Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 238 - 239)




  238. Mr Wallace, I would like to welcome you and your colleagues here this morning. I think you have been afflicted in the latter part of the proceedings by this cough that is going around! If you would care to make an opening statement, we would be glad to hear it. Otherwise, we will move on to the questioning.

  (Mr Wallace) Thank you very much, Chairman for inviting us. I would like to make a brief opening statement, but I will start by introducing my colleagues. On my left, Emma Gilthorpe, Vice-President, Public Policy, Cable & Wireless, and, on my right, Tom Phillips, Group Director of Public Policy. By way of introduction—which of course BT does not need but perhaps we do—Cable & Wireless is a major global player in telecoms. We have operations in 70 countries around the world. We are in fact the strongest and most experienced competitor to BT in the telecoms' market in the UK. We also, unlike many companies Sir Christopher mentioned, have the strongest balance sheet in the sector, so we speak today from that position of strength. We have recently acquired Exodus, a major web-hosting business in the US, which actually makes us the No. 1 web-hoster in the world currently, so we know a bit about that sector of the business. As you know well, true telecoms' competition started in the UK in 1991 and despite some successes we believe the industry currently faces an unprecedented crisis which is significantly reducing competition in the UK and Europe. On a weekly basis, we see failures and bankruptcies in this sector, and if this trend continues unabated—and I believe it will unless something is done—competition and customer choice will be drastically reduced and that will not be good for consumers in the UK. We believe, therefore, that the maintenance of the status quo is not an option if we want a vibrant competitive telecoms' market in the UK. We strongly believe that the natural monopoly that exists in the local loop, BT's local loop, vertically integrated with BT's retail activities, is the structural source of the problem. After 11 years of competition, BT still own and operate well over 80 per cent of the local lines. We also believe that many of OFTEL's problems—and they do have a lot of problems—result simply from that fact—and of course OFCOM will face exactly the same difficulties. Having identified this problem, we also believe the solution is pretty clear; that is, to separate at arm's length the natural monopoly in the local loop from the rest of BT's activities. We believe that would radically change the business model of the local loop and encourage investment to the benefit of all. Of course this structure has proved very effective in the gas industry, for example. With that brief summary of what we think (a) is the problem and (b) is the solution, we are more than happy to take any questions from you, Chairman.

Mr Bryant

  239. I will ask you the same question that I asked BT, to which I think you coughed: BT says that we have a thoroughly effective broadband situation, that the unbundling of the local loop has been more successful in this country than any other markets in Europe. Give us some more facts about why you disagree.
  (Mr Wallace) Because the local loop is not unbundled in the UK in practice. In theory it may be, in practice it is not. We, together with Colt and Energis spent a lot of time and money in an attempt to put DSL equipment into BT exchanges to compete in the local loop. We, probably two months ago, jointly withdrew that initiative for two key reasons (1) the enormous practical barriers that BT put in the way, deliberately or otherwise—I am not saying why they did it—and (2) an introduction, about a week before we were to announce the joint venture, of a reduction in wholesale prices which made our joint venture, by sheer coincidence, unviable. I would ask the Committee to find any other major operator, or minor operator actually, in the UK who is actively installing DSL equipment in any of BT's exchanges. So the reality is that the local loop is not unbundled.

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