Telephone battle seen from different planets

COMMENT

Don Cruickshank, the telecoms regulator, and senior executives of BT, were giving briefings yesterday morning at their offices a few hundred yards apart in London. They might as well have been on different planets for all they understood each other.

Each side had read the same monopolies commission report on portability, which will allow telephone customers to take their numbers with them when changing supplier - a world first the British communications industry should be proud of. But there were amazing differences of interpretation.

The simplest part of the argument was the knockabout stuff about costs. BT was tremendously pleased Mr Cruickshank had been forced to extract a pounds 60m contribution from the cable companies because the dreadful fellow had wanted BT to pay the lot. For his part, Mr Cruickshank saw BT fighting tooth and nail, first exaggerating the cost and then being beaten down by the MMC, both on the size of the bill and the proportion to be paid by competitors.

He said he had letters proving that in March he had suggested the cable companies pay 25 per cent of the bill, close to the MMC's eventual recommendation. BT executives, scratching their heads, said they could not remember the correspondence.

But the real significance of this row is what it says about rather bigger battles to come. BT expressed its delight that the MMC had clipped the regulator's wings, by taking out of his hands key decisions about costs and making them subject to a proper formula.

But Mr Cruickshank claimed the opposite: the MMC report gave more power to his elbow as a regulator, including greater rather than less discretion. In particular, the MMC backed his campaign to assess BT's costs as if it were using the best technical solution available, even if the company had not got round to it. And when BT promises to introduce a cheaper solution by a certain date, then it will be assessed on that basis whether it meets the deadline or not. Mr Cruickshank calls this incentive regulation.

Although the City saw Mr Cruickshank losing on points, the result of this vital first bout may well prove to have been the other way round. There is no doubt whatever that BT will take future cases, and especially Mr Cruickshank's proposed toughening of the regulatory regime, to the MMC. But there must be severe risks for the company in these very public battles, which can easily backfire.

More time needed to make the dream reality

The Madrid summit, which begins today, has long been keenly awaited by the markets as the event that will give new impetus to economic and monetary union (EMU). In the event it is being overshadowed by events in Paris. The turmoil on the streets of French cities is rightly judged to be a turning point for EMU. Without French participation, the project is emptied of meaning. The Germans have declared that there is no real point in going ahead without France.

The commitment of the French political elite to EMU is not in doubt. What hangs in the balance is the political acceptability of the harsh measures needed to prepare France for the bracingly Teutonic regime of the single currency.

At present, the markets are giving Mr. Chirac the benefit of the doubt despite his concessions on public sector pensions and reform of the debt- laden SNCF. The retreat from the politically misguided attempt to take on all comers in one fell swoop is seen as an attempt to preserve the noyeau dur of the Juppe plan, the determination to slash the social security budget deficit.

It is hard to tell, at this stage, whether this view is well founded. The scale of protest against the government came as a surprise, not least to union leaders, who found themselves able to capitalise upon a popular groundswell. But even if the welfare reforms remain intact and the popular uprising subsides, there remains a big question mark over France's ability to comply with the Maastricht convergence criteria. The economy has been growing at a snail's pace in the past six months and looks set to slow down still further as a consequence of the strikes. The problem is that France needs growth of about 3 per cent a year in both 1996 and 1997 to come within spitting distance of the Maastricht objective of a budget deficit of 3 per cent or less.

The cut in rates announced by the German Bundesbank will help the French to ease monetary policy, but only if there is a restoration in confidence. As Mr Juppe ducks and weaves his way to a negotiated settlement with the strikers, that seems far from certain. The French popular revolt against what can be depicted as an EMU inspired assault on social rights will cast a long shadow into 1996 and beyond. The markets are seeing the irresistible force of monetary union come up against the immovable object of popular resistance.

Like some great supertanker, the process steams on regardless. At Madrid this weekend, European leaders are expected to sanction a new, if wholly uninspiring, name for the single currency - the Euro - as well as a timetable for changing over to it. Alter course now, and the goal of monetary union will sink for ever, many believe. So the building blocks continue to be moved into place, regardless of the shaky foundations on which they are being placed.

The reality is that the necessary level of convergence - not just between EU members more generally but also between France and Germany - is going to require much longer than the present tight timetable allows for. Recognising this may be hard for Europe's political elite, but if the dream is ever going to come to fruition, it needs a longer gestation.

Amec bid goes down to the wire

After the light relief caused by the skirmishes with the Takeover Panel, the pounds 360m bid for Amec is now moving into its decisive phase. The indications ahead of Monday's final deadline are that result could go down to the wire.

Yesterday, the group won some surprisingly emphatic backing from several large institutional investors, including the mighty M&G. The outcome could turn on the attitudes of the notoriously secretive PDFM and of small investors who hold around 20 per cent of the shares.

If Amec does escape the clutches of Kvaerner, it will be a remarkable about turn for one of the many walking wounded of the UK construction industry. If institutions decide to throw out the bid they are placing hefty bets on recovery at last being just around the corner.