Select Committee on Culture, Media and Sport Minutes of Evidence



Examination of witnesses (Questions 19 - 39)

THURSDAY 25 JANUARY 2001

MR ANDY GREEN, MR JOHN BUTLER and MR IAN MORFETT

  Chairman: Gentlemen, thank you very much for coming to see us today. As I said, this is our first public evidence session on what is a major inquiry for us. We will launch into questioning right away.

Mr Fearn

  19. To what extent is BT becoming or aspiring to become a broadcaster?
  (Mr Green) In general terms, that is not an immediate wish of ours. What we expect to see happening in the total communication industry is a steady development of new types of services. As we see the roll out of broader band networks over time, they will become more and more capable of streaming video into numerous devices in the home: personal computers, televisions, all those sorts of things. We will see steadily the development of a new range of information and entertainment services which both combine linear broadcast material with the opportunity to interact with that. You can think of all sorts of silly examples like changing the end of a soap or finding out more about a particular part of an item or games programme, which is truly interactive with people taking part online, a whole range of things. This is the point where we will get particularly involved in broadcasting per se, so I would not expect to see us becoming a Channel 4 or a BBC or anything like that. We will get involved with many media partners, both small and large, in terms of developing these new types of interactive services.

  20. If I can quote what you say in the document you sent us, you argue that providers of content for the Internet should be obliged to rate their material. Is there any role for OFCOM in all that?
  (Mr Green) There is a significant role in promoting this whole point. We are very concerned that, as we see this hybridisation of services, we do not get confused about the regulation necessary for broadcasts which are pushed into your home whether you like it or not and the sort of regulation you would expect for communications, where you do not expect when you make a telephone call for anybody to be monitoring that call. You would expect a completely different type of regulation. We are going to see a world with huge, vibrant creation of new content, everything from a local school putting on a play through to lots of wacky things none of us in the room can think about that are of interest to lots of different people. The Internet enables all that. It enables the economics of creating and distributing content to come right down, but it is very much a question of choosing what you see. Alongside that, you have a pretty significant risk of people being able to go into this wild, open space of the Internet and choose to do things which we would not want them to do. You also have the opportunity for people putting illegal things on. Therefore, the two tasks are to see how we can promote a general standard internationally which says that everybody will rate the content they have and there will be a level of monitoring through Internet Watch, which enables us to see where things are going wrong. Until we get government support for that, until there is a strong push from something like OFCOM to do that, people will not do it. When you try to use your browser to say, "I want to screen out all these things", you end up screening out nearly everything because people have just not rated their sites. We think there is a very important role to play in a promotion of this approach.

  21. What approach do you think the Government should take on that? Is the White Paper not strong enough? Is it not saying what you want it to say?
  (Mr Green) I think the White Paper takes a reasonable line on this point. The approach it takes is sound. Our view is that the danger is rather the other way. There is a real opportunity here both for economic and social revolution in the way that the Internet enables people to interact. We need to try and create regulation which allows for that while aiming off for these risks. We are going to have to learn as we go along.
  (Mr Butler) It is really important that consumers have informed choice, that they know what they are going to see and particularly they can exercise their choice and not be surprised by coming across material that they would wish to avoid.

  22. Is that what you meant by illegal stuff?
  (Mr Green) That is a matter of taste. There are things that are legal which you would not want your children to see. There is also the straightforward question of illegal material and having the infrastructure there to be able to take off material which is straightforward illegal, paedophilia or any material like that.
  (Mr Butler) There are proposals in Brussels to have a European-wide set of rules and regulations on illegal material which will inhibit that and enable us as Internet service providers to remove that material and to make sure that it does not appear. It does need to be an international effort to do that and we fully support that legislation.

Mrs Organ

  23. How important do you consider it is to have an easy unbundling of the local loop to make real progress?
  (Mr Green) We are blessed in the United Kingdom with more competition in the local loop than anywhere else in the world. We have five million homes already using an alternative local loop. Germany is next in Europe with 150,000. We have established a clear lead in competition in the loop. The current programme will create advantages and further opportunities for people to compete. It is most likely for the foreseeable future that the advantages will fall to small businesses and others in the normal use of Internet connections and telephone lines rather than adding greatly to the roll out of consumer services. That would be my guess from an economic point of view.
  (Mr Morfett) I would agree with everything you have said. BT has been working with OFTEL and the industry to make it a smooth process. There have been some glitches along the way. Those are a lot about the fact that the industry as a whole is very crowded, given the amount of competition. There are 28 operators. They have a wide range of objectives and BT has been trying to fulfil those. OFTEL has been setting down some very clear rules.

  24. How much did you learn from the disastrous unbundling that went on in the USA? Did you learn some very important lessons in what not to do or did you go on regardless?
  (Mr Morfett) We have learned a great many lessons, particularly that it became very litigious in the US. There were not clear rules in advance. There was not significant cooperation between the industry and the incumbents. We have tried to build on all of those lessons and improve that. BT has fulfilled each of the deadlines that has come along. It is only one country of two in Europe that is fully compliant with the EU regulations that came in on 1 January. Their trial sites are up and operating. The other operators are installing their equipment. It is designed to a design that the operators agreed but which is a shared design. One of the problems they had in the States was there was no agreement as to the design. I think it is going to be smooth. The issue which Andy has touched on is that there was some hype in the early days and this would be a mass roll out of broadband to every consumer in the home. The economics and technology do not allow that. The economics will focus this with competitors competing for the small and medium businesses. That is why I think we are seeing some rationalisation in the industry but nonetheless those who want to come into BT exchanges have the opportunity. The designs and processes are there. It will operate.

  25. You made it sound as though we have done it rather well and it has all been rather smooth and without a glitch. How would you answer criticism that I have had from local businesses that have been concerned about this that BT have been rather obstructive and unhelpful about it? It has caused problems for the people who are trying to develop businesses in this area and those who are service providers on the loops have found it very difficult. I wonder how you would answer that criticism?
  (Mr Green) I am the Chief Executive of BT Openworld. I am a service provider and I deal with the rest of BT on arm's length terms and sit in that same space. When we look back in a year's time, we in the United Kingdom will have the most competitive environment and clearly will have done more local loop unbundling and will have more successful businesses, more lines and more everything else in place than anywhere else in Europe.

  26. We do need to keep ahead, do we not?
  (Mr Green) We do and I am perfectly content that we will be and that we are ahead. I think there is more competition in this arena. We are completely supportive of that. This is quite a difficult process. The problems that occur in the US do not come about because people are ham-fisted; these are quite difficult things. Both the roll out of ADSL which has caused significant problems all around the world, and local loop unbundling need to be done well and thoroughly. We do not want exchanges going down because people short out things on an exchange when taking out people's telephone services. We want it done properly; it will be done properly and I am confident we will have as competitive an industry here as any.

  27. You mentioned ADSL and in the White Paper it states that BT intends to cover 70 per cent of the country with ADSL technology by 2002. Could you give us a bit more detail about the 70 per cent of the country covered? How many households will that be and where are they? How do you feel you are going to address the 30 per cent that will not be having ADSL technology? When do you expect those households to have it?
  (Mr Green) I do not think we should have any expectations that everywhere will get ADSL. It is only one technology in many which will address the needs of consumers and businesses. It is a technology which has two particular issues associated with it which we need to understand. Firstly, it does not work if you have very long local loops. You cannot pump down the line that bandwidth if you have a long distance between yourself and the exchange you are connected to.

  28. As it is in rural areas.
  (Mr Green) Particularly in rural areas, it is not the technology which is going to bring the broadband. We are going to have to wait for another one and work on another one to bring broadband to rural areas. Secondly, it has pretty clear economic characteristics. We are not expecting over the next five years or so much more than ten per cent take-up of households covered. At the moment, the minimum economic sign for a broadband connection is 2,000 lines. If you have an exchange with much fewer than 20,000 lines, it is not going to be a very economic proposition to roll this out. These are vast sums of money we are talking about in terms of making these services available. Those two things are where the 70 per cent comes from. It is 70 per cent of households covered.

  29. Where will they be?
  (Mr Green) They will be generally in major conurbations throughout the United Kingdom. We already have them throughout the United Kingdom but they will be in Belfast and in the core concentrations of economic centres. That of course is where the demand is. Absolutely clearly, where the demand comes in the early stage of development is where the economic power of the nation is.

  30. When you say there is a projection of only a ten per cent take-up, to some extent in the business that you are in you would expect, would you not, just on ordinary telephones you have provision that anybody who is a citizen virtually in the United Kingdom could have a telephone but, because you are saying there is only ten per cent take-up at the moment you are only going to put the necessary investment into this so that possibly by 2002 we could have coverage of 70 per cent. You are making the decision to pick the best bits of market share and to hell with the rest and marginalise those.
  (Mr Green) We are doing what business people do which is take rational, economic decisions. We need to recognise how different the world is from a year ago. A year ago, the world believed that we would move to a broadband world on fixed networks and on mobile networks everywhere; that it had no cost and everybody would have it free. Today, we face an economic environment where banks throughout the world are issuing warnings about debt on telecoms companies and we are seeing the real, very significant investment costs that are required to bring these fantastic benefits to the United Kingdom and elsewhere round the world, but it is not for free. If it is to be done well and if it is to bring the economic and social benefits that can be brought to society as a whole from these things, it is absolutely imperative that we concentrate on doing the rational things, that we put these services where the demand is and that we move forward speedily and effectively within a framework to provide these services. If we fantasise about being able to give 100 per cent universal service and agree that we will subsidise it by £40, £60 or £100 if we really wanted to do it per household, I do not know where the money is coming from. It is certainly not going to come from the telecommunications industry. We can see that very clearly from what is happening. It would be an irrational set of economic decisions. The key question we need to get to in terms of connecting people to the information age is a development of an end-to-end service which is of value to all parts of society. We are playing our part in that in the work we are doing with schools and other places, to bring the benefits of these things to society, and in supporting the Government and others in providing the information services that will be of value to people, particularly people who would otherwise suffer from the digital divide. That is much more important. I believe personally that digital TV and analogue TV and the hand-held devices, the mobile phones, are much more likely to bring us universal access to the information age and real, usable things that consumers can work with than a concept that we must have whatever megabit that you might choose available in any household. It is absolutely important that we realise that what people are really worried about are things like ease of use, security, the total cost of ownership including the device they are accessing. It is not today an issue of bandwidth to the home.

  31. When you said this was a benefit that would be to all in society, do you think there is a role for government to play there, because commercial companies are not going to do it. You are not going to do it for us, are you?
  (Mr Butler) I think there is a role for government, particularly in the more disadvantaged areas. We have seen that happen in the past. For example, we have seen European Union funds being used to accelerate the deployment of ISDN services in the north of Scotland and in parts of Ireland. We have seen government take a very proactive stance and I believe that the Scottish Executive are looking at this for parts of Scotland now, which is the extent to which they can work with industry to improve the economic case and encourage competitive companies to want to provide these kinds of things. I think there is a role for government there in working with industry to achieve those social goals.

Derek Wyatt

  32. Good morning. I wonder, it may be confidential, if it is confidential perhaps you would send it under those rules, but if it is not I wonder if you would put it into the domain, where ADSL roll-out is going to be in the next ten years so we might as a Committee focus on the 30 per cent?
  (Mr Green) We do not have a programme for anything like 30 years, we have a programme which is—

  33. No, 30 per cent. You said 70 per cent by 2002.
  (Mr Green) We would not wish to be accurate about that now because what we want to do is listen to customers about where they want the service and put our exchanges there. We can certainly help you with understanding the economic characteristics. I also feel we should be very careful about DSL. What I think is important is the services customers want. If you choose a technology, are you saying that it is correct to subsidise DSL but not cable, it is correct to subsidise DSL but not the new satellite services which people are working hard to develop all over the world which would be much more suited to rural areas? I think that being hung up on the technology in that sense is probably not the role of government. It seems to me highly unlikely that you will guess the technology correctly versus all the innovation that is going on in the world in these spaces. So, the question, I think, is what are the objectives you are trying to achieve? What is the thing that you believe is important in avoiding a digital divide and making services available to people? Moving down into the technology layer I think would mislead and would be a mistake to worry about our roll-out programme versus all the other technologies available.

  34. That may be your view, it is not actually my view. I would still like, if possible, to have some idea—I assume your evidence is accurate—that by 2002 70 per cent of the country will have access to the technology. If we could have an indicative map of which communities those are then we could have a better idea which will not. That is all I ask. What do you say to that?
  (Mr Morfett) The map for the first 50 per cent, which is the plan up to March of this year, is already on BT.com. In fact I can say that the constituencies represented here are all on that bar two. I think you can see that there are already plans to be completed in two months' time which cover a great deal of the country. In terms of this point about the remaining section, there will be another 20 per cent next year and we will announce that fairly early on. In terms of the 30 per cent, Andy has already mentioned it, for example we are working with the Welsh Development Agency. They have a particular interest in bringing broadband to smaller communities and they are part-funding the application of DSL in some Welsh rural communities. We would expect to see that more and we would want to work with government on that. There is the point that the Government has made a significant amount of money out of the UMTS licences and one of the things that we are talking to them about is bringing access to broadband services closer to people who really need that for social reasons, so schools, libraries, Citizens Advice Bureaux are all areas where you could put both services, support and training as well as equipment and the connection very close to communities of interest. You do not have to have it at home. As has been said, people who live in more deprived areas are unlikely to have the thousand pounds that buys a PC to begin with but they might well go to their library to get access to it. I think there are a number of ways that government can work with industry and industry can work with government to take broadband further up but it is only one technology.

  35. Just remind me what the costs of ADSL are now if I take a line?
  (Mr Green) Basically £40 a month.

  36. To put it in in the first place?
  (Mr Green) £150, that is for half a megabyte.

  37. £40 a month for unlimited access to whatever I want.
  (Mr Green) Yes. Of course, you can get that much cheaper.

  38. How many, would you say, currently have switched on to ADSL?
  (Mr Green) 25,000-ish.

  39. 25,000 and 24,000 businesses and a thousand homes?
  (Mr Green) No, no.


 
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