The British government, pressed to revitalize sagging industry, is placing heavy emphasis on developing a telecommunications business that is competitive despite being government-controlled.
The first step in the process took place two months ago with the birth of British Telecom, which separated the government's telephone company from the Post Office. "We are going through an extraordinarily revolutionary situation here," Sir George Jefferson, former head of British Aviation and now chairman of British Telecom, said in a recent interview.
The spinoff is the first major product of the the British Telecommunications Act, which officials, particularly Kenneth Baker, the Industry Department Minister of Information Technology, are calling "the most important industrial measure" enacted by the government.
But despite the enthusiasm for the venture, BT seems caught in the web that tangles much of this nation's business: the uncertainty that surrounds the relationship of a government-owned company with the private sector. Although the telephone organization is being asked to compete in world markets, it is having difficulty getting the unprecedented authority to raise funds from nongovernmental sources.
There are certain parallels between the telecommunications revolutions in Britain and the United States. Both revolutions are driven by technological developments that permit the linking of private computers via satellites in what are already competitive businesses. Both involve the awakening of sleepy, but enormous organizations -- in the United States, American Telephone & Telegraph Co., and in the United Kingdom, the British Post Office.
The policies of the Federal Communications Commission over the last dozen years or so have been designed to permit AT&T into new, unregulated markets, such as the burgeoning data processing field, while at the same time opening AT&T's historic monopolies, such as the telephone-equipment and long-distance-service fields, to competition.
The British program has two goals: One is to bring competition into the sales of telephones, telex machines, common switchboard and call-switching devices. The second purpose is to permit other companies to use the nation's telephone network -- the world's fourth largest -- for a variety of computer services.
Historically, most of British Telecom's equipment was purchased from three firms: General Electric Co. (no relation to the U.S. company), Plessey, and Standard Telephone and Cables (an International Telephone & Telegraph subsidiary). The act allows other firms to compete for the $300 million to $400 million subscriber market there, the world's third largest. At least one U.S. firm, General Telephone & Electronics, is seeking a piece of that business.
The problem with the system, for people who want to sell products in competition with the British telephone company, is that they must receive approval from the complex bureaucracies of the British Standards Institution and the British Electronic-Technical Approval Board. Until those groups finish their work, BT is in the difficult position of having to approve new products of its competitors. "We shall inevitably be criticized, but we have no intention of being laggardly," Jefferson said.
A consortium led by Cable and Wireless Ltd., the phone company that serves a number of nations formerly part of the British empire, such as Hong Kong, has proposed taking advantage of a provision in the act that allows private concerns to set up a network in Britain in competition with BT, an idea that sources say Jefferson opposes.
But the even stickier political problem involves the funding of BT's new ventures. The company, which is spending about $4 billion in capital improvements this year, is already laying the world's longest high-speed optical fiber link between here and Birmingham. Electronic mail service, run by BT, is due to start early next year and the organization is also putting together a high-speed data service.
The company is continuing to expand its Prestel "viewdata" system, an electronic data-retrieval system featuring about 700 information providers that serves some 14,500 sets in England. That venture has advanced far beyond similar, but experimental efforts in the United States by AT&T and others.
But BT (which invests more money every year than any other British venture and has assets worth about $30 billion), while endorsing the competitive principle, is concerned that the competition in equipment and long-distance services will rob it of revenue it needs to maintain local telephone service, which it operates at a loss.
As a result, BT is in the uncomfortable position of seeking permission from the government to issue bonds to raise as much as a $1 billion over the next several years. "If we are to be market responsive, we can't be stuck with government financial policy," Jefferson said. "I hope we're close to a solution." So the government entity is challenging its opponents within the Thatcher treasury, who worry about the precedent and the risk to the government.
BT's promotional literature speaks directly of the need to borrow about $200 million this year to meet its investment needs. "At present British Telecom must borrow from the government, which will not lend as much as we require," the company said in one newsletter. "We need increased flexibility, including the ability to borrow in the private money markets."
Jefferson, in a prepared statement issued as the company split off two months ago, echoed that thought. "Today, we are still dependent on the same sources of finances," he said. "And that is tying our hands behind our backs as we face up to the challenge of competition."
Also tying the company's hands, officials say, is a bloated BT bureaucracy. BT's junior executives say officials maintain a government mindset and are leary of competing with private concerns. Jefferson has forced the hiring of new sales people who share his relish of aggressive competition. The "staff will have to change gear to seize the opportunities of competition," he said.
One enthusiastic young member of that bureaucracy complained that his colleagues think "they live in a safe world that owes them a living." The official said that ultimately BT's management will be forced to "shed many staff members."
After its growing pains cease, Jefferson said he hopes BT will be transformed from a "single monolithic operation" into "all sorts of incestuous partnerships" with private companies. "We are hauling BT in that direction as fast as we can," he said. "We want a market-led strategy, rather than one led by the civil service."