Work Smarter Not Harder: Would nationalising broadband boost productivity?

January 7, 2020

2 min read

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What's going on here?

Labour made an election pledge to provide free broadband for all British consumers and businesses by nationalising Openreach, a subsection of British Telecom (BT), claiming it will boost productivity by £59bn. But would nationalising broadband really help productivity?

What does this mean?

BT was responsible for broadband infrastructure until the regulator Ofcom declared in 2002 that this inhibited competition. The Enterprise Act made sure rival telecom operators had access to BT’s local network. Openreach was created in 2006 to achieve this and as of 2014 has been a separate company within BT. It is responsible for maintaining the physical network, enabling other providers, e.g. Sky or Talk Talk, to use the “last mile” of copper cabling to deliver services to your home. The pledge to nationalise broadband would have meant all of this would be achieved by one provider: the newly named British Broadband.

What's the big picture effect?

Currently only about 1 in 10 locations in the UK have full fibre internet in comparison to other nations such as Japan where 97% of homes and businesses have full fibre. Considering that a third of the UK’s SME’s (Small to Medium Enterprises) have described their broadband speeds as insufficient for their business needs, the policy – unsurprisingly – was popular. However, the idea of installing full fibre is not new; earlier in May of this year a government scheme pledged £200m in vouchers to ensure remote areas will have full fibre optic broadband at speeds of 1 gigabit per second (Gbps). Ofcom considers speeds of 10 megabits per second (Mbps) to be the minimum speed allowing a person to participate in digital society. 

Labour had said they had taken legal advice to ensure pension funds with investments in BT are not left out of pocket. But Labour’s policy assumed Openreach provides all the broadband infrastructure. This negates the areas which provide the actual service to take internet traffic and route data through the right servers and all of the systems which create, support and fix the services. Therefore, a Labour government would have quickly find itself either paying for all of these services or facing a multitude of legal challenges from providers who find themselves, along with their employees, locked out of the market. Another issue Labour would have come up against is that a nationalisation program of this sort is illegal under EU law, thereby bringing it into conflict with its Brexit stance. Furthermore, given all the concern created earlier this year regarding Huawei and spying within the Chinese state, the same question can be asked:  how many people would be comfortable sharing their data with a British state-run operator?

The price tag for full fibre rollout varies depending on who is asked. According to Labour it is £20bn, the Conservatives say £83bn and the CEO of BT claims £100bn. So which estimate is correct – and is this policy worth it? Although Labour was unsuccessful in the election and so broadband will remain un-nationalised, it could be argued that this may have ultimately been the best solution as far as the internet is concerned.

Report written by Michael Johnson

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