Business Outlook: British Gas lines up for phone wars

Who'd want to be a telephone company? Well quite a lot actually. Despite advances in technology which industry executives say will eventually deliver free or near free voice telephony, there were more than 200 licensed telecom operators in the UK at the last count and rising. Now British Gas wants to add itself to this burgeoning list of competitors.

One way of looking at this is that it must be mad. Discounted telephony is now so common and the market place becoming so competitive that it is a wonder anyone makes money out of it at all any longer. The newspapers have become full of special slashed priced offers. Enhanced competition is only part of the story. New technology should in any case be causing the cost of voice telephony to plummet.

The internet already offers limitless written communication for only marginal cost. In the last few years voice communication over the internet has also become possible, though quality is still poor. At the same time, however, the technology used to transmit traffic across conventional networks has advanced to a level which makes it possible to deliver services for a tiny fraction of present costs. This is because of the almost limitless capacity of new networks for simultaneous transmission of voice and data.

The only thing that stops the price falling to virtually nothing immediately is that the world is still largely dominated by national monopolies with big overheads and a huge capital investment to recoup in an ageing infrastructure. As competition begins to bite that will change. These monopolies will have to start cannibalising their own customer base with new low cost telephony to survive.

For the moment there is not much sign of BT's profits suffering from all this. BT seems able to grow its volume and revenues at a pace which outstrips its fall in market share. But it cannot long remain thus. The basic business of transmitting voice and data will eventually become pure, low cost, utility stuff. Because of the ability of modern networks to offer limitless capacity, it may even have to sold at a loss. Telephone companies will make their money not out of the business of selling conventional telephony but out of value added services, and by persuading other product and service providers to sell their wares via the telephone.

In a curious way, all this helps explain why British Gas should want to enter this cut throat business. Telephony will become just another string to its multi utility bow, and if the most valuable thing in business is knowledge of the customer, British Gas and its parent, Centrica, will have it in spades. Utility infrastructures and billing systems are set to become mere conduits for the sale of a huge range of other products and services.