The threat of nationalisation has been in the background for BT Group (LSE: BT-A) for a while, as Jeremy Corbyn’s Labour Party plans to return a number of privatised industries to public hands.
It came to the fore again last week, on suggestions a proposal from the Communication Workers’ Union (CWU) is attracting serious consideration. The CWU’s ideas stem from its 2018 General Conference, in which it said it seeks a “commitment from Labour on public ownership within the telecoms industry.”
The non-movement of the shares over the past week suggests nobody is too concerned right now, though the price is now down nearly 50% over the past five years.
Easier pickings
Let me tell you why I don’t think telecoms investors have much to worry about (at least not over any near-term horizon) even though I see the chances of Labour winning the next election as likely to rise, especially if Boris Johnson gets to lead the Conservative Party.
The first thing is cost, and BT currently commands a market-cap of £19.7bn. Even with all its free-spending talk, that would be a lot of cash for a new Labour government to have to get its hands on, especially as it won’t be top priority.
Compared to other nationalisation targets, the increasingly deregulated telecoms industry is really not big in the ‘consumer rip-off’ stakes. That’s largely because it’s a genuinely competitive business, and consumers can choose between a number of independent providers who are competing on quality of service and cost.
Still monopolistic
The energy and railway sectors are quite different. Taking the latter first, handing out franchises covering differing parts of the network is not, to my mind at least, close to producing an actually competitive consumer environment. If I want to take the train to London, in any practical sense I have no choice but to use Virgin Rail — and that’s still a monopoly.
Energy is pretty much the same. Although we can choose between different suppliers, it’s a relatively low-margin business providing undifferentiated products, dictated by global prices and constrained by regulation.
I think there’s significantly more cause for concern for, say SSE or National Grid shareholders than BT. National Grid alone would cost nearly £30bn to nationalise at full market-cap. I’m a big fan of National Grid myself, but after reading Harvey Jones’ recent take on it, I’m firmly on the ‘wait and see’ fence these days.
People’s bank?
The other target that’s surely higher on Corbyn’s list of takeover targets is Royal Bank of Scotland. That would be easier, as the government already controls a 62% stake in the bank, with the remainder valued at a relatively modest £10.4bn.
So far there have been no firm plans released for full nationalisation of RBS, but Labour’s waxings have covered the idea of setting up some sort of people’s bank.
In the event of a Labour election victory, the industries already under the most scrutiny will surely be more than enough to occupy a five-year term, which is why I see BT as safe for at least a few years yet. And I really can’t see the British public supporting a long-term ‘back to the sixties’ nationalisation programme.
