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BT claims broadband rollout plans would cost twice Labour calculations

Labour announced it would nationalise part of BT and introduce a tax on big technology companies, to cover the £20 billion cost. Credit: PA

Labour’s manifesto hasn’t been fully published yet, but the extracts that have already been announced take the breath away.

The scale and ambition is remarkable, from the party’s plan to gift 10% of the shares in large companies to workers, to its now greatly expanded programme of re-nationalisation.

But it’s important to look at the proposals in a calm and reasonable way. Ask not “is this communist?” or “don’t they do this in Venezuela?” Ask instead “what’s the benefit, will it be done fairly and are there any unintended consequences?”

The 2017 Labour manifesto spelled out plans to “widen ownership of our economy”. Privatisation had failed, Labour would take key utilities back into public ownership.

Labour would deliver lower prices and a better service for consumers by re-nationalising Royal Mail, the private railway franchises, the energy supply networks and the water companies.

In July this year John McDonnell insisted this was as far as the party intended to go. “There are no tricks up my sleeve,” he said. “This is the limit of our ambition when it comes to nationalisation”.

On Thursday night he produced a trick from his sleeve.

“Free full fibre-broadband for all by 2030” is a pretty appealing prospect. Labour says it will deliver it by re-nationalising parts of BT, investing £20 billion in upgrading the broadband network and by taxing “multinational corporations such as Amazon, Facebook and Google”.

Everyone can agree that the UK’s broadband network is far from best in class. The rollout of fibre has been sluggish; copper is still king. Fewer than one in 10 premises have access to the sort of broadband speeds that are now standard in Japan and in much of Spain.

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OFCOM was so unhappy with the progress BT was making that just over a year ago it forced the company to legally separate itself from its engineering arm, Openreach. OFCOM believes the remedy has worked - Openreach is acting more independently and there’s a new urgency to BT’s fibre rollout plans.

Labour will go further, taking Openreach into public ownership along with BT’s Enterprise and Consumer arms.

The plan to give away broadband would wipe out Openreach’s annual revenue of £5billion. Credit: PA

Labour says it will borrow money to buy BT’s assets at a price that will be "set by Parliament”. This clearly won’t be market price so how big a discount are we talking? Labour won’t say, which rather suggests that investors can expect the haircuts to be severe.

The level of compensation for investors is an important issue. Does Labour plan to buy BT’s assets or expropriate them? Investors aren’t all rapacious US hedge funds. Pension funds (who look after the interests of ordinary savers in the UK) and shareholders (many of whom are BT employees, past and present) will be outraged if the discount is high.

BT is already challenging Labour’s costings. This morning CEO Philip Jansen said upgrading the network will cost £30 to £40 billion not the £20 billion Labour calculates, adding the plan to give away broadband would wipe out Openreach’s annual revenue of £5 billion.

Last year a report by the independent National Infrastructure Commission assessed the cost of building and maintaining a full-fibre network to be £33.4 billion and said the rollout would take "at least a decade" to deliver.

By this measure Labour seems to have got its timescale to delivery about right but significantly underestimated the true cost.

Labour’s plans also have implications for Sky, Virgin and TalkTalk. If the state is piping high quality broadband into homes and businesses for nothing then how can they hope to hold onto their customers.

TalkTalk has put the sale of its full fibre broadband business, FibreNation, on hold after Labour's announcement. Credit: PA

TalkTalk was days away from signing a deal to sell its FibreNation, its own fibre network business, but the transaction is now “on hold” until after the election.

"Labour’s announcement has made everyone in the sector pause, reconsider and digest,” said Tristia Harrison, TalkTalk’s chief executive, in something of an understatement. If Labour wins the deal is off.

Shares in TalkTalk (-4%) and BT (-2.5%) have fallen this morning; expect them to head further south if the polls swing in Labour’s favour.

Of course, in private most executives running the companies Labour plans to nationalise think the idea is wrong-headed but the policy is extremely popular with voters.

It’s worth remembering, however, that the main argument for privatising these services in the first place is that they were failing to deliver for customers precisely because they were being run very badly by the state.

The question for Labour is how does it ensure we don’t go back to the inefficiencies of the 1970s? How does it avoid alarming foreign investors and preventing the risk of a drying up of foreign investment and the economic stagnation that would cause?

From Royal Mail to the railways to BT there are obvious inadequacies that need addressing, some of them urgently. But is the solution public ownership (which carries its owns risks) or tougher regulation, of the sort OFCOM demonstrates?