Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 400 - 415)



  400. In your capacity as the recognised "supplier of last resort", does the Regulator, for example, raise with you issues relating to that certificate you produce every year saying you are able to fulfil all your obligations? Does he and his lawyers and technologists and bureaucrats and others cause you much grief?
  (Mr Green) On that particular certificate not much grief but in relation to the regulatory accounts that we have to produce each year, which are voluminous and have to be separately audited and in fact cost us more to audit than our own Companies Act accounts, they go through them with a toothcomb.

Mr Laxton

  401. BT reorganisation; could you talk us through one particular aspect of it and that is your proposed network company NetCo and tell us what is going to be enshrined in the regulatory sense within that new organisation and what the rationale for the creation of that particular division is.
  (Sir Peter Bonfield) Maybe it will be worthwhile just to explain the rationale that I had for the whole change. As we move BT into the faster growing areas, the more international areas, the greater geographical organisation we had was not applicable going forward, so we tried to organise it into lines of business and the lines of business focused on particular customer areas, and one of the customer areas we are looking at is other operators within the United Kingdom. Of our network traffic now more than half is not B to B totally controlled traffic; it is other people's traffic, so going forward we wanted to have a business which could concentrate on customers who were also competitors and I wanted to have that split so that people in wholesale could get up every morning and say who their customers were, not they are sometimes customers and sometimes competitors. The idea is it would cover most of the assets of the network of BT, it would clearly have all the inter-connector regulations posted on it, and it would deal with the obligation to the other licensed operators as customers. That is a pretty bold step forward. Nobody else has done that in the world as far as we know. We are going to have extensive discussions with the Regulator and Government in terms of how this would work and how it would discharge the universal service obligation. The idea is to make sure the network is responsive as the industry changes and as BT itself is changed as a result of competition.

  402. Do you have a timetable by which you want to have cleared by the Department of Trade and Industry and Oftel your new organisational arrangements?
  (Sir Peter Bonfield) We have said that we would like to have the first part done in a fair amount of detail by the end of the first quarter. I think that is a pretty optimistic timescale. In the back of my head, and what I have said publicly is if we can get all this agreed with essentially the businesses operating in a pretty independent autonomous state by the end of next year, I would be pretty happy.

  403. Do you feel a bit frustrated at the delay in that because there has been some media comment and heavy-weight financial comment that BT should perhaps have gone down this road a year ago. You are going down it now and yet you are still saying it could be the end of next year before you have cleared all the hurdles.
  (Sir Peter Bonfield) I am not frustrated at all, this is a very complex process. It clearly needs discussions with the DTI and Oftel and for the DTI to give us new licence conditions. The way that the network will run is clearly going to be a major change in the industry. This is the first one of its type. Could we have thought about it a year ago? Possibly. You move as the industry moves. I think it is a pretty bold revolutionary step. We did it for business reasons not regulatory reasons, so this is a BT-led initiative, but clearly it does need extreme scrutiny from both the DTI and Oftel. I am assuming that will take some considerable amount of time. I am not frustrated. I am challenged and excited in terms of what this can do to unleash more in the market place and in BT across all of the operations. It will need extensive discussions with our colleagues in the unions because there are a lot of people involved with BT in this central split of responsibilities.

Mr Chope

  404. Can I ask a specific thing about your relationship with Kingston Communications because we were a bit surprised to hear this morning that they do not seem to have had any demand at all for local loop unbundling. You are running Open World. Have you got access to run that service in Hull? Can you understand why in this very competitive market there does not seem to be any demand at all to provide competitive services with Kingston Communications?
  (Sir Peter Bonfield) At this point in time we have to understand it is a relatively small market and we have only got 110,000 customers. Is that the first port of call into which we put all our effort? The answer is no. Is it something we would look at down road? I think the answer is probably yes. At some stage, as we have mentioned for many years, there could be a call for opening up some of the network for cable companies that might be interested. As the market place changes we will look at it on a case-by-case basis.

  405. You are not pressing at the moment for any changes?
  (Mr Morfett) Kingston will need to make a reference offer for the three products which EU Regulations require by the end of this year, which is ten days away, and when they do we will have a look at it and see if the terms are such that it would be of interest to us. We would certainly like to compete in that market in time.

  406. The White Paper contemplates the possibility there might be the need for other telecoms operators to contribute to the universal service obligation. Where do you stand on that? We heard this morning that the obligation does not cost you anything and therefore there is no need for other people to contribute to the social fund. Is that your perspective and will you be arguing that others should contribute or not?
  (Sir Peter Bonfield) We have always said that it does cost us something but we have been argued against by the Regulator that the cost is outweighed by the benefits. We never agreed with that particularly but that is what they have set on us. I think my feeling going forward is rather than aiming this at the backward looking universal service obligation, which is well understood, it is what happens going forward that is important, particularly in a world where there is going to be more access to band width. As I say, I think that is why we are supporting Patricia Hewitt in her work of going forward to make sure there is no disadvantage between the haves and the have-nots in the world ten or 15 years down the track, which will be mostly broader band, mostly internet related, computer related, to make sure that the USO comprehends that type of environment rather than yesterday's PSTN environment. That is an active debate and it needs to be addressed pretty quickly.

  407. As part of that you will make ADSL available at all your exchanges?
  (Sir Peter Bonfield) No. I do not think that we want to look at it in terms of just an obligation on BT that says "provide ADSL". We need to stand back and ask what can the whole industry do to make sure that you do not have disadvantaged pockets. There is what you can do in terms of digital television, what you can do on wide band, mobile, what you can do with fixed networks and what other people competing in fixed networks can do, what cable companies can do. We need to look at that in the round to make sure we are looking at that as an overall industry going forward to make sure that we provide the best services to as wide a group as we possibly can. This is something that BT should not and cannot discharge under its own capabilities.


  408. One point that did arise in our discussions with Mr Edmonds was the question of leased lines. It was suggested that your prices were broadly in line with EU averages but when we looked at it a bit more closely we found that, in fact, your prices were significantly above the cheapest countries in the EU. Why is that the case given the size of your operation? Is it what you can get away with?
  (Sir Peter Bonfield) I suppose in all these things, Chairman, we have looked at pricing overall and the Oftel and the Government figures show that in terms of an overall basket the United Kingdom in terms of pricing is still way, way at the bottom of the pack. If you take out particular areas of pricing, broadband or higher band width leased circuits, we are not the cheapest but we are not the most expensive either, we are sort of middle pegging. I think Oftel is now looking at this again. We have looked at it in terms of where we are in market share. In some of the very high band width circuits we have got probably less than 15 per cent market share. This is a competitive marketplace and we are not the cheapest but we are not the most expensive. In broad terms, the overall telephony basket in the UK is still the lowest of the pack and I think that is a very good achievement.

  409. I am just going to make a plea that I did with Oftel. Could you try to make your mobile phone bills intelligible to the people who can count with both their fingers and their toes? It is rather difficult to know how much we are paying when we see all of the other add-ons that we get when we buy the phone in the first place. I think there is a case for simpler presentation of these bills. We are told that prices keep coming down but we never seem to understand why or how. I realise that people like yourselves do not actually receive phone bills for things like that so you are not aware of them, but the rest of us do. Can I make that small plea just before Christmas.
  (Sir Peter Bonfield) I think that is a very valid point, Chairman. It is both actually in fixed and in mobile. As the choice has permeated through the industry we have now got choice for every conceivable combination, whether you want cheap minutes on a Friday afternoon, cheap minutes on a Saturday, free minutes here and that sort of thing. So we have responded as an industry to what we think is customer demand and it looks incredibly complicated and we have backed off from that. We are not perfect, do not get me wrong on this, I am not pleading a special case but we are coming back and saying "Can we make it simpler but still provide some choice?" BT Cellnet at the moment say, "You have got all these packages, you choose the package but every month on your calling pattern if you are significantly out on the package you have chosen we will point you to a better package. We are also working with Oftel in terms of making sure that the league table in terms of pricing is set up. On the fixed line stuff when we introduced per second pricing in 1995—it seems a long time ago—we got endless bills of extreme density. We are now going to start in the early part of next year introducing simplified bills that do summations so you can opt for a summation bill. The other thing is trying to put packages together like the BT Together package that says if you make a lot of local calls, you just pay an up-front monthly fee on the rental, and the calls then are not charged off peak, to try and make it simpler from that point of view. Going into next year we are trying to make it simpler but we have to understand that in the end we are responding to customer choice. I think, if anything, as an industry we have erred more towards a massive amount of choice and we now need to swing back a bit. So I think you are right.

Mr Butterfill

  410. There is just a suspicion that some of the specialised services like Call Waiting and the redialling service and things like that are priced at a fairly premium level in this digital age. Would that be a fair accusation or not?
  (Sir Peter Bonfield) I do not think so when you look at it in terms of the round compared with competitive markets elsewhere. I do not think that would be the case.

  411. You do not think things like Ring Back and Call Waiting are excessively profitable?
  (Sir Peter Bonfield) When we introduced Call Minder we were obliged by Oftel to introduce a wholesale product for it. It cost us £4 or £5 million to put in and there was a huge amount of competition and there was very little demand, so it is difficult to say.

Mr Hoyle

  412. While we are touching on mobile phones and bills, have you got a policy at the moment where you have got exchanges in the middle of residential areas where in the case of one in my constituency, in the village of Adlington, there was a telephone exchange with no mast for mobile phones, but suddenly there is an application in on your site for One2One? Are you cashing in on your assets and ignoring local opposition and feeling?
  (Sir Peter Bonfield) The whole issue in terms of masts is a pretty vexed one and I do not want to shorten it, but what we are trying to do is respond to concern both in society and the environment about the proliferation masts, so we are encouraging mast site sharing.

  413. Can I get it clear, there is no other mast on this site. This is for a One2One mast with nobody else on the site.
  (Sir Peter Bonfield) What we are doing is trying to encourage the industry to site share. We have just done a deal with a company which sells to other operators so that they can lease space on the top of the roofs of some of our buildings to co-locate masts. It is the sort of thing you just brought up. We would like to co-locate as many as we can, particularly when we go into 3G roll out, when the number of sites required is going to go up by a factor of three. If we cannot as an industry agree more site sharing, then it is going to create more and more issues in terms of local planning?

  414. I understand all that. The problem is we are surrounded by masts which are not in residential areas and you have decided to allow One2One, which is not yours, suddenly in the middle of a village, eight feet from people's properties, to establish a huge mast. My worry is you are busy cashing in the chips and not realising the consequences of what you are doing or that you do not care what you are doing.
  (Sir Peter Bonfield) We certainly do care what we are doing. This is a particular issue we are trying to resolve. I am not familiar with that particular site, but in overall terms we are trying to do maximum mast sharing through this deal that we have got on our sites.

  Mr Hoyle: I accept that but there are no other masts on this site; it is a one-off. I will leave it at that, chair.


  415. We have ridden our hobby horses. You have also helped us a great deal on the issue. We are coming back to this. We suggested to Patricia Hewitt, the Minister, that she might like to put a monthly unbundling report on the Departmental web site. She blanched at that so the matter is still under consideration, but suffice to say later in the year, elections notwithstanding, I am sure this Committee will return to the issue and we look forward to hearing from you again. There will be some points of detail that we will want to come back to you on but thank you very much for your help today and we look forward to seeing you in the future.
  (Sir Peter Bonfield) Thank you very much, Chairman. We do appreciate that this is a pretty important topic you are investigating and we are pleased to respond to it.

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