British Telecom

British Telecommunications plc, more familiarly known as British Telecom or BT, was formed by the privatization of Britain’s national telephone system in 1984. As a private-sector company, it not only retained its core business of supplying local, long-distance, and international telecommunications services and equipment in Britain, albeit in a new competitive environment, but also gained new international business opportunities. British Telecom now operates joint ventures in thirty other countries worldwide, including Spain, India, and South Africa.

The industry had been run as a state monopoly since 1912. Telephone services were introduced in Britain in the late 1870s and 1880s by privately owned companies, including the United Telephone Company, which was jointly owned by America’s National Bell and Edison. In 1880, the government awarded licensing control over telephone services to the state-owned Post Office, which already had a monopoly of telegraph services. In 1889, when a number of competing private companies merged to form the National Telephone Company, the Post Office took over the operation of long-distance lines. The Post Office assumed full control of telephone services following the nationalization of the industry in 1912, although a few local telephone services continued to be owned and operated by local authorities.

In the late 1960s, a combination of factors prompted recognition of the need for institutional change within the British telephone industry. The introduction of automatic distance dialing, known as subscriber trunk dialing (STD), in 1959 and international subscriber dialing in 1963 put pressure on telephone exchanges, many of which needed upgrading. As a government department, the Post Office was subject to Treasury constraints on investment. In 1969, the Post Office gained a greater degree of financial autonomy when it became a national industry rather than a government department operating on a budget allocated by the Treasury. Consequently, it was able to commission a consortium of three British companies, GEC, Plessey, and STC, to develop a computer-controlled digital telephone exchange system, named System X. After prototype testing in 1978, it was introduced in London in 1980 and gradually extended.

Privatization came as a result of the 1979 election of a Conservative government on a free-enterprise platform. Under the ensuing British Telecommunications Act of 1980, the Post Office lost its monopoly of telephone services. In preparation for privatization, it was restructured in 1981 into two independent divisions, mail and telecommunications. A second telephone service supplier, Mercury Communications, was granted a license in 1982. In 1984, the newly privatized British Telecom opened its first digital international exchange, installed by Thorn-Ericsson Telecommunications Ltd.

Privatization and deregulation coincided with the introduction of cellular phone services. In 1982, the British government decided to grant two nationwide licenses for cellular phone services. One license was awarded to the Cellnet consortium, led by British Telecom in partnership with the security company Securicor, and the other went to the Vodafone consortium led by Racal Electronics. Both cellular phone services became operational in 1985. A second phase of telecommunications deregulation followed the release of the government’s 1990 discussion paper “Competition and Choice: Telecommunications Policy for the 1990s.” The duopolies in both the fixed telephone and cellular phone systems were discontinued, opening the market to new operators.

British Telecom’s response to increased competition was to strengthen its commitment to customer care by launching a new BT mission in 1991 that promised to put customers first. While British Telecom has retained its overall leadership in British telephone services according to market share, in terms of financial success, it has been overtaken by the mobile phone company, Vodafone.