Perspective - Digitax: bane of the silent majority.

BT has thrived under the protective wing of the U.K. government 

BT has thrived under the protective wing of the U.K. government, argues Michael Potter.  Most people can be persuaded to pay tax if they can be convinced that the services they will receive in turn are of reasonable value. In the United Kingdom, there has been a number of governmental decisions that have created friction and inefficiencies in the telecommunications market that can only be seen as a type of hidden tax - a "digitax."What constitutes this "digitax"? U.K. consumers have had to pay billions more than they would have, had the industry been properly regulated and managed. Although digitax involves substantial money, the scandal has not been exposed to the general public. The challenge that prevents the public from holding their public officials responsible for this unauthorized tariff is that many of the issues in the telecom industry are perceived as being technically and legally complex.  For the U.K. to compete in the global information economy, telecoms policy has become one of the most important issues confronting the nation. The Director General (DG) of the U.K. Office of  Telecommunications (Oftel) must in effect be viewed and judged as the director of a revenue enhancement entity. It is not only appropriate to question the telecoms policy credentials of the DG but also his macroeconomic and revenue enhancement credentials. In December 2000, Oftel concluded that BT was overcharging to provide digital leased lines. The investment community believes that when BT finally complies with providing more cost-oriented leased lines, BT will begin losing ₤125 million annually starting in 2002. The question the industry should be focusing on is how and why did Oftel permit BT to effectively slap a digitax on users for hundreds of millions of sterling. One of the greatest embarrassments facing the U.K. is the scandal involving the failure of BT to unbundle its network and the failed deployment of broadband services. The U.K. has one of the lowest penetration levels of broadband in the OECD and studies suggest that more than ₤10 million is lost each day on professionals waiting on dialup connections. To calculate the full digitax resulting from low broadband penetration, one must include the strategic and opportunity cost of delaying the nations overall e-commerce competitiveness. After the recent erosion in BT's share price, largely resulting from the billions spent on 3G licensing, politicians have now come to understand there never was such a thing as a "free lunch." After much lobbying and duress, the U.K. and the Commission are trying to figure how to return some of the license fees. What is motivating the politicians and the regulators is not the welfare of the consumers, but the livelihood of the incumbents that have been illegally overcharging the consumers. Why has Oftel shown support in collaborating with BT on a digitax? BT is a national champion that U.K. politicians and civil servants have been trying to keep from falling into foreign ownership at all cost. I have an internal memo that quotes a DTI official discussing the government's policy of going easy on BT's compliance with EU law. The conclusion of course is that by not complying with European law, U.K. users are subsidizing artificially higher margins, an effort to boost the share price and make BT a more difficult takeover target. Is the U.K. ripe for reform? The EU recently raided the offices of U.K. mobile providers including BT on the suspicion of illegally overcharging consumers for roaming. And under proposed legislation, the board of directors of a company involved with illegal pricing activities can be criminally prosecuted. If I were a BT board member, I would be feeling very uncomfortable.  Let us end the unauthorized digitax. Let us return to the rule of European law. Let us position the U.K. so that it can take its role in leading the global information economy.