Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by BT


  In our Memorandum to this Committee a year ago, we concluded that the Communications White Paper had adopted a sensible policy overall towards the internet but we made recommendations designed to provide consumer choice, foster innovation and stimulate creativity in content production. Nothing that has happened since then has altered our view that the UK can succeed in the internet-era for the benefit of all its citizens, provided that innovation and investment are not inhibited by unnecessary regulation.

  However, the economic environment has deteriorated further over the last 12 months, which has had a dampening effect on the communications sector and particularly on the rate of take-up of broadband services. We should also recognise that the regulatory environment in the UK is not the same as in some of our leading competitor nations where national regulatory policies have been geared towards broadband growth in the short-term, even if this is at the expense of developing a long-term competitive market. The UK's approach is the opposite and nobody should be surprised that an environment designed for a marathon is not producing results in the short-term that match other places where they are staging a sprint.


  In this submission we deal with the following issues raised by the Committee in its terms of reference for this inquiry[1]:

  1.  Implications of the delay to the expected legislation establishing OFCOM;

  2.  Progress towards universal internet access in the UK;

  3.  Progress towards effective broadband and higher bandwidth networks; and

  4.  The impact of technological developments on the protection of privacy.

1.  Implications of the delay to the expected legislation establishing OFCOM

  The Communications Bill will be a large and complex measure. It is, perhaps, not surprising that the Government felt it necessary to take more time than anticipated to produce a draft. A repetition of the problems which occurred in the parliamentary passage of the Utilities Act would not be in the interests of anyone. The question is whether the extra time is being used well.

  Extensive consultation involving constructive dialogue with stakeholders is the best way to ensure a Communications Bill that provides a suitable basis for legislation. The Communications White Paper discussed the issues at a high level of generality. Workable legislation must be based on clear understanding of workaday detail.

  It is, therefore, important for the Government to enter into dialogue with broadcasters, telecommunications operators and consumer groups to obtain their expert opinion on the proposals. Whilst there were initial and welcome discussions of this nature, these opportunities have not been available more recently.

  The delay could be better used to develop understanding of the issues and to promote constructive discussion with those who have practical knowledge of the issues. Whilst there will be a consultation process and the promise of formal pre-legislative scrutiny after the draft Bill appears, which we strongly endorse, there is a danger that there will be insufficient time for proper examination and debate before the summer recess and the final Bill's presumed inclusion in the 2002 Queen's Speech.

  It could, therefore, be a Communications Bill prepared almost entirely within Governmental institutions and may reflect approaches that seem reasonable on paper but give rise to practical difficulties in operation. It is also possible that a "closed" drafting process may overlook the strength of feeling on certain issues, leading to difficulties in the Parliamentary process. Perhaps worst of all, there is an obvious danger that this "closed" approach may lead to proposals that fail to come up with fresh, imaginative approaches to communications issues, including regulation, and thus perpetuate some of the problems of the current regimes.

2.  Progress towards universal internet access in the UK

  Oftel's latest analysis[2] says that;—

  "around 40 per cent of households and 60 per cent of small businesses are now connected to the internet" and that "during 2000-01 the total volume of internet traffic originating on the PSTN grew by over 200 per cent to over 92 billion minutes."

  This level of internet penetration is higher than in any of our key European competitor nations.

  The same publication also says that:

  "Increased competition has ensured that the UK has among the lowest prices in the world for dial-up internet access, particularly for unmetered tariffs. The results from Oftel's latest benchmarking study show that UK is cheaper than other major European economies for residential access for all but the very lowest usage levels."

  This leading position on internet pricing has been achieved in an environment where consumer prices on a wide range of goods and services are generally higher in the UK than elsewhere, and it is also worth noting that comparisons are normally of VAT-inclusive prices, which disadvantages the UK since our VAT rate is amongst the highest in the OECD and G7. Given all these factors, the good story on UK internet pricing is a remarkable story and a tribute to everyone working in the UK telecommunications and internet industries.

  Access to the internet is available to anyone with a telephone line who has a computer and modem. Given that fixed line telephony penetration in the UK is now at approximately 93 per cent of UK households and that of the remaining seven per cent, some six per cent have chosen to use mobile services as a substitute, leaving only one per cent "untelephoned",[3] the first of those requirements, and the only one that BT can deliver, has been met, and as stated above at world-class levels of affordability. The biggest barrier to take up of the internet continues to be the initial cost of buying a computer.

  Of course, there are other ways to access the internet such as at work, in libraries, at school, through mobile handsets and so on, many of which address the needs of people who cannot afford the cost of the equipment needed to access the internet.

  New initiatives continue to emerge. For example, BT Payphones, part of the Consumer Division of BT Retail, announced just before Christmas 2001 that it will install 28,000 new terminals to be built by Marconi and which will offer full internet access, e-mail and text messaging. Rollout will begin in April 2002 with 3,000 terminals expected to be in place within a year. We believe this to be the most extensive planned network of privately funded public access terminals in the world.

3.  Progress towards effective broadband and higher bandwidth, networks

  Considerable progress has been made in the provision of broadband since the Committee last examined this issue. Although some commentators continue to talk as if broadband was unavailable, the fact is that BT has now equipped 1010 exchanges to offer ADSL connectivity, covering over 60 per cent of the population and 70 per cent of current internet users. Growth in broadband customer numbers has been lower than we and others would have wished, and we know that we and other providers have to do better. But it is still a fact that although the UK's relative international position is low, the rate of take-up since launch of consumer ADSL services has been higher than it was in other countries at the same stage in the history of their broadband offerings. The UK now has over 250,000 broadband (i.e. ADSL and cable modem) customers connected (about equally split between BT Wholesale and others including NTL, Telewest and Kingston Communications.)

  ADSL connections have seen a steady increase, prompted in part by national and local advertising by BT of the opportunities to connect with the 100 or so Service Providers who take BT Wholesale services, including BTopenworld which buys wholesale broadband from BT Wholesale on the same terms as any other service provider. (BT Wholesale has 195 customers for its ADSL products, about half of whom are corporate customers and the other half service providers retailing services to the mass market.)

  There will be further developments in the coming months, with BT Wholesale launching its mass-market self-install broadband ADSL service on January 15, 2002. The new product will see BT Wholesale setting up customers' lines to support a range of high-speed services without needing to visit the end user. Independent Service Providers (SPs) will, as now, sell their products direct to customers, but also supply the necessary equipment. This can simply be plugged in by the end customer, saving the need for an engineer's visit.

  As a result of the saving in engineering time, the wholesale price of the residential product to Service Providers will be reduced to £25 a month rental with a £50 connection fee—substantially down from the previous prices. BT Wholesale will also be increasing flexibility for self-install customers by cutting minimum term contracts from 12 months to one month—meaning that, if Service Providers pass this on to end users, customers will be able to test drive broadband without fearing a long-term commitment. BT continues to look for improvements in quality of service while reducing costs and passing these savings onto customers through price reductions.

  BT is also exploring other means of providing broadband using satellite technologies and working in partnership with others to bring broadband to rural areas with the assistance of EU funding. For example, on 11th December 2001, a pioneering multi-million pound project was announced by BT in Cornwall which could provide a blueprint for the development of broadband services in rural Britain. ACT NOW, a partnership between BT and key public sector organisations including the South West of England Regional Development Agency, is a £12.5 million project to assist small and medium-sized businesses in Cornwall. It is expected to lead to the creation of up to 1,000 jobs in the county. The new jobs will be created primarily through the growth of participating businesses, web design work, software development and SME support. The project will involve the provision of intensive support and advice packages for 3,300 Cornish businesses and the rapid roll out of ADSL broadband technology to a further 12 Cornish telephone exchanges. This roll out will mean that 93,000 households and 14,000 businesses will be within ADSL enabled exchange areas in Cornwall.

  It is important not to see broadband penetration as the sole metric of e-commerce success. Otherwise there is a risk of replicating in e-commerce the misjudged focus in the health sector on the single metric of hospital waiting lists. A balanced score card looking at numbers of PCs, number of schools online, value of e-commerce transactions, digital tv adoption, business internet connectivity, shows the UK in a very strong comparative position—see Annex 1 for examples of how e-UK is better placed than e-Germany, which is the most advanced internet economy among our European G7 competitors.

  The benefits of broadband are often said to be higher bandwidth, the fact that it is flat rate, and that it is always on. These are indeed characteristics of broadband, but unlike in the rest of Europe or indeed in the whole of the USA, UK customers can get low-cost flat rate internet over narrowband. As a result there are more customers with flat rate internet access in the UK than in the rest of Europe in total. This means that we have many more people who are relaxed about surfing for long periods, becoming used to and driving e-commerce applications and being prime candidates for broadband if we can get the transition right. Having this low-cost flat-rate access to the internet available to everyone from the Shetlands to the Scillies means that the UK has a much more socially inclusive approach to internet access than, say, Germany or the USA. But the downside of this achievement is that the incentive to switch to broadband is reduced in the UK, so content and applications become more important.

  The fact is that encouraging more people to move to broadband is proving to be difficult in the absence of compelling content and applications. Even in the USA, often held-up as a model for the UK, DSL growth is slowing, prices are rising (by an average of 25 per cent recently), roll out plans of some operators are being shelved, and customers are showing signs of returning to narrowband. It is essential that there is growth in new content to ensure that customers find their broadband experience satisfying and worthwhile. At the same time, we must continue to encourage greater numbers of people to take the service since there is evidence that real growth will come from peer to peer applications. The challenge we face is to create a virtuous circle by increasing the number of connections which in turn will encourage the development of more content and so further stimulate demand.

  It should also be noted that the UK is unusual in Europe in having a truly competitive broadband market-place. Because BT Wholesale is required to sell wholesale ADSL products to any service provider on equal terms and because the UK has encouraged infrastructure competition through a variety of regulatory constraints on BT, Oftel's most recent analysis[4] shows that BT's own internet service provider, BTopenworld, has only 18 per cent of the broadband retail market. The contrast with Germany is stark, where Deutsche Telekom has 98 per cent of broadband customers. Indeed the EU has initiated a competition investigation into the German situation, which has led Deutsche Telekom to raise its monthly broadband rentals by a reported 27 per cent, but only after having been allowed to build a dominant market position.

  The role of regulation in broadband—We have been critical of the way that regulation is inhibiting the achievement of some of the Government's aims in the short-term, even if the pursuit of a fully competitive market is likely to be beneficial in the longer term. It is not so much the regulatory framework itself, although there are certainly improvements that could be made, but the way in which the rules are being applied that seems unlikely to achieve accelerated deployment of broadband. Differences in interpretation and application of the rules between countries will inevitably flow through to different end results. Of course, we accept completely that we must work within the rules, including the Competition Act. However, a more flexible interpretation is perfectly possible that would remove most of the adverse impact of regulation on broadband achievement.

  Government investment—different countries have different priorities for expenditure and in some places the stimulation of broadband penetration has been fuelled by Government funding. Generally, it is those countries that are ahead of the rest in terms of numbers of customers. The leading country in international comparison tables is Korea, with Government funding of approximately £600 million in support of private sector spending. Patricia Hewitt, Secretary of State for Trade and Industry, whilst on a visit to Korea, is reported to have said;—

  "The South Korean government has invested very substantial amounts in broadband infrastructure and that's something we're aware of in the UK but broadband has to take its place in a list of competing priorities alongside things like health and transport."[5]

  Prioritising between competing investment choices is an essential part of Government. BT is not challenging the Government's spending priorities nor seeking Government funding, but again, nobody should be surprised that countries that choose to spend large amounts of money have better customer numbers as a result.

4.  The impact of technological developments on the protection of privacy

  In a modern society there is ever-increasing use of computing technology in all aspects of life. This entails increased potential for intrusion on personal privacy. However, not all intrusions are seen by users as unwarranted and notions of what constitutes a violation of privacy may change over time, as may expectations of what use may be made of personal data.

  The underlying computing technology (both hardware and operating systems and applications software) present in all modern computing facilities is commonly developed by manufacturers and software developers to include "standard" features that may be used in ways that may intrude on privacy. For example, copyright owners, e.g. in movie and audio content, are anxious to introduce improved technical means to identify users/ licensees of their works in order to facilitate copyright enforcement which will impact on privacy.

  Other measures, also outside the control of communications providers, may compromise the privacy of individuals such as, for example, the Anti-Terrorism, Crime and Security Act. Measures to curtail and detect "cybercrime" in development under the Council of Europe Convention on Cybercrime and being considered by the EU Commission will impinge on users' privacy. Activities which are not specific to communications providers also raise significant privacy concerns. For example, monitoring of employees' e-mails and phone calls affect all businesses, not just communications businesses. These raise significant human rights issues for citizens. There is, of course, a balance to be weighed between citizens' rights to privacy and the detection of crime.

  The interpretation and enforcement of privacy laws should be consistent across all industries and between companies within an industry. This requires a point for resolution of privacy issues through a single arbiter charged with making technology and "market" neutral judgements. This will provide for consistent treatment for all citizens and a level "privacy playing field" for the application of privacy rules to all industry and government. The Information Commissioner is ideally placed to fulfil such a role.

  A sector-specific regulator, such as OFCOM, will not be able to develop and maintain the expertise necessary to deal with privacy issues in this neutral and broadly-based way (including the critical and complex law enforcement-related issues.) Sector-specific regulation in the privacy field would be likely to distort the application of privacy laws in the UK, with different applications in different industries, even thought the personal data concerned might be used for identical or near-identical purposes. This, in turn, will create unwarranted competitive distortions, between communications providers and other industries and also between communications providers.

  The resolution of potential conflicts between copyright protection and enforcement and invasion of privacy will be best resolved in a technology and "market" neutral way, again, through the single Information Commissioner, working in conjunction with the Courts.

1   Press Notice No. 7 of Session 2001-02, dated 19 November 2001. Back

2   Oftel - Annual Market Information 1996/97 - 2000/01 published December 2001. Back

3   Universal Service-Oftel Statement 30 August 2001. Back

4   Oftel-Annual Market Information 1996/97 - 2000/01 published December 2001. Back

5   Source: Financial Times report 9 January 2002. Back

previous page contents next page

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

© Parliamentary copyright 2002
Prepared 7 March 2002