The Sparring Match Being Fought In Britain

It was door-to-door combat. Faced with losing thousands of customers a month to a cable company selling TV and phone service, British Telecommunications PLC sent 1,000 managers to Bristol this summer to knock on doors and offer special deals. But the plan may have backfired. The cable outfit, United Artists Communications Inc., says it's adding 3,000 phone customers a month--up 50% since BT's push.

Welcome to Britain, the land of telecommunications deregulation--and a warmup for the global telecom free-for-all. Since throwing its market wide open in 1991, Britain has licensed 146 companies to supply every form of

service. It's the first country to allow competition in local phoning and the first to allow TV and telephone over the same wires--luring experimenters from across the world. "We're learning how to build the Information Highway here," says Eugene Connell, CEO of Nynex Corp.'s British cable unit.

The result of all this experimentation? Faster deployment of new technologies, a giant prod to BT to improve service and lower prices, and--above all--freedom of choice. "The kind of problem the telecom manager faces now is a bewildering choice of services and providers," says David Harrington, director-general of the Telecommunications Managers Assn.

Just 10 years ago, Britain's telecommunications was BT, period--a sluggish state monopoly. Privatization in 1984 was followed by a seven-year duopoly with Mercury Communications Ltd., a unit of Cable & Wireless PLC. Now startups and corporate carpetbaggers have opened shop. Energis, owned by 12 regional electric companies, offers phone service over a 2,000-mile fiber-optic network. Ionica L3 Ltd., backed by Yorkshire Electricity and Telecom Finland, plans to use cellular for the local portion of customer calls. An international mix of cable companies, Baby Bells, carriers, and media outfits are here, too. Nynex, Britain's No. 2 cable operator, has invested $540 million and plans to spend up to $3 billion by 1998. Telia, Sweden's national carrier, arrived this spring, and AT&T is on the verge of getting its British license.

To woo customers away from BT and Mercury, the new entrants promise better service, up-to-date technology, and low prices. Energis supplies detailed calling reports for business customers. BT, by contrast, still does not itemize bills for most of its customers--and bills them only once every quarter. Videotron Corp., a unit of a Canadian cable-TV operator, is offering a system that carries voice, data, and video. In February, MFS Communications Co. in Omaha, Neb., rolled out Europe's first advanced digital switch.

The competitors haven't grabbed a lot of the $18.6 billion domestic calling market--yet. The cable companies have only 500,000 phone lines, vs. BT's 26 million. But BT's share of the residential market has dropped to 94% from nearly 100% in 1991. Some 26,000 customers a month are switching to the cable operators and John Tysoe, an analyst at Societe Generale Strauss Turnbull Securities Ltd., predicts that the upstarts could win up to 35% of the residential market by 2000. In business markets, Mercury has skimmed top corporate accounts, helping pare BT's share from 94% to 88% in three years.

HOBBLED GIANT? BT is not standing still. It's stringing more fiber-optic lines and has cut domestic rates by $540 million since the start of the year. New phone lines are installed in days, not weeks. And almost all BT pay phones work; during the duopoly, something like 6 out of 10 were out of order at any given time.

BT is also pushing for relief from regulators that it says have gone too far. Still saddled with restrictions, the phone giant claims it could be handicapped in the global telecom fight. "In the U.K., the government has positively discriminated in favor of new entrants no matter how large and strong they are," complains BT Chairman Iain D.T. Vallance. Of course, when it comes to large and strong, BT is hardly a slouch: Last year, it rang up revenues of $21 billion and posted pretax profits of $4.2 billion.

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