Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  1. Good morning. Welcome before the Committee, formally. We have met you twice before and had some useful information from you in the past. Just for the record, could you introduce yourselves and give a little bit of background as to your operations in the UK?

  (Mr Jeffers) Thank you very much, and thanks for inviting us. I have with me Simon Tse, who is our regional director for NTL business in Wales, and Alex Blowers, our director of regulatory affairs. To augment our written submission, I would like to make four points. Firstly a quick explanation: NTL is effectively the leading UK cable company. We pass 11 million homes with 3 million customers providing over 5 million products and services. Bringing that closer to home, within Wales NTL's operation focuses mainly on industrial south Wales and the key urban areas of Cardiff, Swansea and Newport, and within these areas the network passes some 300,000 homes, of which 142,000 are customers—approximately 50 per cent. We do some operations in continental Europe but none in the US. We are, however, a US listed company and in large part it has been US investment that has enabled us to build or buy our local loop infrastructure which is the only meaningful alternative to that of the dominant player, British Telecom. Secondly, we and many other companies who will give evidence to this Committee operate in a truly convergent sector where product development is measured in months rather than in years, and there is no doubt in our mind, therefore, that we need a convergent regulation—and, indeed, it needs to work at internet speeds, preferably broadband speeds at that, sooner rather then later. In addition we believe this should be about the future rather than the history of communications, and that Ofcom in itself should be focused on competition and consumers rather than the interests of established broadcasters. Thirdly, as the leading provider for broadband services in the UK, we are now sitting with over 120,000 broadband customers in the UK on the retail side, and that compares favourably with BT's wholesale and retail operations. We welcome competition from other players in the market, presuming it is not at predatory pricing obviously, and we both believe in, and have actively called for, measures further to stimulate demand. Finally, Wales is characterised by urban centres, small towns, villages and very sparsely populated rural areas, and for Wales to have the best chance of achieving a high level of broadband availability we would say a good mix of technologies, including cable modems, ADSL, wireless local loop and satellites are all required. Thus a really competitive choice through that can be provided to the Welsh homes and businesses, so service providers will improve in turn their broadband offerings on price and quality of service.

  2. Can we just establish what broadband is for the purposes of the Committee? You describe it in your submission as "always on", very high speed, two-way access. Can you tell us what the difference is between that idea and ADSL, which some other people tend to also describe as broadband?
  (Mr Jeffers) They are two not dissimilar technologies in as much as you can justifiably call them both broadband services. Broadband is effectively how fast you can communicate down a piece of cable, whether it is fibre optic or copper, and the fact that it is always on. So I would say that they are two complementary technologies and you can rightly class them both as broadband.

  3. For what kind of applications would you need your type of broadband, if I might describe it like that, rather than an asymmetric system?
  (Mr Jeffers) For the consumer environment the classic uses of broadband are for high speed access to the internet for things like MP3 music file downloads and video downloads, and simply the "always on" capability, whether it is running at 128 K or 512 K, is very useful for just simply receiving things like e-mails, working from home and so on, and as the speed increases to 512 K and above it very much goes into the realms of video conferencing, et cetera.
  (Mr Tse) For the business environment, broadband as we see it today is about using e-mail and about the ability to have a web page on the internet but it is a lot more than that. It is also how you integrate your whole business processes around the internet itself. For example, why would I need to have a pay roll department working for my organisation when I can outsource that using a big fat broadband pipe to access a particular company that specialises in pay roll facilities. That is one example and there are others you could use. So it is how you re-engineer your business and use the internet and broadband specifically for that business.

  4. So it would be very useful for business, probably more useful, to have a broadband capability of the kind you are describing rather than ADSL?
  (Mr Tse) From the technology perspective, as Ian was saying, effectively ADSL is using the copper wires that are already in the ground and combining together so that you can get more capacity out of them. Effectively, using ADSL or using a cable to deliver is delivering the capacity and enabling you to use that with a regular cable or an ADSL. It is just giving you high speed access to the internet space.
  (Mr Jeffers) I think the key thing to acknowledge in this is that it will take a mix of technologies to deliver broadband to any area not just cable. That will be ADSL, wireless or satellite, and it is wrong to say one is better than the other. They all have a part to play. Some have strengths—some have weaknesses

Mr Ruane

  5. Are there any types of businesses that would benefit more from broadband than, say, the run-of-the-mill businesses? Technology businesses, information businesses?
  (Mr Tse) Certainly if you look at the early adopters then it is the technology-led ones that are using broadband services. Effectively, the gain is there for all types of businesses. Now, it is debateable down to what level that is and the benefits they will get from that, so if you talk about Wales having less than 19 companies, then if you take the public sector to one side, those that employ 1000 people, then if you look at the bulk of the SME sector within Wales it is less than 15 employees. When you get down to the micro level of 1, 2, 3 or 4 employees, then the advantages are there to be gained but not necessarily as big an advantage as for an organisation that employs 250 people.

Mr Williams

  6. Most of your network in Wales is concentrated in the industrial and urban areas of south Wales, and is provided by fibre optic cable. Is cable the best way of delivering broadband services in the most sparsely populated and rural areas of Wales?
  (Mr Jeffers) Again, the simple economics of any infrastructure—whether it is cable, copper, fibre, etc—is that obviously it has to be geared towards concentration of employment. The further you go out from those concentrations, the higher the cost to deliver. In some instances, it would be worthwhile I think, where the economics work, for small concentrations where you have a lot of homes together but I think for many rural areas, satellite and wireless will provide other alternatives. Our view very much is, if we can stimulate the demand for broadband services where there is existing network, that in turn will encourage companies including ourselves and others really to explore those technologies which in turn will drive the price down through the delivery, but the disadvantage of some of the satellite and wireless technology is obviously that at this stage it is cost sensitive.

  7. I am going to open a new business club in Brecon in the heart of Wales. What type of technology should they be using there? Satellite? Wireless? What do you think will be their best facility?
  (Mr Jeffers) There is a number of things that I would encourage businesses to look at. Because we would use the incumbent players' network to deliver some of our services as well and, if the demand is there today for the service, that would be the most obvious one to exploit—an ADSL/DSL style connection. Going forward it will be the other technologies as well that will give competitive choice.
  (Mr Tse) Yes, we would use the incumbent supplier and that is a true statement in the sense that we would not only use our own infrastructure to deliver broadband, whether it would be 128 K or 512 K, but we would contract with the incumbent supplier to provide services even though we do not have our own services in that part of Wales, and allow the customer to have the benefit of our tariffing regardless of where they sit, whether it be north Wales, mid Wales or even in industrial south Wales.

  8. What are the real limitations to satellite and wireless technology?
  (Mr Jeffers) Predominantly the speed of access. The advantage to satellite is the fact that it has such a wide footprint it can cover a huge area so it is ideal for a rural community, but by its very nature it is predominantly one-way. That is the restriction on it which you do not have with cable or DSL technology. Time will change that inevitably, and we will look at different speeds.

  9. What role do NTL see for wireless highspeed access modem technology which you are supporting, and will you use it to provide competitive services to BT in rural areas or will you leave this to satellite companies?
  (Mr Jeffers) That is a great question because WHAM has been a project we piloted in Wales, and very close to here[1] we use it to deliver service now, and it is a technology that we think has great opportunity to stretch our network so we can bring the cable to the point that it is today, and using wireless highspeed we can connect in some other outlying areas. It really is a question of looking at any geography and seeing the best opportunities and mixing those technologies, but WHAM certainly comes with all the advantages that cable would have—two-way communication at very high speeds—so it would be probably a better alternative to satellite but, again, it has to connect to the network at some point so there is still some restriction attached to it. But it is a developmental technology and it is one we are committed to rolling out as we can get the economics to start working.

Dr Francis

  10. Is the government right to adopt a technology-neutral approach to the delivery of broadband?
  (Mr Jeffers) I think it is very fair to adopt a technology-neutral approach. I think it would be wrong to try and say "The solution is X", because I think it would stifle some potential developments in there. We have a very high speed broadband cable network. Others deliver it on copper and on satellite and if we can encourage the delivery of broadband regardless of platform that is going to be the best approach to ensure coverage.
  (Mr Tse) We live in a technology environment market that changes at an unbelievable rate. Three months in our environment is like 12 months or two years in an external environment. It would be wise to stay away from a specific form of technology, therefore, and just say it is about delivering broadband however that may be done using the different technologies that exist.

  11. Is the government doing enough to encourage it generally?
  (Mr Tse) Certainly, if you look at the work that has been done in Wales already with the Welsh Assembly and the WDA and the various projects that have been put together. If you look at Cymru Ar Lein[2], for example, as one of the projects, let alone Pathway to Prosperity[3] and so on, it asks how do we maximise the advantages that are to be got through the delivery of broadband services? So there are a number of projects that are well under way.

  (Mr Blowers) On that point it is fair to say that the Government could always do more. In a sense it is our job to push the Government as far as we can in the direction of supporting and stimulating the role of broadband. We have been working very closely with the broadband stakeholders' group, and one of the conclusions of that group is that Government policy is broadly correct. There is no need to tear up the existing framework and start again, but that is not to say that there are not a number of specific and detailed measures that the Government could take which would improve the environment in which we find ourselves. If it is of interest to the Committee, we can certainly talk about some of the specific proposals that we have made to the Government in the context of that broadband stakeholders work.

Mr Ruane

  12. We have been told in our inquiry that access to and usage of broadband is much more expensive in rural areas. The example we were given is that, if a company operating in Slough were to relocate to Bangor, its bill would triple, which puts areas like Bangor in rural Wales at an economic disadvantage. BT says it is required to use the same pricing regime throughout the country. Is it the case that the same tariffing principles are applied throughout the country?
  (Mr Jeffers) What I can say on the consumer side is that our price is the same regardless of where you are in the UK. A broadband customer in Wales will be paying £14.99 for our 128 K service and £24.99 for our half Mega bit service[4], and that is a universal price throughout the UK.

  (Mr Tse) Certainly, from the business side, there are two products on broadband. There are leased line circuits we provide as well as point-to-point access mechanisms through to the internet, but if you are talking about broadband specifically, regardless of whether we use the BT ADSL product under re-sell agreements or the cable modem that is delivered via our own network, we charge £90 a month for 512 K and £125 a month for our 1 M bit services. That is the common practice regardless of whether you are in Wales, Scotland, England or Northern Ireland.

  13. As I understand it, BT have got the franchise for the whole of the country and they set their price the same throughout the whole of the country and they are not allowed to vary it wherever they are, so it is like a safety net. But in other areas like the Wirral and North Wales there are five providers and in Slough there are many providers, so they are undercutting each other so BT effectively cannot operate in those environments because it is not allowed to vary its price, but NTL and others can undercut and provide a better service. Is that the essence of it?
  (Mr Blowers) I think the situation is that BT is faced by a requirement to average its prices throughout the UK. There are some exceptions to that so, for instance, connection fees can vary. If the actual cost to BT is above a certain threshhold they can charge the actual amount, and that can be very significant if you are sitting on top of a mountain in mid-Wales. I think what you are alluding to is that, in parts of the country where there is competition, it is driving the price down below, as it were, the book price that BT is charging, so the standard price has been discounted heavily by competitors and that is great and is very good for the people in that area. The challenge clearly is not just to have a universal access infrastructure everywhere but benefits in competition. There are two ways of doing that. You can encourage service provision over the BT network so wherever there is BT network service providers are able to compete on a level playing field with BT and then you get the benefits of that competition, because although there is a fixed price for the access infrastructure, people can compete on the other elements of the package and force prices down.

  14. So it is like the gas system where you have the supply in, and then you get the different suppliers undercutting each other?
  (Mr Blowers) Precisely. Talking about different products, one of the complicating factors is that there are different degrees of competitiveness of different products. For instance, there is very little competition in local loop unbundling. That process of actually taking the raw copper from BT and providing your own services over that essentially has been stillborn, and I think there are a variety of reasons why that has been the case. On the other hand, there are existing rules which we benefit from which means that, if you want to take a leased circuit, a private circuit, which you provide end-to-end to the customer, you can get those at wholesale rates from BT. So it is patchy and that is one of the problems. There is no magic bullet solution but one of the conclusions that comes out from that is you do need effective regulation to make sure that service providers, whatever the product they are interested in selling, can get a fair price from the infrastructure and deliver those competitive benefits that you get when you have competition and not just a single monopoly provider.

  15. So unless we get competition in the rural areas of Wales we will be at an economic disadvantage, an economic backwater?
  (Mr Blowers) The other way of achieving the same result is that you force BT not just to have a single book price that it offers everywhere but basically to offer the best price available anywhere to all customers. That is not what happens at the moment. So there are two ways of achieving the same aim. We would argue very strongly that the best thing is to get the regulatory framework right so you can get the benefits of competition everywhere, because it is always better to have more than one provider out there competing for your business.

  16. Finally, are there centres of technology based and information based companies being developed around the UK now as we speak, or over the past two years, based around this cheaper access? In other words, as time goes on, is Wales being left further and further behind as these centres develop, the infrastructure around them develops, companies become settled in those communities and there is less likelihood of them moving to Wales at a future date?
  (Mr Jeffers) Personally I do not think so. I speak from experience from running our business previously in Cambridge, where it was seen as a very entrepreneurial centre, and the reason people congregated there and established predominantly high tec businesses was the brain power that was there, the people as opposed to the technology, and the network, and running the cable business there we were under huge pressure to provide the infrastructure to support the people rather than the other way round. The people came first, and that is one of the opportunities. It puts good pressure on companies such as ourselves and the incumbent to provide the services to the people that are there. I have yet to see examples of where companies have moved to get the access: they may exist—I do not dispute that in any way—but I would almost say at this point in time that it is about the brain power being there.

  17. Why did you not come to North Wales? You are based around Cardiff and the south Wales valleys.
  (Mr Jeffers) It is predominantly an economic argument at this point. Our network is focused on areas of concentration and, if you look at the historic development of the cable industry, whenever there were many small cable businesses started—and inside Wales it was Cable Tel originally—they focused, by their very nature, on large centres of population. The markets have changed quite dramatically which makes the economics of the businesses totally different; we do see that concentration. That is not to say that we as an organisation would exclude looking at other areas, but it really is a question of making sure there is an economic return on things.

  18. What about Wrexham, just to please the Chairman? Has that got a sufficient population base to attract you?
  (Mr Jeffers) There is potential and there is some interesting work happening with a small cable company in Scotland looking at places like Ayr, for example, that they have just started to build, so there are other economic models coming about that should not be excluded. In time, they may be appropriate for places like Wrexham as well.

Mr Caton

  19. Continuing on the question of price, BT has recently announced reduction in its tariff for broadband services. Do you see this having an impact on both the supply of and demand for broadband?
  (Mr Jeffers) Without a doubt. It is fantastic news. Anything to stimulate the broadband market. It is about time they did so, to be quite candid. It is a wholesale price reduction and what we need to see is that transferred into the retail market. We need the AOLs and the Yahoos to come and bundle that at a retail price. Time will tell what the retail price would be and it looks as though it is going to be, for that half Mega service, somewhere around the £25/30 mark which is where we have been since we launched the service. We have an entry level broadband at £15 which is at 128 K, then you are around £24.99, so a product around that sort of price is going to stimulate demand. Today we have just announced at a Financial Times conference that we will launch a 1 M bit service as of 11 March, and that will be available in Wales in mid-April, and that is to the consumer at a cost of £ 49.99, so that will become the fastest internet service available to the consumer after Easter. So we see the demand of BT and ourselves constantly pushing this market and that is stimulating the consumer to get on board.

1   Dolphin Square, Westminster, SW1. Back

2 Back

3   Pathway to Prosperity-a New Economic Agenda for Wales. Wales Information Society ( Back

4   512K service. Back

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