pledges in Labour’s manifesto.
But this is an unfair portrayal of well-grounded arguments against Labour’s broadband policy - and perhaps a demonstration of how Labour's pledges have shifted public debate to pro-interventionism, while free-market voices are letting their arguments go unheard.
The principal issue with Labour’s policy is that it misdiagnoses a failure of antitrust regulations for a private market failure. In doing so, Labour misprescribes expensive, inefficient and technologically-backward nationalisation where encouraging market competition could deliver quicker, cheaper and more efficient full-fibre broadband rollout.
Presently, through its Openreach subsidiary, BT effectively acts as a national monopoly on broadband connections. This has hindered private companies that have expressed keenness to invest in broadband rollout from being able to do so; such businesses include Cityfibre, Hyperoptic, Vodafone, WightFibre and Virgin Media. In 2017, Ofcom, the industry regulator, fined BT a hefty £42m for not compensating its competitors for delays in installing high-speed internet connections – a result which was possible only because of Openreach’s significant market power.
Replacing a private monopoly with a state-run monopoly may do nothing to alleviate this failure. Before telecommunications were privatised in 1984, British governments of all party stripes, preoccupied with other political priorities, had chronically failed to invest in network infrastructure. They used technology that was generations out-of-date and managed months-long waiting lists for those seeking to join the grid.
So the wastefulness of nationalisation means that swapping business élites for bureaucrats in Whitehall, as Labour proposes, may do nothing to challenge the underlying issue.
Moreover, the solution is to break up, not take over. Splitting Openreach into regional units and facilitating market access for its eager competitors could stimulate rapid, sustainable investment in broadband rollout while lowering the costs of joining the network for households and businesses up and down the country.
This is how other countries have successfully developed their fibre broadband networks abroad. Neither South Korea nor Japan, which Labour champions as models for Britain given their 97%-plus connection rates, achieved their rollouts through nationalisation: they were fulfilled by private businesses under important but limited state supervision. Through free-market policies, Spain and Portugal have attained impressive coverage levels of 63% and 86% respectively. By 2014, Spain was adding more fibre connections a week than the UK was in a whole year, spurned by competition between Telefonica, Orange and Vodafone.
Further to the inefficiencies of nationalisation, Labour’s policy is technologically-backward. Labour promises to deliver free full-fibre broadband to every household by 2030. By then, broadband technology will have moved on: new and fibreless next-generation technologies, from 5G to 10G – the latter of which promises to raise home internet speeds by a factor of ten – could deliver faster internet for everyone.
Far from raising productivity, Labour’s policy of committing the country to an expensive rollout threatens to hold British households and businesses back from the full opportunities that new technologies promise, just as outdated telephone exchange technologies did pre-privatisation.
Besides, what will Labour’s policy do to alleviate digital exclusion? Nearly 300,000 15-to-24-year-olds and two-fifths of UK adults lack basic digital skills; six million Brits cannot turn on a digital device, while schoolchildren struggle to complete homework on pay-as-you-go smartphones. Connecting them to full-fibre broadband can only ever be part of a broader strategy to tackle digital exclusion, which Labour’s manifesto completely overlooks.
In other difficulties, BT’s boss has claimed that the policy could cost four times Labour’s estimations. Because Labour will finance the nationalisation through a tax on predominantly-American tech titans, it could worsen transatlantic relations to the detriment of both countries and at the expense of British consumers. The tax may fall foul of World Trade Organisation rules on targeted tariffs.
In short, there is much more to say in opposition to Labour’s broadband policy than has been made aware. It is not simply a question of public goods, as the article in The Oxford Student suggested, but a failure of antitrust regulations that has gone unchallenged for too long.
Replacing BT with a state-run monopoly as Labour proposes would not solve the root of the issue. Moreover, it presents an expensive, inefficient and technologically-backward alternative to encouraging more market competition in full-fibre broadband rollout, just as other countries have successfully done.
Matteo Baccaglini is President of the Oxford Hayek Society.
The opinions expressed in this article are those of the author, and not necessarily of the Oxford Hayek Society.