Privatisation, deregulation and ‘disruptive technologies’

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Privatisation is often seen as a tool to use market forces to lower costs and encourage innovation. British Telecom (BT) was once a monopoly provider of landline phone services in the UK until the company was privatised in 1984, leading directly to the opening of the market for telecoms. By 2006 there were over 300 independent telecoms firms in the UK with access to the network infrastructure. Today BT still maintains a thirty-eight percent market share but the market for landline phones has been eroded – most adults under 45 years old in the UK have never used their landline, and the reason nobody uses landlines is of course the introduction of the mobile phone, a disruptive technology.

Privatisation and market deregulation can go some way to lowering costs, but often the real value comes in the innovation that comes along from the resulting competition. The proliferation of mobile phones has driven down costs. In the UK it was 25p per minute in 1995 and is now less than 0.8p – and is expected to fall to below than 0.5p next year.

The mobile phone is a good example of innovation in the telecoms market. It is interesting to see how companies in other sectors have innovated by developing entirely new markets, rather than competing for ever lower margins in established markets. For example:

Which brings us to ATC's disruptive technology, the remote tower, which could lower the cost of ATC by removing the capital costs of towers. In the near term, the most likely locations will probably be existing centres or facilities owned by the airport or ANSP but, in the future – who knows – maybe controllers will be able to provide the ATC service from their own home?!

In the remote tower concept, much of the ATC infrastructure is also moved to the remote location and this helps to remove some of the barriers to market entry for changing providers.

Removing the tower also offers the benefit of freeing up space at the airport (e.g. for new gates), and potentially reducing the obstacle clearance height (as the tower is often the highest building at the airport). However a remote tower solution is not cheap at the moment. The market is young and the initial investment in building/refurbishing a remote centre, in system design, in training and particularly in lengthy approval is also likely to be high. So a remote tower solution makes most sense when tower refurbishment or replacement is already on the cards.

But a disruptive technology alone, without privatisation or market deregulation is unlikely to take off in the way that mobile phones have done.

The beneficiary of the cost savings will vary from one airport to another; but without a competitive market there is no guarantee that the cost savings will translate to lower costs for airports or airlines. Remote tower technology is therefore developing fastest in markets where competition is putting pressure on the ATC provider to reduce costs – such as Sweden, Norway, the UK and parts of Germany or where there is a specific problem to solve, such as the contingency requirements in Dubai or the tower refurbishment in Budapest.

Privatisation and deregulation will create pressure on costs as will a disruptive technology like RT, but for the airport ATC market to really develop, both are needed.

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James Hanson
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