Labour Party leader Jeremy Corbyn. Picture: REUTERS/SIMON DAWSON
Labour Party leader Jeremy Corbyn. Picture: REUTERS/SIMON DAWSON

London — The opposition Labour Party lobbed a grenade into British telecommunications with its pledge to renationalise BT Group Plc’s national fixed-line network and offer free broadband to everyone. While its chances of gaining power in the December 12 election look slim, the proposal channels broader dissatisfaction with the country’s relatively slow internet services and may have an effect even if Labour doesn’t win.

Deal freeze

Labour’s announcement on Thursday chilled dealmaking activity. TalkTalk Telecom Group quickly paused the process of selling its fibre venture. Spain’s Telefonica, owner of the O2 mobile network, had been weighing a push into fixed-line broadband. Such plans are likely to be on hold until the election offers clarity on the industry’s future.

The disruption could reverberate in the wireless sector too as BT Openreach — the unit that Labour wants to return to state hands — also manages the underground cables that link tens of thousands of mobile masts across the country. That means another big deal could be knocked off course: the potential sale by Vodafone and O2 of their mobile tower joint venture Cornerstone.

Building barrier

If the state gave away broadband for free, the incentive for rivals to build their own infrastructure seems to evaporate. Cable tycoon John Malone’s Virgin Media, Hyperoptic and CityFibre have been laying fibre networks down Britain’s streets, backed by cash from investors looking for stable returns. Private equity firm KKR & Co bought Hyperoptic in October and a consortium including Goldman Sachs acquired CityFibre in 2018.

About £3.3bn were committed by investors in smaller network providers in 2018, in addition to investments by BT and Virgin Media, according to lobby group the Independent Networks Co-operative Association. Labour’s plan “would likely put an end to private-sector investments in network connectivity,”  ratings agency Fitch Ratings said in an e-mailed statement.


In Britain’s fiercely competitive phone industry, several carriers bundle broadband connections with wireless, phone and TV in subscription packages to entice customers and make them more reluctant to switch providers. BT spent a record £1.2bn last week to renew its Champions League soccer rights for another three years, even as it contemplates cutting its dividend, underscoring the importance of TV content to its broadband offering.

Free universal broadband would capsize the economics of bundling and, according to Bloomberg Intelligence analyst Matthew Bloxham, put billions of pounds of value at risk for shareholders of BT, Sky, Vodafone, TalkTalk and Virgin Media.

Spotlight on BT

The Labour announcement adds to the glare of public scrutiny on BT, which has been accused repeatedly of dragging its feet on investment. CEO Philip Jansen has been trying to rebuild BT’s standing with the government after some run-ins under his predecessor, Gavin Patterson. The company says it aims to build full fibre to four-million premises by March 2021 and its ambition is to reach 15-million by the mid-2020s, “subject to conditions being right.”

That’s still only about half of the country. Jansen says he needs more clarity on future regulation to accelerate investment. He quickly hit back against Labour’s nationalisation plan on Friday, saying BT was already cutting prices and would be investing “very, very heavily.”

Openreach spin-off

Even if Labour doesn’t win, party leader Jeremy Corbyn may have let the genie out of the bottle again when it comes to splitting Openreach from the rest of BT. The unit was already given a separate legal structure in a complex process which completed last year. Past governments have toyed with a full spin-off to create a more level competitive playing field and kick-start investment.

The idea reared its head again in July when Prime Minister Boris Johnson’s Conservatives hired Andrew Griffith, the COO of BT rival Sky and a past advocate of the proposal, as his chief business adviser. There’s precedent for the Conservatives to pick up a Labour policy that’s resonating with the public and run with it.

After energy price controls were proposed in 2015 under Labour’s previous leader, Ed Miliband, similar ideas appeared in the Conservative manifesto two years later. Labour’s latest proposal “could reopen the debate about whether or not Openreach should be separated from the rest of BT,” said Stuart Murray, a lawyer at TLT and former director of regulatory affairs at BT’s Consumer division.