Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 620 - 639)

WEDNESDAY 14 FEBRUARY 2001

THE RT HON CHRIS SMITH MP AND MS PATRICIA HEWITT MP

  620. But you have a definition in the White Paper?
  (Ms Hewitt) We have a definition and we use it to cover a range of speeds but considerably higher than narrow band frequency—in other words, from about 512 kilobytes right up to very, very fast always on Internet.

  621. But I thought in the White Paper in one of the annexes it defines it as 2 megabytes?
  (Ms Hewitt) That is one of the definitions we use but there is, in fact, a much broader range which starts somewhat below that and goes right up to ten and beyond.

  622. Let us start with 2 megabytes. How many residential homes in Britain have access to 2 megabyte broadband at the present time?
  (Ms Hewitt) At the moment 40 per cent of homes and businesses are in the area of BT exchanges that have been enabled to carry ADSL.

  623. ADSL is about 500 gigabytes. It is nothing like two megabytes?
  (Ms Hewitt) No. It depends. It starts at 500 and of course, as we get local loop unbundling and as other operators start offering other versions of DSL, we will get much higher speeds, up to two and indeed beyond two, depending on the technology, the number of users, how far you are from the exchange and so on, and the quality of the copper wiring. We start from that figure of 40 per cent of exchanges already enabled with the caveat that obviously not everybody living within the exchange area will necessarily be close enough to the exchange. ADSL in particular only works within about three to three and a half kilometres. We also have about 50 per cent of homes covered by cable roll-out and of course the cable companies are now starting to make cable modems available, also offering speeds up to broadband width. On top of that, and I am sure you have seen the map we have published in that broadband report, we have now allocated licences for broadband fixed wireless access which potentially cover 60 per cent of the population, although in reality, as we say in that report, of course not everybody living within the licence area will actually be reached by those services. On top of that we have the growing prospect of fibre to the end user, although at the moment because of the cost that is really only a big business proposition; similarly satellite, which of course can reach anywhere but where at the moment the costs rule it out for anybody except big business, but those costs will come down. The upshot of this is that our preliminary analysis is that 15 to 20 per cent of the population are likely to be left out of the broadband market as it is currently developing and as we can see it going forward for the next three to four years. I am sorry that is not a one sentence answer.

  624. It is not an answer to the question either.
  (Ms Hewitt) There is not one number on this, I am afraid.

  625. There are now parts of America which have access with DSL technology of up to seven megabytes. That is with genuine video quality access. We are nowhere near that, are we?
  (Ms Hewitt) We have got very expensive fibre IP backbone networks from a very large number of providers. As I say, the cost of fibre to the end user is falling quite fast. As we get more roll-out of cable modems and as we get local loop unbundling we have got the prospect of other operators coming in with other forms of DSL, not simply the asymmetric DSL which BT is currently putting into the exchanges. As you rightly say from the American example, those other DSL technologies, even using the existing copper wire, will enable much higher bandwidths and you can then get, whether it is from a provider or whether it is consumer to consumer, broadcast quality video on the Internet.

  Mr Maxton: At the moment, both in the USA and in France, you are six times more likely to have broadband access than you are in the United Kingdom, and many times more in Germany than you are in the United Kingdom. Are we not in danger of lagging very far behind in all of this in comparison to other countries, not just in terms of the number of people but also in terms of costs to the consumer in terms of access? I am not blaming this Government because the decisions that caused this were taken back in the late eighties and early nineties, but what are we now going to do about it? What are we going to do to ensure that BT upgrade their own network to make it profitable?

Chairman

  626. This is a matter that the Secretary of State himself spoke about to the Financial Times on Monday.
  (Ms Hewitt) Indeed. Getting broadband networks out there beyond the backbone networks to the end user, whether it is the small business or the consumer at home, is hugely important. I do not accept some of the very pessimistic views that are around that we are hopelessly lagging behind. If you look for instance at Oftel's latest bench marking study what you will find is that, specifically on the issue of local loop and of DSL or ADSL availability, we started behind Germany and the USA on local loop unbundling. That is certainly something that I think is a great pity but, as you have yourself indicated, it is because the last administration and the previous Director General of Oftel were not interested in local loop unbundling. They were pursuing a policy of getting competition from the cable networks against the local loop rather than getting competition on the local loop as well, which is the policy that we are pursuing. We have started behind and that is why at the moment DSL and unbundled local loops are more available in Germany and in America than they are in the United Kingdom and the price is somewhat lower in both of those countries. In fact, in France we are probably a bit ahead or directly comparable in terms of the number of exchanges. We are actually ahead in terms of the number of exchanges that have been modernised and in terms of price again we are a bit better. But on top of what is happening with local loop unbundling, which Oftel is driving through with a set of very tough decisions, and we are completely backing them on those decisions, you have got the availability of broadband coming through cable. I think it is fair to say (and they would accept it) that the cable operators themselves have been very slow to roll out cable modem. Perhaps a lot of the criticism has been directed at BT and the cable companies have escaped unscathed but they are now rolling those out and of course, compared with a retail price for ADSL of around £40 a month, you have got cable modem offerings of about £34 a month and £25 a month. What we are seeing from those two technologies alone is the beginning of a very competitive market place. You have got other providers coming in. You have got over 40 providers now also offering ADSL based on the wholesale deals they are doing with BT, again a consequence of regulatory action. You have got other providers like Tele Two coming in with their own infrastructure and making high speed Internet services directly available to the end user. On top of that, as I say, we will have other sources like broadband wires coming into play very soon, I think. Therefore, the goal that we have set is to have the most extensive and competitive broadband market in the G7 by 2005. The independent estimates that we have published suggest that already on the basis of the market investment taking place by 2003 we will be ahead of Germany and France. That is why, although the goal we have set is a stretching one, I am quite confident that we can reach it.

  The Committee suspended from 4.42 pm to 4.52 pm for a division in the House

Chairman

  627. We adjourned in the middle of an answer by Patricia Hewitt and I understand she would like to complete her answer, which seems only fair.
  (Ms Hewitt) Chairman, I am most grateful to you because what I think might be helpful to the Committee is if I just spelt out the definition of "higher bandwidth" and "broadband services" that we are using and which were contained in a footnote in yesterday's report on the broadband strategy and I am afraid I did not have the footnote in my head at the point when Mr Maxton asked his question. We would define higher bandwidth networks as more than 384 kilobits per second, current generation broadband as two megabytes and above, and next generation broadband as ten megabytes and above. Generically we incorporate the whole as being broadband and higher bandwidth.

Mr Maxton

  628. Can I move on to continue on the theme? Is not one of the major barriers the disincentive for BT as both the owners of the network and the providers of services on the network to maximise the profits and the money that can be made from the network and is there therefore a case for separating the two out into two separate companies?
  (Ms Hewitt) BT of course are currently themselves considering restructuring which would include separating within the United Kingdom their wholesale and retail businesses. Clearly there may well be some gains in terms of regulatory simplicity and transparency, particularly to other operators, were that to be done. It is also a very complicated issue and the restructuring of BT raises a lot of issues about, for instance, where the licence would sit, where the universal service obligation would sit, what the regulatory implications generally would be. My officials and those of Oftel are in discussions with BT at the moment about that. On the issue of disincentives, I think the situation has changed very significantly largely as a result of regulatory action. BT is now under an obligation as a result of the licence amendment that they agreed last year to unbundle the local loop. They are also under an obligation, again a regulatory obligation, to offer access to their networks, including their upgraded networks, on fair and non-discriminatory terms. In other words, they are not allowed to discriminate between their own retail arm and other operators. They have to charge the same wholesale price for network connections to their own retail arm and other operators. That is extremely important in getting these services rolled out. They are also making very substantial investments, probably totalling about four or five billion pounds over some years, in the ADSL upgrading of those exchanges. They have a very clear incentive to get a return on that investment both by maximising the success of their own retail operation and by ensuring that they have as many other customers, basically wholesalers and resellers, connected to those networks as well. I think that through tough regulatory action we have given BT the right set of incentives.

  629. Will you give OFCOM greater powers to ensure that that regulatory pressure will be likely to continue and in fact is made greater?
  (Ms Hewitt) We make it very clear in the White Paper that there are occasions when you need tough regulation and issues to do with access to basic networks is precisely one of those occasions. Therefore what we propose in the White Paper is that OFCOM should have the same toolkit if you like, the same set of sanctions available to it, that Oftel already has but in addition it should have the power to fine for breach of regulatory conditions which Oftel does not have at the moment.

  630. Does not the fact that we have had to invite in order to cover this area the Secretary of State from one Department and yourself from another Department perhaps indicate that the time has now come when we require one department of communications to cover this area which is so important to our economy and will be of even greater importance to our economy?
  (Ms Hewitt) My feeling is that we have had a model of joined-up working in preparing this White Paper and the different Departments have got different expertise which we have pooled and we have learned from each other in the process of preparing this White Paper. That process of joint working is now being taken forward as we look to draft the Bill. I think that is very valuable. I guess on reorganisation of Government Departments it is really a question you might need to ask the Prime Minister.

  Mr Maxton: Maybe we should have him before this Committee.

  Chairman: I think it would be a good idea. Whether he comes is a different matter.

Mrs Organ

  631. To follow up on a couple of questions that have been asked by members of the Committee, Ronnie Fearn asked about the concerns that many people have about the need to increase subtitling, audio description and signings, both on terrestrial digital and cable and satellite, and you talked about, as a result of the consultation, the targets that you have set. Can I ask about those targets? Are they voluntary or are they statutory, and if they are statutory what penalties will there be if those targets are not met by the providers?
  (Mr Smith) The existing targets are statutory. Fifty per cent has to be reached on DTT by the tenth year. The extension of 50 per cent to 80 per cent would require, I think I am right in saying, secondary legislation in order to achieve. The extension of the targets to cable and satellite would require primary legislation because that is not in the existing legislation. We have said that we would like to seek the first legislative opportunity that we have in order to do so. That might conceivably be at the time that we bring forward any Bill to establish OFCOM.

  632. Like the Chairman, I too and I think all of us in this Committee recognise the real role of community radio. We have talked about diversity and plurality and we think it is very important that there is a real place for community radio. In the way that he talked about his community radio, I have got Cinderford FM. One of the problems that they encounter is the cost of the 28-day licence, the inability to run a continuous radio station because they do not have those funds. Mr Wyatt touched on that with the access fund. Do you think it would be helpful if you had an experimental expansion of community radio prior to new legislation so that first of all we might see the explosion that might carry on in community radio that is there underneath but has not been able to fulfil itself, and also to learn some lessons ready for the legislation? Would you be prepared to do that?
  (Mr Smith) I am certainly prepared to consider such a proposal. There are technical practical issues to be taken account of in relation to the spectrum that radio signals use and the overall geographical area that might be covered and so forth. Provided that those technical issues can be resolved I would very much welcome looking at what sort of pilot scheme could be put in place to encourage the growth of community radio to see what the extent of demand is, to see what might be possible, and to see what the problems could be. I would certainly look very sympathetically on such a proposal but we would need to be sure of course that there were not any technical impediments to doing it.

  633. Their impediment of course is always the problem about the financing of it. Mr Wyatt asked about the access fund. You said that you were not happy about using any slicing away from BBC's licence fee. Is there a political will to take it either from taxation or to take it from maybe ring-fenced local authority funding?
  (Mr Smith) We are examining a number of possible avenues on this. It is something on which we have not yet come to a conclusion. I think it would be difficult to try and slice it out of local authority funds. It is certainly an issue on which quite a number of people have expressed views to us through the consultation period and we are considering those very carefully.

  634. Do you have any view about which one you favour?
  (Mr Smith) At this stage I would have to say not yet.

  635. Lastly, about the questioning that Mr Maxton had, when Ms Hewitt was talking initially about the people that were covered through BT, 40 per cent of homes covered, 50 per cent covered by cable roll-out, this makes it sound as though it is 40 per cent accessible but actually they are lying on top of each other, are they not? What are we going to do about that? You came with a figure that you felt 15 to 20 per cent were left out. I think that is a very cautious assessment. I suspect that there are many more and that there are many businessman like the one that was having his article written in the Financial Times. Are we saying then to those individuals, "The Government is not going to do anything about it. You are going to be left on the margin. There is no opportunity for you to make use of this revolution."? We are not going to do it other than the regulatory framework that you have outlined. Are we just going to wipe off 25 per cent of the country's homes and businesses?
  (Ms Hewitt) No, we are certainly not, and that is precisely why we have published the broadband strategy published yesterday. You will see, if I can recommend The Broadband Strategy, that the map that we publish shows where there is an overlap between the technologies and where there is only one. Roughly, we believe that by 2003 50 per cent of homes and businesses will have access to ADSL and cable modem and another 25 per cent would be covered by exchanges that had ADSL but not cable modem. On top of that we think there might be around ten per cent with broadband wireless. It is a mixture of overlapping and separate technologies. That is our analysis of the market as it currently looks going forward. What we have set out in this report is a strategy to drive the market into the rural areas in particular where otherwise people would be left without the broadband networks.

  636. But commercially there are going to be some areas that they are never going to want to go into.
  (Ms Hewitt) What we are doing so far are two crucial things here. One is to pull together all the public sector procurement of broadband that is already planned. As a very rough initial estimate we believe there will be half a billion pounds worth of investment over the next three years to get broadband connections into schools and colleges and hospitals and GP surgeries and police stations and public sector office accommodation.
  (Mr Smith) And public libraries.
  (Ms Hewitt) And public libraries, absolutely crucially, many of which will be in rural areas. At the moment what the private sector is telling us is that this is all very fragmented, so they are being asked to tender for little pieces of broadband in different parts of the country. We are going to get that brought together under the aegis of the regional development agencies or the devolved administrations in other parts of the country so that we get better value for money on our own procurement but, crucially, so that the private sector can say, "Ah, in this area or within this market town there is already this demand. There are already these networks going to be built. Therefore, for a relatively modest additional investment, we can do something much bigger". That is absolutely crucial and, as I say, very much welcomed by the private sector. We have also announced yesterday a new fund, £30 million, as a challenge fund for the regional development agencies and the devolved administrations to come up with innovative new ways of getting broadband into areas which it would not otherwise reach. We give some examples in the report, for instance, the Tees Valley broadband development, where, even before we created our pump priming fund, our challenge fund, they have created a public/private partnership that is putting in place a 45 megabyte broadband network covering 17 different centres across the Tees Valley so that, even if you have not quite got it into every home that might want it, you have centres where people can go and use it. All of that we think will stimulate the market but we are creating a broadband stakeholder group that will enable us to track this much more effectively, keep an eye also on what is going on in other countries through our bench marking studies, and, if we see that we are still not getting the speed and the extensiveness of development that we need, we can take further action in future.

  637. Are we not aiming at, say in a decade's time, if we are not going to get through to the commercial sector, that the challenge bidding or public procurement is going to give us virtually total cover one way or another?
  (Ms Hewitt) We have set the goal for 2005 of the most extensive and competitive broadband market in the G7. Despite the demand that many of us have for broadband, this is still a very, very new market. The technologies are developing very quickly. Nobody can say with great confidence beyond a couple of years ahead where the demand is going to go or what the applications and services will be that will drive the demand for consumers or for small businesses. Therefore, to try and set a target for 2010 is really not feasible. We have the 2005 target. We have a process whereby we can make sure that we are hitting that target and we have put in place, particularly with the challenge fund and the public sector procurement exercise, a mechanism whereby we can drive this much more effectively into rural areas. If that is not working as we go forward, we will have to look at what other action we need to take to make sure businesses and consumers particularly in rural areas are not left behind.

Mr Faber

  638. Could I go back to taking what you called unilateral action to try and promote the manufacture and sale of digital television and/or set-top boxes? You mentioned a moment ago joined-up government or how well you have worked together. Janet Anderson, in an answer the other day, said that the Government has no plans to undertake any kind of forcing of the manufacture of digital sets because it would be "contrary to our international commitments." Could you elaborate on that a little and what your understanding of that is?
  (Ms Hewitt) Janet Anderson's answer was saying exactly what I said earlier on. There have been proposals—there was one in that particular parliamentary question that she was answering—that we should impose a requirement upon manufacturers that in future televisions, and presumably VCRs, should have to have an integrated digital reception capacity. She was making the point, as I did earlier on, that our understanding is that that would not be compatible with our single market obligations under European Union treaties; but it is an issue that I have asked officials to look at, because there are already some European obligations—specifically the one to have the slot at the back of the television set—where we may need to look at developing those requirements further in the future.

  639. How, as a Government, are you going to increase the take-up of the manufacture or the take-up of digital sets? When the broadcasters do come to see us, they are commercial organisations and they want to speed up the digital take-up and they say they would like to see the Government take a lead in doing that. How do you think you can do that and work with them to speed that up?
  (Mr Smith) There are a number of ways in which this can be done and is being done. The first thing is that take-up of digital television has been very fast. We now have over 20 per cent of households in this country taking digital television after a little over two years since it was first launched. There is still very strong growth. Secondly, I suspect it will not so much be the technology that draws people into making the switch from analogue to digital; it will be the choice of programmes that are on offer, the quality of picture that is on offer and the range of opportunities that they have through their television set as a result of making the change. Those will be the things that ultimately will drive whether people make the decision to change or not. In all the research that we have so far done, there do appear however to be one or two stumbling blocks on the smooth path. I would highlight two. The first is that most people assume that digital television is subscription television. Most people believe that in order to make the move to digital they have to take out a subscription and the only benefit they get from making the move to digital is the availability of subscription services. This is not the case. There is a range of both BBC and ITV services that become available to people for free if they simply make the switch to digital. One of the important things that I need to bear in mind as I consider, for example, the BBC's application to me for authority to proceed with new digital services is both the impact that that may have on the existing commercial market, a very important point to consider, and also whether this is going to be to the advantage of digital roll-out or not. These are issues that I will need over the coming weeks to consider very carefully. The second feature that is coming through quite strongly in the research is that a lot of people are worried about investing in technology that may become obsolete. They are worried about making the move now into digital and then finding that if they want to change to another platform of digital or upgrade to something in the future it will become more difficult for them. That is one of the reasons why in the White Paper we talk about the role that is going to be needed in ensuring that consumers can make the switch between platforms in an easy fashion, so that if someone invests now in one particular digital platform they can at a later stage transfer to another.


 
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