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Britain’s Labour party pledged to offer all consumers free fiber broadband within a decade by nationalizing phone carrier BT Group Plc’s Openreach unit at a cost of 20 billion pounds ($26 billion).
BT shareholders would get newly-issued government bonds in return for their shares, Labour’s shadow chancellor, John McDonnell, said in a speech in Lancaster, England on Friday. Shares of BT fell as much as 3.7%.
It’s the biggest new pledge of the election campaign from Labour, which already has plans to nationalize the postal service, the railways and water and energy utilities. The broadband effort would be financed in part with taxes on multinational companies such as Amazon.com Inc., Facebook Inc. and Alphabet Inc.’s Google. While the proposals may win over some voters, Labour may not be in a position to implement them. It has an average of 29% support in recent polls, trailing the Conservatives at 40%.
“A Labour government will make broadband free for everybody,” party leader Jeremy Corbyn said at the campaign event at Lancaster University. “This is core infrastructure for the 21st century. It’s too important to be left to the corporations.”
McDonnell said the new broadband pledge would be funded by asking “tech giants like Google and Facebook to pay a bit more” in proportion to their activities in the U.K. “So if a multinational has 10% of its sales, workforce, and operations in the U.K., they’re asked to pay tax on 10% of their global profits,” McDonnell said.
While Labour puts the cost of the plan at about 20 billion pounds, BT’s Chief Executive Officer Philip Jansen said the proposal would cost almost five times that amount.
BT shares were down 1.6% as of 12:29 p.m. in London, suggesting shareholders aren’t too worried about the nationalization risk. That gives the company a market value of about 19 billion pounds.
“These are very very ambitious ideas,” Jansen said Friday in an interview on BBC Radio 4. “The Conservative Party have their own ambitious ideas for full fiber for everybody by 2025.”
“How we do it is not straightforward, it needs funding,” Jansen said, putting the cost of such a roll-out over eight years at “not short of 100 billion pounds.”
BT has been working to speed up its own full-fiber build and Jansen said the company’s shares have fallen on the recognition that “we’re going to be investing very very heavily.” Shareholders “are nursing massive losses on their investment” in BT if they’d bought it a few years ago, he said.
Investors could get burned, as Openreach’s business would likely be undervalued in an expropriation, New Street analyst James Ratzer said in an email, adding that nationalization “rarely works well for shareholders.” Analysts at Jefferies put Openreach’s value at 13.5 billion pounds, flagging annual costs for operations and to service its high pension deficit.
Labour’s McDonnell said the party has taken advice from lawyers to ensure its broadband plan fits within European Union state aid rules in case the U.K. is still in the bloc when the plans are carried out.
Corbyn’s plan is meant to solve a connectivity gap: Britain lags far behind other European nations when it comes to full-fiber coverage, which allows for gigabit-per-second download speeds. About 8% of the country is connected -- just under 2.5 million properties, according to a September report by communications regulator Ofcom. That compares with 63% for Spain and 86% for Portugal.
As policymakers and regulators have been creating conditions to spur more competition with BT, rivals including Liberty Global Plc’s Virgin Media and Goldman Sachs Group Inc.-backed CityFibre have been jumping in to commit billions of pounds to infrastructure plans.
“Those plans risk being shelved overnight,” Matthew Howett, an analyst at Assembly, said in an email. “This is a spectacularly bad take by the Labour Party.”
The Labour announcement caused TalkTalk Telecom Group Plc to pause talks to sell a fiber project as the industry seeks clarity.
Analysts are skeptical the government could roll out fiber more effectively than private industry and Howett pointed to delays and budget overruns from a state-led effort in Australia.
It’s not the first time radical ideas have been proposed for BT’s Openreach unit, a national network of copper wire and fiber-optic cable that communication providers including BT, Comcast Corp.’s Sky and Vodafone Group Plc tap into to provide home internet to customers.
BT was forced to legally separate the division from the rest of the company in recent years over concerns about competition, and that it wasn’t investing fast enough to roll out fiber, and some investors have suggested the company should fully spin it out into an independent, listed business to unlock value.
Nicky Morgan, the Conservative cabinet minister with responsibility for digital services, dismissed Corbyn’s plan in a statement as a “fantasy” that “would cost hardworking taxpayers tens of billions” of pounds.
The Conservative Party’s own proposal for full-fiber broadband across the U.K. by 2025 -- eight years ahead of a previous government goal -- has raised eyebrows across the telecom industry, as some executives and analysts expressed skepticism about whether it’s doable, whether there’s consumer demand for the ultrafast internet service and how companies would make money.
TechUK, the industry’s main trade body, called Labour’s plan “a disaster” for the telecom sector. “Renationalization would immediately halt the investment being driven not just by BT but the growing number of new and innovative companies that compete with BT,” said Chief Executive Officer Julian David.
The announcement will provide more fodder for the arguments by Prime Minister Boris Johnson’s Conservatives that a Labour government risks plunging the country into an economic crisis. Chancellor of the Exchequer Sajid Javid over the weekend released analysis estimating Labour would raise spending by 1.2 trillion pounds over five years. McDonnell at the time called it “fake news.”
McDonnell said Parliament would set the value of Openreach when it’s taken into public ownership and that shareholders would be compensated with government bonds.
Under Labour’s plan, the roll-out would begin in areas with the worst broadband access, including rural communities, followed by towns and then by areas that are currently well-served by fast broadband.
According to elections expert John Curtice, Corbyn’s chances of forming a majority government are “as close to zero” as it’s possible to get. The election is still hard to predict, and it is possible that Labour could yet win power, either on its own or with the support of smaller parties.
(Updates with Corbyn remarks in fourth paragraph, McDonnell in fifth.)
--With assistance from Jennifer Ryan and Kit Rees.
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