Wiring the World / THE NEW AGE OF GLOBAL TELECOMMUNICATIONS : Deregulation : Britain’s Private Lines of Communication : Few-holds-barred competition has created a heady atmosphere--and profits. System is seen as the future of the industry.

The normally quiet streets of London’s Knightsbridge district have been shattered recently by the ear-splitting roar of jackhammers chewing out trenches. Said one resident, in a remark not intended as a compliment: “This sounds like Manhattan.”

The workmen are laying fiber-optic communication cables on every street in the neighborhood, and the same scene is taking place in other British cities as cable companies seek to stitch up possible customers.

For TV cable operators, Britain presents a heady atmosphere, filled with possibilities for making money in a wide spectrum of activities spurred by the government’s momentous decision to open up its communications industry to few-holds-barred competition.

Britain represents the future in telecommunications, and it’s a textbook example for other countries. When it privatized the national phone company in 1984, it set the pace for other countries where state-owned communication monopolies are giving way to private telephone and television firms.

For instance, the British government this month gave approval to AT&T;, America’s Ma Bell, to offer public telephone service to homes and businesses throughout the United Kingdom. Developments like this were not imagined a few decades ago.

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Worldwide, telecommunication has traditionally been a highly regulated industry. In most countries, in fact, a government agency acts as both a service supplier and the regulator.

But the privatization of British Telecommunications, or BT, and the government’s order that it rent a share of its phone lines to outside operators turned tradition upside down.

The picture seemed clear to the British government, then under the rule of Prime Minister Margaret Thatcher. Most national phone monopolies were extremely inefficient, and in some cases were used as patronage tools and padded with workers loyal to the government.

At the same time, new technology was creating interesting communication products and services with great appeal to customers, particularly corporations. Corporate customers wanted satellite phone networks, private lines and low-cost long-distance service, but these services were not available through the stodgy telecom monopolies.

In the United States and later Japan, the monopoly phone system was broken up. In Britain, when telecommunication was privatized, competition was specifically authorized. Most European nations still lag behind Britain, resisting efforts to privatize or otherwise crack their national phone monopolies. But the 12-member European Union is scheduled to allow telephone competition by 1998.

The Morgan Stanley investment firm has estimated that about 30 telephone companies around the globe will be privatized in the next two or three years. Chile, Argentina, Mexico and Malaysia are among those that have already acted; not far behind are Germany, the Netherlands, Italy, Hong Kong, Singapore and Thailand.

In Britain alone, the S. G. Warburg investment firm predicts, multimedia operations, including cable, will take an increasing share of the leisure and entertainment market from broadcast TV, printed media, computer games and video rentals.

After Thatcher’s government privatized BT, a government watchdog agency, the Office of Telecommunications (OFTEL), was set up to oversee and encourage the competitive process as BT went private. BT had, over the decades, built up a complex network of underground phone lines and above-ground micro-relay and satellite systems for transmitting electronic communications.

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The first competing company to move onto the scene was Mercury, a subsidiary of the worldwide British communications behemoth Cable and Wireless, and it has become BT’s main competitor. Mercury created its own network lines, concentrating in high-volume city business districts, but it was also allowed to rent lines from BT.

The rental fees have led to a series of confrontations between BT and Mercury--with OFTEL reluctantly in the middle. Mercury protests that BT is charging too much for the use of the BT network in payments known as “access deficit contributions,” which Mercury officials dub a “tax on competition.”

Mercury chief executive Mike Harris says: “BT has a protected 85% share of the total market. When competitors step over the 15% line to serve more customers, they pay millions of dollars to compensate the U.K.’s biggest corporation--which made about $4.5 billion profit last year.”

Mercury and all competitors “recognize that paying a fair price to BT for use of its network is proper--although many of us have issue with the way this is presently calculated,” Harris said. But Don Cruickshank, director general of OFTEL and the government’s telecom regulator, condemned some Mercury statements as “unnecessary and shrill” and said he regrets that Mercury has taken OFTEL to court.

“We mustn’t allow these issues to be determined in the courts--a recipe for confusion,” Cruickshank says. He insists that in the United States, where various courts have ruled on telecom issues, “no one--regulators or industry--knows what is or isn’t allowed, and that is clearly hampering innovation and investment.

“They look with some envy at the way in which our framework is right and is not hampered by litigation.”

Meanwhile, cable companies have also moved into Britain in a big way, most of them American- or Canadian-owned, laying down lines in principal cities and offering customers a variety of multimedia services. There are currently about 130 cable companies operating around Britain, each with a government-granted franchise to operate exclusively in their particular geographical area.

One of the liveliest is US West--a partner in 24 cable TV franchises in Britain with the potential to serve about 3.3 million homes and more than 500,000 businesses. Cable TV franchises in Britain also carry a license to provide telephone and data services--along with cable TV.

US West and its partners are the largest operators of cable TV and telephone services in Britain, with more than 230,000 cable subscribers.

“We plan to provide interactive, multimedia services,” says Catherine May, an official of US West in London. “That means video movies on demand, shopping where you control what you order and interactive TV games.

“We also have phone service with lower rentals than BT and with monthly billing rather than quarterly. Our idea is making life easier for you, while saving you money.”

It was the British climate of deregulation and enhanced competition that brought US West here, says May, adding, “the government encourages competition, there’s a stable economy, and the British like innovation and different products. That’s why we emphasize multimedia, a variety of services and interactivity--people making choices at their own end of the line.”

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Another enthusiast is Richard Woollam, director general of the Cable Television Assn., who points out that the 130 separate cable companies now operating in Britain are owned by 17 corporations, including such U.S. names as NYNEX, Southwestern Bell and Videotrain.

“The fiber-optic cable can carry the equivalent of 25,000 telephone lines,” he says. “It carries a universe of information. The question is do you want that information superhighway running into your home--or just an access road? You don’t need 1,000 TV channels, but you might want access to them.” In Britain, Woollam says, cable is now licensed to cover 15 million homes. “We added 1.5 million homes this year,” he says, “and we’ll add another 2 million next year.”

But of the 3.65 million households in Britain served by a cable system, only 780,000 householders so far subscribe.

Woollam says that eventually cable telephone service will give the subscriber the cheapest possible rate for any call--with a computer selecting the best route to send a call.

Further, small but energetic mobile phone network companies, such as Orange, a subsidiary of Hutchison Telecom, have sprung up offering customers wire-free phone services of high quality.

The competition has meant that BT, once viewed as complacent and arrogant, will have to become more customer-friendly in competing against the small but up-and-coming cable telephone systems.

The telecom giant, which still controls 85% of the market, says “cheaper calls and better value for money for all customers are the key themes” for various price cuts BT announced this year.

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In the past year, BT claims to have made phone call price reductions worth about $750 million, including cheaper calls to North America.

As for the Continent, European Union Competition Commissioner Karel Van Miert said recently: “Nobody can doubt the influence that telecommunications has on all our lives. Competition policy has a seminal role to play in our vision of the future.”

And in the strange new world of telecom competition, observers say, what is happening electronically under the streets and in the skies of Britain today may well shape the future of telecommunications everywhere.

Times staff writer Jonathan Weber and researcher Isabelle Maelcamp of The Times’ Brussels Bureau contributed to this report.