Select Committee on Welsh Affairs Minutes of Evidence

Memorandum submitted by NTL


  NTL welcomes the continued interest of the Committee in the communications sector and in particular the list of issues being considered surrounding Broadband provisioning within Wales.

A difficult year for the communications sector

  It has recently been a very hard time for any company involved in telecoms, new media, or broadcasting, largely as a result of factors outside of the control of the Government or any individual company. The markets have corrected their own irrational exuberance of the "tech boom' by taking a now in many ways unduly negative view of the sector. It will take some further time for equilibrium to be restored.

  At this difficult time there are calls for the Government to take steps to bale out particular companies or even to fundamentally re-examine policy aims and objectives. In our view, this is a time when the Government should remain above the competitive fray. Many of the short-term "fixes' or interventions being proposed will not actually be of any practical assistance, and if adopted will harm the chances of a successful recovery for UK-based companies when global market conditions change. Similarly, Government policy for the sector remains basically sound, notwithstanding some of the criticisms we offer below. At any rate, it would be much worse to suddenly implement ill-judged changes of direction, which will scare off potential future investors.


  In the relatively short time it has been available in the UK, Broadband has generated high expectations amongst potential customers and policy-makers alike. Some argue that there has been overhype and under delivery from the industry. We think it is fairer to say that Broadband has suffered from the "new best thing' syndrome that affects all technological developments. However, allied to high expectations is the danger that many form the opinion that Broadband is some kind of failure. It would be a considerable pity if this view took hold, particularly at a time when Britain's take-up of Broadband is doing relatively well.

  Right now what we need to inject is some perspective into the situation. Broadband is not getting a good press in general at the moment and what is printed is usually a rather bleak picture and not entirely accurate. However, if you compare figures for mobile phone and internet take up at a similar stage of its development as a tool of mass communication, then Broadband is certainly holding its head above water very comfortably. As the leading provider of Broadband in Britain, NTL hit and exceeded its target for 2001 of over 100,000 customers and we anticipate the pace quickening considerably in 2002.

  There is however significantly lower overall demand for higher bandwidth services in Wales than in the UK as a whole. This is primarily driven by the lower overall levels of economic activity in Wales and by the lower usage by Welsh SME's of ICT in general, when compared with their counterparts in the rest of the UK. However, there are encouraging signs of an increase in ICT usage amongst Welsh businesses that we believe will lead, in due course, to an upsurge in demand for higher bandwidth connectivity. In particular we note the 21% rise in the DTI's connectivity indicator between 1999 and 2000.

  We fully expect the Government to maintain its high level of commitment to Broadband in 2002. The Government's Broadband statement in December was very welcome but it failed to consider, crucially in the current investment climate, what role tax incentives for consumers can play in aiding take up. A compelling case can be made to the Treasury and we contend that the cost of tax incentives to encourage early take up would be repaid by the increase in economic activity from moving the UK faster up the Broadband adoption curve.

Addressing anti-competitive behaviour

  In much of last year, we have seen powerful players in the sector describing each other's behaviour as `anti-competitive'. Separating the rough and tumble of normal commercial behaviour from genuine abuses of market power is very difficult, but it has to be done and the genuine abuses promptly curtailed.

  The performance of all the regulators in this regard has been disappointing. The saga of BT's unbundling of its local loop seems to have ended with most competitors driven from the battlefield. BT has been given a much-needed breathing space to sort out its financial priorities and decide that, after all, it does want to deploy higher bandwidth services. NTL recognises that complex factors have affected the regulation of this process, which was never going to be either easy or quick. But it does highlight the need for OFTEL to have the powers, resources and the political will to take rapid and resolute action against those abusing market power. Unfortunately, OFTEL continues to devote a disproportionate amount of its time and resources to consumer and social policy matters which ought to be handled either by the OFT or by the Government itself.

  What this and other examples reveal is the urgent need for reform of the way that competition rules are applied to the sector as a whole. Whether this requires the proposed communications legislation depends on the extent to which it is considered that the problems identified flow from failures of management in the regulatory bodies. NTL considers that the regulators can fairly claim to be working with inadequate regulatory tools for a fast-moving sector, and that legislation is therefore required. Equally, a stronger and more focused set of objectives set out in new legislation would help. On the other hand, the Government could already make clear its strategic priorities to the sector regulators if it chose, and this might indeed be a helpful step. Sector regulators should be firmly guided by the Government to employ the tools they already have more effectively and single-mindedly to the task of delivering effective competition - if need be at the expense of other areas of activity.

What are the benefits, particularly the economic benefits, of Broadband services?

    —  Improving business competitiveness within the global economy through increased use of new information and communication technologies (ICTs) with effective access to markets, information and supply chains. Effective use of ICT enables both established and new businesses to generate improved growth, thus providing jobs and income to the local economy.

    —  Encouraging businesses and public sector organisations alike to interact through electronic commerce and electronic document interchange.

    —  Developing health care applications and encouraging the take up of successful projects, such as Telemedicine.

    —  Continuing to make the best use of ICT for life—long education and training of all members of society.

    —  Improving the ICT skills of the existing and potential workforce.

    —  Developing telecommuting and teleworking and encouraging wider take-up of the practices.

    —  Improving the quality and accessibility of public services through adoption of ICT applications, for example Broadband in schools.

Does Wales stand to lose out if Broadband access is not readily available?

  There has been major growth in certain industrial sectors, notably in manufacturing and assembly. Inward investment into Wales has been a major success story, and has considerably enhanced Wales' reputation at a global level. Productivity is high, unit labour costs are low, we have an adaptable and flexible workforce, and unemployment rates have reduced significantly. The National Assembly offers potential for raising the status of the country on the international arena, and will give Wales a real voice at the European level. In addition, Wales has developed a reputation for being a good place to live and work—land prices and office rents are among the most competitive in Europe, the natural environment is outstanding, there is a unique national identity, strong cultural heritage, and excellent leisure and social facilities. The institutional infrastructure in Wales is also very strong.

  Yet there are major concerns, such as:

    —  There are still very low economic activity rates, and high unemployment rates, in certain sectors and parts of Wales.

    —  We have a "low wage/low cost" reputation, with too great a reliance on low value-added sectors, few managerial/professional positions and relatively low skill levels.

    —  Many people outside Wales still see it as a land of mining and heavy industry.

    —  GDP per capita is low (the lowest of any region of Great Britain) and has not improved compared with the UK and European averages.

    —  Education and health standards tend to be lower than the UK average.

    —  There is a need for improvement/investment in transport and telecommunications infrastructures.

    —  There is a high dependence on agriculture in some areas of Wales, where incomes have been falling rapidly.

    —  We have too many poorly performing small companies.

  Therefore, even though we have many advantages, we believe that a transformation of Wales' economic and social prosperity is necessary, and that this can be assisted greatly by the effective exploitation of the new information and communication technologies, which all require Broadband Services.

Transforming the Image of Wales

  The "Pathway to Prosperity" document calls for an end to the "low cost" approach and a transformation of the Welsh economy into a higher value-added, innovative regional economy, capable of delivering increased prosperity to people in all parts of Wales. We already have a good reputation in the electronics, software, aerospace and automotive industries, which—together with this strategy and the potential of additional European funding from 2001—will put us in a strong position to realise our vision of Wales being a regarded as a world-wide leader in the transition to an Information Society.

  Health is a good example. For a variety of geographic and demographic reasons, Wales has pockets where overall health standards are very low—much worse than the average for the UK as a whole. Although more and more resources are being made available for the Health services, demand is continuing to outstrip supply. In addition to being a major drain on scarce resources, and having its own adverse social implications, this has a significant impact on overall economic activity rates, which in turn depresses economic prosperity as demonstrated by GDP per capita. Whilst technology per se can never be a panacea, Telemedicine applications can provide opportunities for tackling spiralling costs and for enhancing the quality of patient care and treatment.

  Remote diagnosis and consultation processes, e.g. via the use of video-conferencing, can not only reduce travelling time and costs in rural areas, but also speed up the process of treatment. Better access to information—patients' records/family histories, latest research results, etc.—can be beneficial for both patients and the medical profession. There are many key issues which have to be resolved in this field, of course, not least of which are the important topics of confidentiality and liability, but there is growing recognition that the potential of the new technologies must be exploited if we are to make real progress in improving standards of health.

Lack of sustainability

  Several innovative projects and initiatives, which impact on "quality of life", e.g. in the fields of Health/TeleMedicine, Transport, Teleworking, etc, have been launched in Wales. Indeed, Wales has been amongst the leaders in these areas. The main problem faced by many of these initiatives, however, has been lack of funding, which has prevented their development into widespread, sustainable applications. Therefore, one way of convincing the people of Wales that the quality of their lives can be improved via the new technologies is to roll-out best practices, and build sustainable initiatives, particularly in applications such as TeleMedicine and Transport.

What action is needed locally?

  The Wales Information Society (WIS) report "E-ssential for Business", published in May 1998, summarised the results of a survey of Welsh companies' usage and uptake of ICTs, compared with similar studies in five leading-edge countries: the UK, France, Germany, Japan and the USA. In many ways, the results of the survey were most encouraging. For example, the survey showed that, overall, Welsh companies have a very positive attitude towards the Information Society, and levels of usage and uptake of ICTs are among the highest of any of the surveyed countries. However to match a positive attitude what is also needed is:

  1.  An education campaign designed to inform SME's and consumers more widely of the benefits of Broadband. An important element is the practical application of Broadband.

  2.  Independent advice from centres of excellence to provide impartial advice and for SME's to receive relevant case studies to their businesses.

How does the availability and cost of Broadband services in Wales differ from that in other parts of the UK?

  Within Wales, NTL's operations focuses on the mainly industrial South Wales and the key urban areas of Cardiff, Swansea and Newport. Within these areas the network passes some 300,000 homes, of which 142,000 are customers. The Network was built to deliver Broadband services and is predominantly a fibre-optic based network which allows for considerable amounts of data to travel at very high speeds.

  The company provides three core services of internet, telephone and multi-channel television and of the 142,000 residential customers in Wales, 9,000 have Broadband services. Our Residential Broadband service comprises two speeds - 128k at £14.99 per month and 512k at £24.99 per month. Over 50,000 customers use NTL as their Internet Service Provider (ISP).

  Our Business Broadband service offering comprises Asymmetrical Digital Subscriber Line (ADSL) for our off net customers which is provided via a BT line at £90 per month for the 512k and £125 per month for the 1020k bandwidth with an installation charge of £260. The customer pays BT for line rental, but call charges are billed by NTL. On net customers are provided with a Cable Modem service for 512k and 1020k bandwidth for the same rental and an installation charge of £220 and are billed for both line rental (£12/mth) and call charges. These are bundled services and for ADSL it is a condition that outward call are routed via ourselves, whilst for Cable Modem it is a condition that the customer takes our telephone line as well. These prices are common across the UK.

Alternatives to Broadband

  We tend to use the term "Broadband" to describe a service capability that embraces an "always-on" very high speed two-way access to the Internet. Our Broadband cable is one technology that can provide this Broadband capability. But there are other technologies including ADSL, Satellite systems and wireless line-of-sight technologies.

  Wales is characterised by urban centres, small towns and villages and very sparsely populated rural areas. Urban centres are attractive economically for all the technology options for Broadband. Most urban centres are well served with connection to complementary cable modem services from NTL and Telewest and competitive ADSL services from BT. At a technology level both technologies are equally capable of delivering an always-on high speed two-way connection to the Internet. Both free up the telephone line for normal telephone usage. Any difference in the quality of service is down to how the service provider has implemented the technology.

  Whilst we consider Cable Modems and ADSL broadly comparable in what they can deliver today in terms of high speed access to the Internet we view our Broadband cable as having a much more potential for the future on a like for like investment. Our Broadband cable network is based on a modern hybrid fibre/coaxial cable design. In the areas where we have our Network we have more fibre optic cable much closer to the customer than exists with the BT copper wire telephone network built many decades ago.

  Line of sight wireless technologies are another means of delivery of Broadband services. The particular strength of a wireless based delivery system is the relatively low infrastructure investment. It bypasses the burden of digging up the streets. One of the issues that has slowed up the growth of these wireless local loop systems is the relatively high cost of the Broadband customer premises equipment. NTL has worked with a small UK manufacturer called Ogier Electronics to develop a low cost Broadband wireless unit. This has been achieved by using a common technology with cable modem systems. Thus we have been able to leverage the huge world wide scale economies of cable modem technology and at the same time considerably simplify the design of the wireless unit. We have termed the technology "WHAM" for Wireless High speed Access Modem. The original technical trials were carried out in Wales to prove the concept. Very reliable high speed Broadband links were achieved over the entire period of the trial through one of the wettest of the recent winters. This gave NTL the confidence to place an order with the UK manufacturer to take the technology into a trial commercial deployment in London. This first commercial pilot is intended to economically plug gaps in our cable network and is completely "plug and play" compatible with our cable modem network. In the same way that there are gaps in our cable network (where we have not built for whatever reason) so a wireless local loop system will have gaps where there is not a line of sight between the base station and the customer premises.

  All of the terrestrial based technologies (Cable Modems, ADSL and Wireless local loop) can serve the semi urban areas but become progressively more uneconomic as the demographics move towards the rural situation. The reason is that a double effect occurs. First the distances involved push up the cost of implementation. Second there are less and less people to share that cost as a service area extends into more rural areas.

  In the rural areas, the most effective technology to deliver Broadband is satellite technology. The great strength of satellite technology is that it can cover large areas very easily. A geostationary satellite can view a third of the globe. However there are two sides to this coin. Its very strength is also its weakness when it comes to providing two-way communications to large numbers of customers (as opposed to pure broadcasting). Its large visibility precludes very intensive re-use of the frequency spectrum. In contrast a cable modem technology re-uses its available frequency spectrum street-by-street and town-by-town. It can support the huge numbers of customers that are likely to want Broadband services in large cities and towns. Similarly for ADSL technology. This is why the satellite and the Cable modem/ADSL technologies are complementary. Where you have a very high density of people you have the two wireline based technologies that can intensively re-use their frequency spectrum to support huge numbers of subscribers. Where they become uneconomic, you have the satellite technology to scoop up the relatively fewer people who are widely dispersed geographically.

  Thus the NTL view is that a good basis for Wales is a mix of technologies including Cable Modems, ADSL, wireless local loop and satellites. To the extent that a competitive choice can be provided for Welsh homes and businesses so service providers will improve their Broadband offerings not just on price but on quality of service.

Ian Jeffers

MD NTL: Home—Scotland, Wales & N.I.

February 2002

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