Britain's Newly Privatized Firms Pulled Up Short

Government threatens British Telecom with monopoly investigation. HIGH PROFITS, SLOW SERVICE

BRITISH industries privatized in the Thatcher era are coming under mounting pressure to curb their profits and give customers a better, cheaper service.

In the past month suppliers of water, electricity, and gas have been told by government-appointed watchdog bodies to pay closer attention to the rights of consumers.

In the toughest intervention so far, British Telecommunications PLC, which racked up profits of more than 3 billion British pounds ($5.64 billion) last year, was ordered June 9 to cut private users' phone bills or face investigation by the Monopolies and Mergers Commission. BT was also criticized in 1991 for introducing a controversial new company logo at a cost of 60 million British pounds.

The warning came from Sir Bryan Carsberg, head of Oftel, a body set up to monitor BT's post-privatization performance. BT still commands 95 percent of Britain's telecommunications market.

Sir Bryan read the riot act to BT a month after British Gas, one of the former Thatcher government's largest public sector sell-offs, was accused by Ofgas, the industry regulator, of failing to charge customers fair prices.

The Oftel and Ofgas strictures fit into a pattern of rising official concern that in the privatization of public utilities the Thatcher government underestimated the adverse impact on consumers of unrestrained profit seeking.

In telecommunications, BT holds a near-monopoly - only Mercury, a small communications company, has gained a niche in the business. British Gas, though privatized, is a full monopoly.

This situation means that the government has to rely on official regulators to safeguard services and monitor prices.

Privatization was one of the main planks of Thatcherite economic management. The former prime minister started a series of sell-offs that included British Airways and large chunks of Britain's North Sea oil industry.

The Carsberg formula for curbing BT includes a requirement that prices for its phone services be held at 7.5 percent below the rate of inflation. With the current inflation rate standing at 4.3 percent, the formula will give residential customers a 3.2 percent price cut.

Oftel also ordered BT to ensure that 99 percent of the population has digital telephones by 1997. BT has been criticized for its slowness in providing digital service to private users.

BT called the Oftel order, "interventionist regulation."

A senior BT executive said there had been a changed official attitude to the privatized industries since Margaret Thatcher was voted out of office 18 months ago. "Prime Minister Major has a different approach to our kind of operation. He is telling telecommunications users that they have rights, and the regulators have started to pick up on that idea," the executive said.

In another example of a watchdog body castigating a utility formerly in public ownership, the water industry regulator, Ian Byatt, told the chairmen of Britain's water companies June 10 that complaints by consumers increased by 130 percent last year.

Most of the protests, he said, were about the water companies' high profits, steep increases in the salaries paid to executives, and higher charges to customers.

The same theme has emerged over the performance of electricity generating companies sold to the public in the late 1980s. Embarrassed by a 32 percent increase in annual profits by PowerGen, one of two big privatized generating companies, Michael Heseltine, the trade and industry secretary, warned the management of its responsibility to the British economy as a whole.

He said that in their pursuit of profit the electricity companies should not drive too hard a bargain with British Coal, one of the few major industries yet to be privatized.

British Coal until now has been the power companies' main source of coal, but electricity managers have threatened to buy cheaper coal from Poland and other countries.

"Electricity privatization has become a legalized racket with huge profits for the shareholders and massive pay and perks for the bosses," said Frank Dobson, the Labour opposition's energy spokesman.

Some of the big privatized companies have made themselves vulnerable to criticism by giving top executive huge pay raises.

The annual salary of Iain Vallance, chairman of BT, shot up in 1990 from 283,000 British pounds ($532,000) to 536,000 British pounds ($1,007,948) in 1991. The public outcry persuaded Mr. Vallance to forgo an increase this year.

To the government's dismay, it will soon be forced to order massive salary increases for top civil servants, it was reported June 21. A government source said the main reason for the increases was "to keep salaries in line with the high levels now common in privatized industry."

The privatized water companies adopted a similar high-salary policy.

They have lately come under criticism for excessive profits coupled with a failure to maintain adequate water supplies in some parts of Britain.

Leakage from badly maintained reservoirs and piping systems in southern England can be as high as 40 percent, and despite heavy rainfalls in some areas, water rationing is in force.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK