Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 40 - 59)



  40. So it is the Government that is at fault, rather than the regulator?
  (Mr Edmonds) I would not blame the Government. The Alcatel letter that covers that is interesting because Alcatel, as you imply, is one of the major providers of this d-slam equipment. The letter says: "In our view, the UK is ahead of most of Europe with effected deployment only being marginally ahead in Germany and perhaps Holland, where the unbundling consultations were launched earlier than in the UK". I think that confirms my general hypothesis that we have moved very quickly since we started; and that, in terms of our European competitors, yes, Germany is ahead of us, and I have no doubt about that. If you take the roll out that BT is doing in terms of its own ADSL, we must not forget—and you and I talked about this, Chairman—that a major impulse in terms of unbundling was to get BT to roll out its own ADSL programme, which it had sat on for years. The threat from November 1998 of unbundling produced an ADSL programme that has now got some 600 switches with 40 per cent of the population covered with BT's ADSL product. We made them produce the wholesale product which is being used by service providers from the same date. The UK is not simply dependent on local loop unbundling. The UK is also dependent on the roll out by the incumbent. BT's roll out is now equivalent to that of Deutsche Telecom. My own view is that, if we drive through the next eight months until the summer of next year, if we get these 600 main distribution frames unbundled, we then get a steady state where BT are committing to 100 co-locations and 100 distant locations a month. I believe that that progress will get us up. Yes, we have fallen behind Germany, and there is no doubt about that. I think in the UK, if you take the general picture, we are very competitive. We have a range of choice for consumers and small businesses that many countries do not have. We are going to catch up with Germany and the Netherlands, I hope by the end of next year. We did fall behind. I accept that, of course.

Mr Hoyle

  41. Mr Edmonds, it is interesting that you mention choice. I think that is important. I must admire your non-stick approach because it seems that nothing sticks with you and it is always somebody else. If it is about choice, why the local loop, which is not just for telephone technology as it can be used for television? Why has the system that Oftel is proposing completely ignored television delivery? Is there some sort of deal between Sky and the cable companies?
  (Mr Edmonds) No, I do not think it does totally ignore television. Kingston Communications, one of the companies that would like to use the unbundled local loop in effect to convey television, is one of the companies arguing very strongly that we should go for this rather larger allocation of equipment, two racks rather than one rack, in their exchanges. I have a degree of sympathy for that argument. What I said earlier is that hopefully later this week or early next week we will produce an allocation process for the next stage, which will give a view. I should not say any more because it will be a statutory determination. That will actually respond to the argument that Kingston have set out.

  42. So we may see choice?
  (Mr Edmonds) What I want to do in the long run is to enable unbundling to take place in a way that the competitors can use. We are going through the same kind of process that every other country that has unbundled has gone through of the incumbent digging in and resisting. In Germany the competitors went to law over the price. We have actually got to the point where, I hope during next year, many of the issues that we are now facing will fall away and two racks as against one rack would be one of those.

Mr Berry

  43. I am confused about this issue of space for equipment. In the press release on Friday they referred to the use of nearby buildings. When was the first time that BT acknowledged that possibly nearby buildings or street cabinets or whatever could be used? Has that always been on the agenda?
  (Mr Edmonds) It has always been on the agenda. What is interesting is that one company, Redstone, has actually said that it is going to build out to 1200 main distribution frames with boxes on the street. It has gone down a totally different route of coping with local loop unbundling. There is a range of choices: street boxes, hostels where you put all the operators' kit; co-location; distant location.

  44. That is right. There was a piece in the FT a fortnight ago saying that a couple of companies were considering syphoning their equipment into nearby buildings or outside because they were not prepared to wait and see if they had access to their preferred exchange. With that kind of information, together with what seems to me to be evidence that BT says, "sorry, no space", are you really saying that from the very beginning of all this using nearby buildings was not considered as a matter of course? There was no question of dragging feet on the grounds that, "sorry, our exchange is not big enough"?
  (Mr Edmonds) To an extent it is the choice of the other operator. Most operators clearly find it easier to locate within the BT building; you run a cable from one bit of kit to another bit of kit. The further away you are from the BT main distribution frame, and I am not a technologist, the more attenuation there is in terms of the capacity to deliver to your customers. There is probably more expense. What I would argue is that there is a range of opportunity open to other suppliers or other potential suppliers, and at least one company, Redstone, has decided to go down another route. Another company coming in to the UK market called Bulldog announced an investment of £250 million where it says it is going to produce a service so that unbundlers can take the service. There will be a whole range of offerings.
  (Ms Lambert) I have not much to add but I would just say that in November 1999, nearly a year ago, we actually made the decision that we would require unbundling and in that we set out the range of options, including distant location, nearby buildings and physical inside. So a range of options has been on the table from the start.

  45. There is really no reason to feel that BT has been dragging its feet and therefore you had to take the initiative?
  (Mr Edmonds) No. BT has been dragging its feet. BT on a range of issues has not responded as quickly as I would have wanted. BT I think has had a significant split from top management, which was apparently committed, or said it was committed, to local loop unbundling and actually conveying that to the management on the ground. Throughout this process, I have made very clear to BT, and indeed to the operators, that there has been unsatisfactory and unacceptable behaviour. The operators, and the Chairman referred to three operators but I think it was six operators that came to see me, in the group that Anne Lambert now chairs have complained forcefully about the delay and recalcitrance. I have considerable sympathy for all of those complaints and have said so on a number of occasions. I am not defending BT's behaviour. I think some of this has certainly lacked at the basic level the commitment of the unbundling of the local loop that at the top level the company had been expressing.

Mr Chope

  46. Mr Edmonds, surely it should not come as a surprise to you that BT were delaying the whole process because it was to their economic advantage to do so? Is not the situation now that, as a result of dragging their feet, they are going to be able to make a substantial financial benefit out of this whole process because by June or July of next year they will have deployed their own ADSL technology and they have managed to succeed in accelerating that process for themselves? That will be available at about 1,000 sites and will have about 50 per cent UK coverage. They will then be able to pick off their competitors by offering one-year deals as the only incumbent basically and thereby undermining the market and exploiting their own monopoly position. What are you going to do to deal with that situation? It seems as though what has already happened up to now has enabled BT on the one hand to be delaying the unbundling process at the same time as accelerating the introduction of its own ADSL technology.
  (Mr Edmonds) That is a fair question because it goes right back to the answer I gave to the Chairman a little while ago about what the initial motivation for introducing local loop unbundling was. It was to get BT to roll out its own equipment. There is a dilemma for any regulator who wants to see the incumbent actually invest to produce new services on a rapid scale because the incumbent is best able to do it, to be fair. What we have got to do is to make sure that the incumbent does not do that in a way that is anti-competitive, which is why in the first place we ensured that BT produced a wholesale product that was available and is being used by some competitors, and why we are saying now that BT must not discriminate in favour of itself in the process that goes through from now on. Since the licence amendment was implemented, BT should not discriminate in its own advantage. If it does, we investigate that and if it is found to be discriminating, it is acting anti-competitively.

  47. Surely it has already achieved that, has it not? By June next year it will be able to offer its own ADSL technology to about 50 per cent of the UK and its rivals will hardly be able to cover more than 20 or 30 per cent, even if all these obstructions are removed before then. BT's retail arm is then going to be offering very attractive packages which potential competitors are not going to be able to compete with. Would it, for example, be reasonable for you as the regulator to say: BT should not be allowed to insist upon a one-year lock-in on the new retail deals that it is offering because that might give an opportunity to the late arrivals at this show who have been delayed as a result of BT's own actions?
  (Mr Edmonds) We have been doing a great deal of work in looking at what the possible anti-competitive potential of the next nine months is, which again Anne has been leading. May I ask her to give Mr Chope more detail?
  (Ms Lambert) The main first point to make is that BT's ADSL roll out is an open product and it is a wholesale product available on the same terms to everybody: BT, retail or other retail service providers. Other service providers can take this product and get it on exactly the same terms as BT's own retail arm. That is very important when we understand that there are actually already 100 service providers that are taking this BT ADSL service. You raise the issue about the one-year lock-in. I have to say that to the best of my knowledge we have not had any complaint about that, but if we had a complaint, we would certainly investigate it. If we concluded that it was anti-competitive, then we would not hesitate to take action.

Mr Butterfill

  48. How would you deal with the issue of pricing for the wholesale product? There are those that suggest that the wholesale route is the way it ought to go and BT ought to do the wholesale side and other people compete on the retail end as a general scenario. That would involve pricing issues for you, would it not? How would you approach that?
  (Mr Edmonds) The pricing would initially be commercially negotiated. If we were then faced with a complaint, and in fact we do have a complaint in front of us at the moment which we are investigating, it is our job to make sure that BT in those cases is not setting a price that is anti-competitive or that is squeezing the margins of its competitors.

Mr Chope

  49. Would it not be possible, for example, to insist that BT's retail arm should only be able to get wholesale products from BT's wholesale competitors rather than from BT itself? Would not something radical like that actually demonstrate that you are concerned about BT's exploitation of its wholesale position to the benefit of its own retail arm?
  (Mr Edmonds) It would be a dramatic intervention but I am not sure that it would benefit consumers. The basic point I make about wanting to see the widespread availability of services to consumers is posited on BT being in the marketplace and rolling out ADSL. I am not sure that I would have the powers to mandate what you are proposing. I am pretty sure I would not have the powers to mandate.

  50. Are you sure that BT is not providing information facilities and access to its own retail arm on advantageous terms compared with what is available to others?
  (Mr Edmonds) It should not be discriminating in favour of itself. If there was a complaint that it was discriminating in favour of itself, we would clearly investigate.


  51. Are you satisfied that there are in place appropriate checks to prevent cross-subsidy of the kind that my colleague has just been referring to, in the sense that you have clear, different sets of books, Chinese walls, glass ceilings, et cetera? Are you confident that these mechanisms are in place to prevent something like that happening?
  (Mr Edmonds) There is accounting separation which gives us a very large degree of confidence that this would not happen in the way that you describe. You perhaps will want to talk later in this session about BT's current proposals for restructuring itself. I think part of the answer to both Mr Chope's question and to your question lies in that being carried through.

Mrs Perham

  52. Staying on prices and costs, US operators have been reported as being able to offer broadband services for around $30 to $40 a month. Your press release I think quotes £118 for the annual rental with £95 connection charge. What sort of prices are you expecting UK operators to charge consumers for the broadband services?
  (Mr Edmonds) Currently there are broadband services in the marketplace which are priced at about £39 per month. I do not know where the price will end up. My obvious hope is that with competition local loop unbundling prices will decrease. With the competition that cable brings, and I come back to this fundamental point, we have an advantage in the UK with 52-53 per cent of homes in the UK are now passed by cable. Two major cable companies are rolling out their own cable modem products which are in direct competition with both BT and the unbundled loop. The answer to your question is that I do not know at what point prices will end. I do know that since we have had competition in the internet market in the UK, prices have dropped by 50 per cent. Whether we will get from £40 to £20, I do not know. I hope to see a very significant reduction.

  53. How much disruption do you think there is likely to be to existing services and to consumers? We obviously remember the problems with changing gas and electricity supplies. Have you any estimate of the disruption that might be caused?
  (Mr Edmonds) My hope would be that there would be no disruption whatsoever. What we are talking about is the installation of these boxes into BT exchanges, linking that box to a BT box and then the installation of a modem in the consumer's home. It is a process that is now very familiar to companies in America where there are about 1.5 million users of ADSL, of which about 75 per cent is provided by the incumbent. We have seen what is happening in Germany. I hope there will be no disruption at all.

Mr Butterfill

  54. On the pricing structure, will you be regulating in any way the various types of offer that will be made to consumers? We will come on to mobile in a moment. You have got a situation where the pricing structures in the mobile industry are virtually impenetrable now. We are in danger, are we not, of having similarly impenetrable pricing structures which are very complex in this area. Is it not an opportunity at this early stage for you to regulate on the form of pricing structures, so that they are going to become rather more transparent for consumers?
  (Mr Edmonds) I think this will be much easier, to be honest, because we are looking probably at a much smaller range of basic products. We are looking at an offer to the home and an offer to small business and the services that will be run over the unbundled loops. I would not have thought that confusion in pricing should happen in this particular area. As for your basic premise, should Oftel control the publication of pricing, I think that is a very difficult issue to ask any regulator to take on.

  55. I am suggesting that you should ensure through Regulation that pricing is transparent.
  (Mr Edmonds) I think ensuring that pricing is transparent is something that I would like to work towards, indeed I am working towards in terms of some of the initiatives that we have launched, including the phone initiative. I would much prefer that to emerge from co-Regulation with the industry, whereby, working with them, we actually manage to produce a way of publishing prices that is much more transparent and makes it much more easy for the consumer to understand what is happening.

  56. With the evidence of mobile, it is quite clear that they do not regard transparency as being in their commercial interest at all. They have become byzantine in their pricing. It is impossible for anybody to understand which offers them the better deal. So why should you think that they are going to behave any differently in this area?
  (Mr Edmonds) Mainly because the range of products is much less. I agree with you that in the mobile area it is incredibly complex for the consumer to find his or her way through. It has not stopped consumers switching in massive numbers and it has not stopped very large price reductions occurring in the area of mobiles.

  57. Huge profits being made by the mobile phone operators.
  (Mr Edmonds) Significant profits by some of them. Two of them, I do not think, unless I am out of date, have yet made a profit in the UK.

Mr Hoyle

  58. Mr Edmonds, can I take you to the problems of Worldcom, NTL, RSL. They have all pulled out of the process. These are big companies which were going to spend millions in investment in the broad band in Britain. Home grown giants, such as Cable & Wireless, are now on the record that they are reassessing whether to invest in the local loop unbundling. Have you ever thought of stopping the current mess and the process that is going on to actually stop such important players from walking away because this is the danger, that there will be absolutely no competition if we are not careful?
  (Mr Edmonds) I do not think it is a mess, Sir. We are going through a very difficult implementation phase. We are going through an implementation phase that has been as difficult as I anticipated, but not more difficult than I anticipated. I think the commercial judgments of some of the companies that you have just touched on are for them to make. The point remains that the problem I have faced, personally, and the problem that Oftel has faced from September through October this year, primarily flows from a surplus of competition rather than a lack of competition. I think at least one of the companies you have referred to said this was a decision it had taken and it was waiting to see how things developed in the market place. If I can look at other countries, there has been a fairly dramatic reduction in numbers of players through market forces, I think, rather than through the complexity of the process.

  59. You must admit, it would be a little worrying if our home grown giants, such as Cable & Wireless, were not to go ahead. I think there is a worry out there that there will be no real competition.
  (Mr Edmonds) All I can say in answer to that question is that it is my determination, Oftel's determination, to have a process for unbundling the local loop which by the middle part of next year will have got established to the point at which 100 exchanges will be opened every month through co-location and 100 exchanges will be opened every month through distant or other methods. I think that potentially gives UK companies the potential to be involved in a very significant way in this particular market place. This is all about producing competition. If competition falls away clearly we will have failed, but I think it is much, much too early to reach a judgment that it will fail.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 20 March 2001