Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witness (Questions 128 - 139)

WEDNESDAY 31 JANUARY 2001

MR SIMON HOCHHAUSER

  Chairman: Mr Hochhauser, welcome to the Select Committee. We are very pleased to see you, and we will start the questioning right away. Mr Fearn.

Mr Fearn

  128. Good morning. In your brief, which we have read, you describe the HomeChoice package, which you now make available. Would it be fair to say that this service complements rather than replaces the terrestrial television service that we have?

  (Mr Hochhauser) It certainly complements it today, because, using the method we distribute, ADSL, we do not, today, provide normal broadcast channels; however, we do intend to do so at the earliest possible opportunity, to combine traditional forms of television, whether they be the terrestrial channels or cable television, with our true on-demand and time-shifted variants that we offer today.

  129. As soon as possible; what does that mean?
  (Mr Hochhauser) We could do it within the year; much depends on how the ADSL networks are implemented, both by BT and alternative operators. It is a software issue, if you like, related to the way we provide broadcast channels.

  130. And you argue that video-on-demand services should be regulated in ways similar to the Internet; that is also in your brief. How far do you think that is what is envisaged in the White Paper itself?
  (Mr Hochhauser) It is, to a degree. I think, to put this in context, that video-on-demand is tending towards, this ugly word of "convergence", a so-called broadband Internet, over the next few years. We have to recognise that, as more and more capacity gets built into our telephone and distribution networks, the sort of material that is available on a true television quality video-on-demand service, like ours, will be available over the broadband Internet; and, therefore, we have to recognise that regulation must tend towards whatever regulation we intend to impose on a broadband Internet. In that sense, we would expect the sort of regulation that comes through OFCOM, that comes to these truly interactive, true choice types of services, like ours, to recognise what has been happening on the Internet so far, in the form of the inability, in some cases, to regulate, but in some cases to find other ways of regulating, and perhaps looking at more transnational types of regulation. And that is the point we make.

  131. So you welcome OFCOM?
  (Mr Hochhauser) We certainly welcome OFCOM. The difficulties we have today, in dealing with, essentially, two different regulators, would be much eased if we dealt with one regulator, and we have always recognised the importance of OFCOM.

Derek Wyatt

  132. What do you need more, as it were, apart from the software, to extend your service, what is it that is sort of stopping it, as it were?
  (Mr Hochhauser) The primary issue for us is the availability of network—broadband network. We have proved that ADSL works, we have demonstrated it, we demonstrated mass demand for it. The key issue for us now—and we have dealt with our technology, we have demonstrated that we are able to get the programming that customers want, in the broader sense and in the narrower sense that people want—the key question now is to get these networks rolled out rapidly, efficiently and at the lowest possible cost.

  133. So you are dependent upon a third party, always?
  (Mr Hochhauser) We are always dependent upon a third party, not necessarily just from ADSL, although that is our primary means of distribution for the coming few years; but we have to stick to the knitting. Our job is to put together the technology and the services, we cannot do everything, we are not a network operator, unlike the cable companies.

  134. And, essentially, what is the difference then between HomeChoice and, say, AOL; presumably, AOL could camp on your territory fairly quickly, if they wanted to, or perhaps they do?
  (Mr Hochhauser) They do not, not yet, and it would take quite a long time. What we have done here is, over the last eight years and certainly in the last four years of active play, we have developed a forward technology that delivers true quality television, instantly—a thousand movies, thousands of hours of television programming, music videos, specialist programming—we have done it in a way that recognises the need for true quality of service, instant connection to a television set. AOL and other Internet service providers develop services for today's Internet, and, whatever the expansion of today's Internet, it is impossible to provide true, full quality and very, very high usage of television on demand, as well, of course, as I mentioned earlier, broadcast television. So, in effect, we have jumped, leap-frogged, into the future.

  135. I am sure that, unless I have misunderstood this, if AOL wanted to put out an ADSL service, they could decide to do anything you do; if I have understood the Napster thing yesterday, in the FT, Bertelsmann hoped to do the music "pay-per-view" that way. So there is a way of doing things differently?
  (Mr Hochhauser) It is not different, because, in a sense, we are converging on the same area, and there is a convergence. Unfortunately, the technologies needed, not just the ADSL technologies, the server technologies, the set-top box technologies, the integration, the development of services, the trialing, this all takes time, it takes years of development, it takes years of integration. And, therefore, yes, it is true that Internet service providers can use ADSL, and we hope that they will, because it will drive these networks forward, but the particular services we run, which is true television services, full quality television services—and those of you that will have seen television services over the Internet will see the difference between the two—that cannot be done today, on today's full Internet.

  136. You can tell that we were pretty unimpressed with what we heard from BT last week. I say that as a shareholder, sadly. How do you think OFCOM actually could deliberate and act and say, so that BT came into line faster, quicker and did things that we would like, as citizens; what sort of power base, or power and authority, do you think the regulator would need, since, currently, there is a regulation, obviously it does not work?
  (Mr Hochhauser) There are weaknesses in the way the current regulation is taking place. I would not say it is not working, because the method of regulation, the method of unbundling the local loop, has been a little bit messy. To start with, and we really have not learned the lessons of other territories, like the United States, for example, in unbundling. I think, where OFCOM, the future regulator in this area, could be of extreme assistance is, first of all, to smooth out the methods of regulation, to ensure that we have homogeneous, single operators competing with BT, rather than this so-called Swiss cheese effect, where you have one operator in one telephone exchange, another operator in another telephone exchange; we do need to see a movement towards single true competition to BT across a contiguous area. We also need to concentrate, with the regulator, on some of the lessons learned from the United States. I was in the US last week and a lot of play is being made on the alternative operators of DSL, on the problems they have in simply exchanging data with the incumbent operator, something which seems quite trivial but makes it very difficult to operate in practice. A lot of times, for example, when we go to customers, we have to exchange data with BT. That process needs to be regulated, needs to be looked at, so that there is a smooth operation of competition between alternatives and BT.

  137. By tradition, we seem to have developed regulators that are single people, we have a Director of OFTEL, of OFWAT, and we get to know them. The FCC has five Commissioners; do you favour that sort of role? And they vote every day, as you know, and the vote is on the Internet, you can see the decision-making, it is quite transparent, each vote is recorded every time, I think there have been 1,000 votes in the last year on the Internet for the FCC. Is that the sort of transparency that you would expect from a single or a group of commissioners?
  (Mr Hochhauser) As with every situation, there are pros and cons. I do believe it is useful to have a powerful, single, understanding regulator, because we can work more efficiently with a single regulator rather than a vote system. The fact of the matter is, in the United Kingdom, we are more advanced than the United States in digital television, as in other areas, such as mobile telephony, and I think a lot of that is to do with the fact that we do have single regulators, and certainly in the case of OFTEL, in the past, that has worked quite well; but much depends on who that single regulator is and their views and their knowledge.

  138. Lastly, do you feel that the Government, any Government, either side, I say either side, we try not to take sides here, but do you think it would be better, once and for all, that basically we devolve this decision-making out of Government and give it to the regulator, and let the regulator decide about content and competitiveness, and so on, and for us not to interfere?
  (Mr Hochhauser) I think it would make sense to do so, but with clear guidelines as to where the boundaries are, what form the regulation should take. We heard earlier about the need to create effective competition in access, and, by the way, I include, within that, access through the cable networks. As long as that guideline is set. The details of regulation are themselves evolving. I think one of the issues about regulation is, they have to take into account the day-to-day changes in technology, the day-to-day changes in consumer attitudes, and, therefore, to impose specific regulations, and specific areas on how to regulate. So I think, within policy guidelines, I would leave it to the regulator effectively to develop regulatory policy.

Chairman

  139. But who regulates the regulators? We have seen, over the last year, or so, serious incompetence among regulators appointed by Government, the messy saga of the next licensee for the National Lottery, the hash that the ITC made of News at Ten, and continues to make of News at Ten. It is one thing to repose one's faith in a quango, but to whom should a quango be answerable? What has happened, in the case of both of those decisions, is that, in the end, they have gone to the courts, in this increasing litigiousness that we are facing in this country. Is that the path down which the new OFCOM would travel, with its decisions, if they are not liked by one party or another, being taken to the court, possibly under the Human Rights Act?
  (Mr Hochhauser) I think it is inevitable that certain matters, and certainly in extremis, will be taken to the courts, and I think that is true of the old system and any system you devise, there will be argument. But, ultimately, the responsibility lies with yourselves, with Parliament, you are our representatives, and the regulator has to be controlled by Parliament and by the needs of the population. I think the needs of the population are for innovative, true and good quality services, in this particular area. The regulator will go through different periods of instability. I am not particularly fazed by the fact that there are periods when, for example, difficulties occur in unbundling the local loop. We go through periods of difficulty, but these are relatively short periods, we come out of them whole. In general, we come out of them after a period of debate and of argument, we come out of them actually healthier than when we went into them; so we should not be too fazed by the fact that there are periods where there is argument and debate. The question of courts, access to the courts, yes, in extremis, there will be situations, such as in the case of the Lottery, where people will resort to the courts.


 
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Prepared 16 February 2001