Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 1 - 19)




  1. Good morning, ladies and gentlemen, Minister. I think you know the areas we want to cover. We had hoped to meet some time ago but owing to the departure of Mr Allan that did not happen. I would like to welcome Mr Pinder and Mr Parker. We can begin and actually talk about the whole question of the replacement of Mr Allan. The original appointment was conceived some time ago and obviously, in a fast moving world, things do change. Have you had any thoughts as to the change in terms of reference of the job?
  (Ms Hewitt) We are making very good progress with the appointment of the E-Envoy. As you know, it has been openly advertised and we are proceeding towards that appointment. In terms of the job description, I think what has changed is that originally it was envisaged that quite a significant part of the E-Envoy's time would be spent, as it were, promoting e-commerce to business. That of course has proved much less necessary than it looked to be at the time when the Prime Minister originally thought of the appointment and the focus is now much more upon delivering on-line government, which is one of the biggest challenges we face, so there has been something of a shift of emphasis. There has also been the addition of new responsibilities and the corresponding increase in size of the E-Envoy's office. You will remember that Andrew Smith and I led a cross-cutting review on the knowledge economy during the Spending Review 2000. The upshot of that was a very substantial increase in the investment that is being made in on-line government and an increase in the responsibilities of the E-Envoy's office, to ensure that the e-government strategies in each department and agency are properly thought through and are being properly implemented. We have the good fortune of having Andrew Pinder in a temporary capacity, following Alex Allan's sad departure. Andrew, would you like to add to that?
  (Mr Pinder) I think the agenda we have is more of an emphasis issue rather than a fundamental change in terms of reference. There is a lot of work on the e-government side to be done, and we are putting a lot of effort into that, but there also are other things around—universal access, for example, with which the E-Envoy's office will be involved—across the whole agenda.

  2. My understanding is that someone has already turned down the job. Is that correct?
  (Ms Hewitt) I saw the Permanent Secretary to the Cabinet Office just a few days ago and she certainly made no reference to that at all. The panel that is responsible for the appointment in line with Civil Service Rules has been working with ... What do you call them? An executive search agency.

  3. Headhunters.
  (Ms Hewitt) Headhunters. They have been looking at the applications and the possible candidates who might be headhunted. They are in the process of drawing up a long list and then a short list and will proceed to interviews in January.

  4. Do you think that the Post Office is going to be disturbed by the number of letters that your office will get in pursuit of this job? Really what I am saying is that we understand the circumstances in which Mr Allan left, very difficult personal ones, but is it a job as attractive as once it was? Are they queuing up for application forms. Is it like a job in Tesco in my constituency or something like that?
  (Ms Hewitt) It is a very demanding job. It is also a hugely exciting job. For somebody who has commercial experience, experience of developing and delivering an e-commerce strategy, ideally someone who has also had experience of working within the Public Sector, it is a wonderful opportunity to work at the highest level within Whitehall and to drive through an enormously ambitious On-Line government strategy. It is a very exciting job but it is also a very demanding one. We have had a large number of applicants, certainly over 100—I do not, I am afraid, have the exact figure—and that is very satisfying.

  5. I wanted to clear up the post, now may we look at the office and the structure in which it operates. I hear what you are saying about the promotion of e-commerce. I understand there is also the new office for government commerce. What is the relationship between the two?
  (Ms Hewitt) They have different functions but work together very closely. The Office of Government Commerce has the specific responsibility of modernising government procurement, so they are completely focused on that. Peter Gershon, as the new chief executive, is looking at how we can drive forward electronic procurement right across government, working with a number of different government departments on e-procurement pilot projects. So that is a very specific remit. The E-Envoy's remit and the office of the E-Envoy's remit goes much wider. It is, if you like, the officialcounterpart to my role as the co-ordinating minister, putting in place and overseeing the implementation of a strategy for all our Information Age activities. As far as on-line government is concerned, the E-Envoy has a specific responsibility to ensure that we deliver on the target the Prime Minister set of ensuring that all government services are available on-line by 2005. That of course is much, much wider than the narrower remit of e-procurement, which falls within the Office of Government Commerce.
  (Mr Pinder) If I may just add to that. Peter Gershon, the head of the Office of Government Commerce, and I worked very closely together on a number of areas, including the modernising IT agenda, making sure that government IT projects are delivered properly. We recently drew up a piece of paper which defines in this sort of area who does what. If that would be helpful, we would be happy to send that to you. It defines the two roles.

  6. That would be useful.
  (Mr Pinder) It does not define my role completely; it just defines the interface between the two roles.

  7. The cost of this. Has the scale and scope of the job and the changes in it been reflected in the funding you are getting? Or are you at the end of the day going to be at the behest of the Treasury? I mean, you are at the end of the day anyway—and, as a former Treasury Minister, you would know better than all of us!—but in this particular area, people will be looking at it. We see already in the field of regulation that in recent months there has been a lot of criticism of regulators—not because of what we do so much as because of what we are spending. Do you think a new office in an interesting area like this is going to have the resource to get on with the job, given what you have said about the experience you had with Andrew Smith on this?
  (Ms Hewitt) The Treasury is matching the goals that the Government is setting with the resources needed to deliver them. One of the outcomes of the cross-cutting Spending Review was an additional investment of £1 billion in on-line government, simply in delivering on the on-line government objectives. That of course is on top of what government departments were already investing in IT programs. The Office of the E-Envoy is increasing its staffing, and therefore its budget, in order to meet the additional responsibilities that we are giving it. They currently have about 75 civil servants, 75 officials; that figure will rise to about 175 by the end of March next year and is planned to go to about 200 by the end of March 2002. On top of that there are some short-term contractors and consultants. The current expenditure allocation for this financial year is just over £12 million. We have not finalised the allocations for next year but they are likely to be around £23 million in 2001/2002 and will then fall somewhat in subsequent years. A significant increase but it is still a very small budget by comparison with total government expenditure.

  8. What about the promotional role of the E-Envoy in pushing e-commerce in the United Kingdom and, in some ways, more especially overseas? Is this an agenda setting role or is it one which just chases progress? What is the nature of that responsibility, the promotional role of the E-Envoy?
  (Ms Hewitt) The way I see it is that we have a strategy that we set across government for which I have a responsibility as lead minister and the E-Envoy has responsibility as lead official. That includes being pro-active, both about how we promote the United Kingdom in the rest of the world as a very good place in which to do e-business but also about how we promote the right global environment for electronic commerce. Of course that is pursued both within the European Union and within international bodies, including the OECD.

  9. You say you are the lead minister, how does the E-Envoy relate to you as the lead minister in terms of policy development? We know that the ambassador is a mouthpiece, but one was hoping that in this case the E-Envoy would be more than a mouthpiece. Is that a reasonable view?
  (Ms Hewitt) Absolutely. What I found with Alex Allan and now with Andrew is that we have worked very closely together developing the overall strategy for making the United Kingdom the best place in the world for e-commerce. The way it works in practice is that at the ministerial level, as I say, I have a coordinating role. I chair the regular meeting of Information Age ministers to which we now also invite the information age champions (the senior officials within government departments responsible for E matters). We then have Ian McCartney with the day-to-day responsibility for On-Line government and Michael Wills with the day-to-day responsibility for driving through and coordinating the community access programmes which are a very important feature of the overall strategy. At the official level we have Andrew and the E-Envoy's office who support both Ian McCartney on e-government and me in my coordinating role, and then of course we have departmental officials who support Michael Wills over at the Department of Education and myself at DTI for my DTI responsibilities. Both at the official level and at the ministerial level and between ministers and officials we are working very, very closely together, and focus is provided for that by the fact that in September we published our first UK On-Line Annual Report (a joint Report to the Prime Minister by the E-Envoy and myself) and we publish monthly reports (again reports from the E-Envoy and myself to the Prime Minister) which are also published on our web site. So there is a very open process there and that means there is a dialogue between myself and the E-Envoy as we develop the strategy and put it in and ensure that it is implemented.

  10. The other two ministers of whom you have spoken, do they follow the lead or do they develop policies themselves? I mean, it has all the makings of a dog's breakfast this, does it not?
  (Ms Hewitt) Not at all. This is a huge undertaking. It is very complex and it requires a great deal of attention from a number of different ministers. My day-to-day responsibilities, if you like, are specifically for the business side of e-commerce, for telecommunications and for the information and communications technology industry. In that role I am supported by DTI officials. Michael Wills has responsibility of course for information technology and learning and a specific role coordinating the community access programmes. Ian McCartney has the day-to-day responsibility for modernising government and for e-government, again supported in that role by Cabinet Office officials and specifically the Office of the E-Envoy. We all work very closely together .

  11. The Office of Government Commerce is answerable to Mr McCartney?
  (Ms Hewitt) To the Treasury. It is answerable to Andrew Smith. It is an ex-steps(?) agency within the purview of the Treasury.

  12. What have you achieved, which you would you say, "This is the justification for it"? I mean, the report is pretty bland stuff. In some ways it is an understandable rehash of what you were going to do. But, if you were to tell us, tell us the good bits. If you were a lazy reader and you only wanted to read the good bits, what would they be?
  (Ms Hewitt) Thank you for the invitation, Chairman. There are also challenges that we have to meet, but, if I may summarise the good news: First of all, internet access prices—which I think was the number one issue on my desk when I first arrived. We are now, for off-peak access, the cheapest in Europe and one of the cheapest in the world. That is largely a result of the introduction of un-metered access packages, the direct consequences of effective regulatory action, and those of course did not exist at the point where the E-Envoy and myself were appointed. For peak time access, we are one of only seven OECD countries to have un-metered access in place—again very cheap packages. For metered access during peak times—which of course is of most interest to business—when we arrived, costs in the United Kingdom were well above the OECD average. They have fallen very sharply, they have fallen faster than costs across the OECD, with the result that they are now below the OECD average. For the second crucial benchmark, which is household use of the internet through computers, usage is increasing very fast indeed. In fact, on the latest Euro barometer survey, we now have about 40 per cent of our households connected to the internet and that is very close indeed to USA figures. On mobile telephony, we are one of the world leaders, ahead of the United States, both in usage and with a very strong position in industrial and academic expertise—I certainly do not claim credit for that; it goes back 40 years, but we are capitalising on that expertise—and we will be the second major economy in the world, behind only Japan, to start rolling out the third generation mobile. Digital television: again, ahead of the United States. We now have one in five households with digital television, and amongst families with children, interestingly, it is one in two, so again a leading position. Business use of the internet, where we were sadly trailing the other industrialised nations 15 months ago, particularly amongst our very small businesses, we have made enormous strides in the last year. We now have 80 per cent of our businesses overall on-line—that is up with the best of the world—and we have one in three of our businesses actually trading on-line—which I think is the most important measure. That actually puts us ahead of the USA, Sweden, Germany, France, Japan and Canada. Partly because of those strengths, and for other reasons as well, we continue to be the number one destination for foreign direct investment into Europe and high-tech sectors, and, notably, information and communication technology are a fast-growing proportion of that foreign direct investment. So we are making very real progress here. On top of that I would put the progress that is being made in on-line government, most recently of course with the first release of the new UK on-line citizens portal. So we are making good progress. There is still of course an awful lot to do because everything is moving so fast in this area.

  13. Given that Britain has had the first liberalised privatised telecom system, we speak English—we are the English-speaking European nation apart from the Republic of Ireland—are we doing as well as we might expect to do? We have certain advantages over other foreigners, shall we say (to put it in that rather xenophobic way). I mean, in relation to some of these international ratings points that you are making, if we were not doing that, we would be justified in complaining, would we not?
  (Ms Hewitt) I am certainly not complacent about any of this, because the world in which we live is not just one where companies face intense competitive pressures, it is also one where countries and governments face intense competitive pressures. I think we are doing well. I think the strengths that we have—and you refer particularly to the English language -do account for the fact that we remain, as I say, the number one destination for foreign direct investment into Europe. That is hugely important and we are determined to do everything we can to maintain that position. We also have a very favourable business environment and much of that is a direct result of the economic policy which Gordon Brown has been pursuing for the last three and a half years. That comes out very clearly, for instance, in the global benchmarking study of the Economist Intelligence Unit. We cannot expect, I think, to have everything in this world; clearly there are other European countries and indeed other global players who have strengths of their own. But where we have challenges that still have to be addressed—and I would single out the issue of skills and perhaps add to that the need to roll out a very effective broadband infrastructure—we have identified those challenges and we are taking action on them.

  14. Is there anything that you are disappointed in not being able to achieve so far? We talk of successes and we talk of challenges. There are also failures. I realise it is an "off message" word, but I think it is only reasonable to ask you at this time what you really feel you are disappointed in. When whoever comes before whatever committee next year, "You said last year you were not happy about this and really you wanted to turn it round," what would you hope to turn round? Apart from the two issues you have identified, what are you really unhappy about, which you give your staff hell over? I mean, I could not imagine you doing that but . . .
  (Ms Hewitt) I do not give my staff hell, Chairman, but I always feel like, I think it was the Red Queen in Alice In Wonderland who was always saying, "Faster! Faster!" because in this world you always want or ought to be wanting everything faster and faster. I certainly hope that at my next appearance at this committee in four internet years time, or my successor's appearance at this committee, we will have completed the whole process of local loop unbundling and we will thereby have intensified competition within the telecommunications sector and in particular we will have delivered high speed internet access to a very much larger number of domestic and business users. I also hope that we will have made even more progress on business usage of the internet. The target we set last year was to get 1 million small businesses on-line by 2002. We have already bust that target—we have 1.7 million small businesses on line—but the much more challenging target that we have set is to get one million small businesses trading on-line either with other businesses or directly with consumers. There we have about half a million. We still have much, much further to go in rolling out e-business and in encouraging particularly our small businesses, particularly in the more traditional sectors of the economy, to exploit the advantage of electronic networks and thus to make themselves more competitive.

  Chairman: Before we move on from the E-Envoy as such, Mr Laxton has a question.

Mr Laxton

  15. A number of your commitments and objectives centre around the activities of Oftel. It has probably not escaped you that we had what I think was a fairly robust exchange of views with the Director General of Oftel a couple of weeks ago, on issues such as competition for leased lines, competitive roll-out mobile phones and so on. Are you happy yourself with the degree of urgency that Oftel have shown with regard to their role on-e-commerce and how they have handled the whole process of local loop unbundling.
  (Ms Hewitt) Yes, I certainly have and I read with interest the Hansard of your evidence session with David Edmonds. Let me start by saying that I have full confidence in Oftel and in its Director General, and the Government has recently underlined that confidence by reappointing David Edmonds to his post as Director General. The fact is that this country did not pursue local loop unbundling at the time when Germany did and of course America had already done so. The reason for that is that the policy of the last administration and the policy of previous directors general of Oftel was against local loop unbundling; there was no interest in local loop unbundling whatsoever. The policy was a different one, which was to pursue infrastructure competition through the cable companies, so that there would be an alternative network to the local loop rather than competition on the local loop. It was David Edmonds, as the new Director General in 1998, who changed that policy and who went through all the necessary consultation and policy development and, indeed, hard negotiation to achieve the licence amendment with BT which of course took place in August of this year. If I may, perhaps I could quote one sentence from the European Commission's publication on 8 December, which is its most recent report on telecommunications' regulation right across the European Union, in which it says in its report on the United Kingdom that "Oftel is regarded by many other national regulatory authorities as the benchmark for an independent, efficient, competent and pro-active regulatory authority." I would endorse that conclusion.

  16. You said a moment ago that if you or your successor came back in . . . Did you say four years or four internet years?
  (Ms Hewitt) Four internet years.

  17. Which of course is a considerably shorter period of time.
  (Ms Hewitt) Precisely.

  18. Weeks or days or whatever, you expected the process to be completed. Do you think Oftel has sufficient resources in terms of personnel or in terms of finance and also the correct sort of structure to see this achieved?
  (Ms Hewitt) They do. Oftel is making very tough decisions that are needed to deliver local loop unbundling. They are dealing almost daily with issues that are raised with them by the other licensed operators. They have been making a whole series of determinations, on issues, for instance, relating to the wholesale price for ADSL interconnection; on the price for local loop unbundling; on the nature of the contract between BT and the competitors moving into the exchanges. They have been making a determination on the whole issue of space allocation, where there are more operators wanting to move into the exchange than there is space for them, and so on and so forth, a whole series of very tough decisions. It is hugely resource intensive. This is incredibly intrusive and detailed regulation but it is what local loop unbundling requires. It is fair to say that virtually every country that has embarked or is embarking now on local loop unbundling has difficulties of this sort but it is perhaps more complicated in the United Kingdom because we have a more competitive communications market place. We have more licensed operators than in almost any other country and we therefore have more operators wanting to move into the exchanges, and that makes the practicalities, the technical issues, the economics all much more complicated. On resources, I think it is always difficult for regulators to recruit and retain the staff they need, because the competition in the private sector is very fierce, and of course—and this applies in any field, not simply telecomms—the staff of the regulatory body have very valuable expertise. Despite that—and it is an issue I have constantly raised with the Director General—I believe he does have the resources and the staffing needed to do the job.

  19. We are taking evidence on the 19th from other operators and from BT as well. Despite all that you have said, are you happy with the pace at which this has been driven, local loop unbundling? Do you think there might have been perhaps a role for your department to get involved in, to push at it, or are you generally happy with what Oftel are doing?
  (Ms Hewitt) I was certainly not happy in September. You will remember that at that point there was, I think it is fair to say, a near breakdown in the relationship between BT and several of the other operators who wanted to take advantage of local loop unbundling. All that spilt over into the press and we were just into a situation where the companies were attacking each other very, very publicly and not much was happening. At the same time, at the end of August it became clear that the industry itself, the industry working group, had not been able to sort out this very vexed issue of what was going to happen in the exchanges, where there was not enough space for all of them, and they asked Oftel to intervene. I became very concerned because it was very clear to me that local loop unbundling on the ground will really only work effectively if you have sensible working relationships between the engineers and the other staff of the different operators. You cannot have them fighting this thing out in the press. I talked obviously with my own officials; I talked directly to the Director General; I then talked individually, and then through a group meeting with five or six of the key operators who were most unhappy with the progress on local loop unbundling, and I chaired a meeting with them at the DTI in early October. That enabled me to get a much better handle on the problems that had arisen. Following that meeting—and I obviously told the operators that this was what I was planning to do—I had a meeting with Sir Peter Bonfield and his senior colleagues at BT. I see them regularly, but this meeting, also in October, was specifically on the issue of local loop unbundling. What became very clear at that meeting was that BT had not, I think, grasped quickly enough the implications for their timetable of the European Union regulation which was then under consideration. Because—if I may backtrack very briefly for a minute—when the Director General negotiated the licence amendment with BT to provide for local loop unbundling, it was on the basis that trials would begin at the end of this year and full local loop unbundling would begin in July of next year. That was the timetable to which BT were working. Then in the spring and early summer of this year the European Commission published its proposals for the regulation on local loop unbundling, which we strongly supported, as did Oftel. Of course that regulation required a common legal position for local loop unbundling to be put in place by the end of December -not a problem for us because the Director General had already negotiated the licence agreement but it required a speeding up of the timetable. Once BT's senior management was focused on that, they then started to change their own timetable. So there has been a speeding up of between four to six months of the timetable to which BT was working and, indeed, was still working even in the summer of this year—the pretty aggressive roll out programme that is now in place. The other part of my conversation with BT, partly because they were still working to this earlier timetable, they were really only envisaging a very small number of exchanges actually having offered space to their competitors, even by the middle of next year. I said that from the Government's point of view that was not acceptable, that we wanted to see 600 exchanges or more—but certainly no less than 600—opened up to co-location with the competitors no later than July 2001. There was a sharp in-drawing of breath, I think, and a feeling that perhaps that was not possible, but BT have now committed themselves—subject obviously to getting the necessary orders from their competitors and their customers for local loop unbundling -to 600 exchanges by the beginning of July next year using a mixture of competitors moving into the exchanges, physical co-location and distant co-location. So the timetable is now much more aggressive. I saw Sir Peter Bonfield and Colin Green and his other colleague on Monday of this week, to check that we were still making progress. I have also taken the opportunity in the last week to speak to chief executives or senior colleagues of several of the other operators with whom I have been keeping in touch and my officials have been keeping in touch. Their reaction is very, very different from where we were in October: they feel that as a result both of DTI's intervention and Oftel's action, progress is now being made. What several of them said to me—and I reported directly to Sir Peter—is that they now believe that there is a commitment from BT's senior management; they like what they are hearing and they are having those direct one-to-one meetings. The issue now is: Will it be delivered on the ground? A final point: BT told me on Monday that they are managing to deliver full-scale quotes for the building work for physical co-location, in advance of their timetable, for a large number of the exchanges where the orders have been placed, and they have already conducted preliminary surveys on 120 exchanges where they have not yet had orders but they believe that these will be top priorities for the other competitors in the new bowwave allocation process. That will also help to speed up the next part of the roll out.

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