Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 360 - 379)



Mr Laxton

  360. Can I first declare an interest as an ex-employee of BT and someone who holds an infinitesimally small shareholding in BT, regrettably passed to me by the company in lieu of pay increases at the time. Given the choice and probably the current share values I would have gone for the other thing. You are rolling out ADSL products yourself as a company, what has the take-up been like and has it been as high as you expected?
  (Sir Peter Bonfield) Yes. Demand is higher than we can supply at the moment. I think there are two ways to look at it. We are doing ADSL at the moment, which is primarily the consumer product, and we have the exchange enabling programme which is just about on track, the one I mentioned earlier to your colleague. That programme is on track to get the 840 exchanges. I think we are up to 620 at the moment. Where we are behind, again it comes back to the system problems, is getting end to end system supply of a full ADSL circuit. We have 25,000 deployed and, we offer it wholesale. There are about 100 wholesalers involved in that product. The demand is outstripping supply. We are ramping up the supply now and we hope to get to 3,000 a week by the early part of next year and then to ramp it up considerably. I think there will be a backlog now well into next year.

  361. Okay. It was said this morning by one of the licensed operators, and this may be one of the services that is wholesale products, that BT were selling services at below cost. Would that have been a fair comment for them to make?
  (Sir Peter Bonfield) We are selling ADSL products to our own internal operation, which is called BT Openworld, at the same cost as everybody else. We sell it at £35 wholesale. BT Openworld then on-sell that retail at £39.99. This is one of these products which in its first phase is probably going to be loss making anyway—everywhere else in the world it has started off loss making—but you build extra services around it, e-commerce services, advertising services, and it is getting that business model right. At the moment there is no discrimination between BT and the other operators. Of the 25,000 that we have currently got installed I think probably less than half are BT Openworld, the rest are wholesale to the industry.

  362. Can I broaden out that question by asking are there any services that BT as a company sell below cost? That was an allegation that was made this morning.
  (Sir Peter Bonfield) No. From a regulatory point of view we are not allowed to cross-subsidise. We clearly do publish extensive regulatory accounts and these are audited on an annual basis and we comply with those regulations.

  363. Okay. It is also reported that you are in the process of rationing operators by restricting the number of customers you can connect from January 2001 from somewhere from about 100 lines a day down to 20. Is that correct?
  (Sir Peter Bonfield) That is the issue we have got in terms of demand. It will be more than 20 lines a day. It depends on per customer or for the whole industry. The industry at the moment is taking, I think, on an allocation basis more than 50 per cent of the lines that we are installing. We are currently trying to get up to 3,000 a week.

  364. Is this the problem my colleague was just talking about about automating the back offices and trying to cope with them?
  (Sir Peter Bonfield) It is similar but obviously this is a different system. This is the automation of the system of getting ADSL enabled end to end. The other system we are talking about is how we actually do the allocation of the numbering through the MDF to the re-sellers. It is a connected system problem and, as you are probably aware of from the past, they are very complicated systems.

  365. Yes. Under the terms of the facility regulations you are currently prohibited from pushing not video on demand but live television over your network. When those restrictions are lifted do you propose to move into that area of activity?
  (Sir Peter Bonfield) I think it is unlikely that we will go into mass broadcast over the telephony network but we certainly do want to expand the capability for screening video over the network, internet enabled streaming video, video on demand streaming video and that sort of thing. When this was originally talked about many, many years ago, and you know the history, it was looked at in terms of a broadcast media. I think the world has now moved on and we are obviously too late to get into that market because of the restrictions, so we are looking at new technology, mostly IP based, streaming video types of technology. So rather than mass broadcast distribution, very customer specific broadcast information, video information.

  366. Available through all your exchanges ultimately?
  (Sir Peter Bonfield) Enabled on a wide basis but not to every line. ADSL at the moment will not reach every home. Essentially the throw on the distances, as you were probably told, Chairman, is about five kilometres, so it covers about 70 per cent of the lines. I am not sure that ADSL will achieve penetration rates that are more than 50 per cent. I think the current feeling in the United States is that the broadband penetration might be 25 per cent of lines within about five years, of that sort of order. This is something where if the demand is there and it is realistic demand then it can be rolled forward. Clearly there is another opportunity in terms of broadband using other technology and we are certainly supporting the DTI initiative at the moment, led by Patricia Hewitt, that says broadband overall, is there a better way we can look at it as a nation using all the technologies, using all the suppliers? I think it is well worth having that debate and we are actively involved in that.

Mr Butterfill

  367. On a purely technical issue, what are the constraints with copper if we are talking about digital signals for video purposes? When we looked at this some years ago they said that unless you have got coaxial at least, and preferably optical fibres, it is not a practical proposition. Now with the new digital technology it obviously is but are there still technical constraints that will limit your picture quality or any other aspect?
  (Sir Peter Bonfield) Yes. Essentially the ADSL technology at the moment running at two megabits, which is good for most video, the restriction is really about four and a half, five kilometres from the exchange. Obviously as compression techniques improve that will get better, but that is the sort of range of reach we are looking at in terms of the exchange. To a certain extent it depends on the line, how good the line is, when it went in, but that is the sort of reach we are looking at now. This is an industry issue. This is not something which is unique to BT. We are relatively fortunate in the UK because of the concentration of our exchanges around the country—we have got 5,500 exchanges—and we have got more opportunity to cover more of the lines for video than many other countries, particularly in the US where the distances are much longer.

  368. It is purely a range constraint?
  (Sir Peter Bonfield) A range constraint and it goes up to the next range of technology which is VDSL which is the next speed up. Then in that sort of area you either get much better compression or you will need to start to look at shorter lengths or maybe going up to some optical connections. Of course, we provide optical connections to most large businesses anyway where they need wide band width. We need to determine how the market develops this high band width because I believe that most of the band width demand will be driven by "always on Internet" and at 500k or a meg you can get very good information over ADSL.


  369. There are a couple of points I wanted to check up with you. This morning we were discussing distant connections on the LLU operation and there was some doubt as to whether 500 metres would be too far from an exchange to locate a system. How do you feel about this? That was regarded, as I understood it, to be the outer limit but there certainly was some uncertainty amongst the potential operators as to how far they could comfortably be from an exchange.
  (Sir Peter Bonfield) From a technical point of view we obviously had our people look at this. We are saying if the distant co-location is between 100 and 500 metres then it should be okay. You can mitigate the problem by putting in fatter wires and you can turn the wick up on the ADSL equipment, but within 200 or 300 yards. I do not think it is that much of an issue because we are talking about kilometres on the other end. It is something we are aware of and we have got our technical people looking at and, again, something where we can work with the industry to optimise. They can help if they are a little bit too far away from their point of view by just putting in a thicker wire.

  370. The other side of the coin was people were talking today about what they considered to be a rather restrictive approach that you took. Coming back to this co-mingling point, it seems that other countries' operators were not uncomfortable about having people sitting in the same room in ways that you are not. I did not quite get why you set your face against that, because it suggests that here is BT trying to be awkward again demanding standards which are artificially high. The Germans can do it; why can we not?
  (Sir Peter Bonfield) We have to understand the conditions within which we are operating. We are the universal service supplier, we do look after some issues in terms of national security, and we are in the end responsible for the upkeep and operation of the network. Therefore, we must make sure that at all times we have the integrity of the network at heart. We think the best way to do that is physical security, which works fine at the moment and we can separate that from the other licensed operators. I do not think that is obstructive, I think that is just discharging our obligations to the integrity of the network.

  371. It is a different way of doing it from presumably some of the big players abroad.
  (Sir Peter Bonfield) I must admit I am not at all sanguine on the point that many operators with the obligations we have on the universal service would allow unfettered access to their core network.

  372. Is there any reason why we should not publish detailed lists of the first and second bow-wave exchanges to be opened?
  (Sir Peter Bonfield) From our point of view, not particularly. The only thing that we are under some obligation on is some of the commercial sensitivities of the other operators because their business plans are to a certain extent confidential to them. You can tell where people are going to go after certain customers if you know what exchanges they are going to target. At the moment we have an agreement with Oftel that the information is confidential (although clearly not from your Committee) and that is the current obligation that we are working under.

  Chairman: Thank you. Maybe we could move on to one or two other telecoms related issues which are not quite of the LLU kind. Mrs Southworth?

Helen Southworth

  373. Why did BT take the decision to double the minimum charge for callbox use?
  (Sir Peter Bonfield) We have not increased the prices of callboxes for 15 years. They were starting to lose a significant amount of traffic to mobile phones. We had to balance up the long-term value and commitment of the business versus the increase in the pricing. What we tried to do, after extensive consultation outside, is increase the ten pence minimum charge to 20 pence but extend the call time. Most people who use a callbox in terms of social need use long calls. Most people who do not use it as a social need make shorter calls. So we tried to make that balance up.

  374. Surely if the problem was fewer people were using it then doubling the price is hardly going to be an incentive to maintain usage?
  (Sir Peter Bonfield) It does not double the price; it doubles the set-up price. The on-going charge for a callbox call is 11 pence a minute, which we think is competitive. We are trying to balance up the long-term viability of the universal service obligation on payphones clearly, but we are not allowed to cross-subsidise so we must make sure we make that balance.
  (Mr Green) At the same time we reduced by 27 per cent the cost of making calls over two minutes. Our research shows that most of the people who are using phone boxes because they do not have a fixed line or a mobile line are using them to make longer calls and longer distance calls and it is a reduction for them, and doubling the minimum charge also includes double the time for that charge.

  375. Why did you withdraw the free 192 directory enquiries service?
  (Sir Peter Bonfield) Basically because the competition we are up against is mobile phones who do not offer that service, so we withdrew it for everybody except for the people who can show they have got an issue in terms of social need.

  376. How have you advertised that?
  (Sir Peter Bonfield) I do not know.
  (Mr Green) The people who can use the special directory enquiries service are already registered with us so they know that they can do that.
  (Sir Peter Bonfield) We publicise how you can register with us if you have got a sight disability problem, for example.

  377. Perhaps you can give us a note.
  (Sir Peter Bonfield) Sure.
  (Mr Green) We do that in conjunction with the Royal National Institute for the Blind and similar organisations.
  (Sir Peter Bonfield) I must admit that is one area we treat very seriously because we have the social obligations as well as the universal service obligations and we want to balance that up.

  378. Why, if you are so concerned about the universal service obligation and social obligation, have you only installed 130 out of the 500 promised callboxes since 1997?
  (Sir Peter Bonfield) This is a very complex thing and I am definitely going to defer to my colleague. It gets a bit complicated about whether they are social or non-social ones. What is the answer?
  (Mr Green) We have doubled the number of callboxes in the UK since we were privatised and what we agreed about three years ago was that over a period of about five years we would install up to 500 payphones where there were special needs (and there are criteria for what is a special needs payphone) and that is on top of the increase in the ordinary payphone population. So this year we have put in another 356 payphones in the United Kingdom. The 130 have come in from requests. We have measured them against those social criteria agreed with Oftel and that is the number it has come out at. That is an on-going process and we are meeting our commitments. We have put in 356 this year alone.

  379. Of the 500 promised?
  (Mr Green) That is 356 ordinary payphones. The point I am making is that the payphone population is increasing anyway so the need for these special needs payphones is reduced because there are more payphones generally. There is no suggestion that we have not met our obligation on that. We are doing that. As requests come in for those special needs payphones we are complying with the obligation to install them.

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