Agenda for Action in the UK:  Continued


Visit to British Telecommunications plc laboratories, Martlesham Heath

Tuesday 2 April 1996


                Lord Craig of Radley
                Lord Flowers
                Lord Gregson
                Lord Haskel
                Baroness Hogg
                Lord Phillips of Ellesmere (Chairman)

1. En route to the British Telecommunications plc (BT) laboratory site Members were given a demonstration of how global positioning system satellite location could be combined with a digital map display to produce a realtime navigation tool.



2. The Sub-Committee's principal host for the day was Dr Alan Rudge, Deputy Group Managing Director of BT and Board member responsible for research. Some of Dr Rudge's remarks are quoted directly in the final three paragraphs of these Minutes, and give an overall impression of key issues discussed during the visit. Other members of the BT staff involved in the presentations and demonstrations were: Mr R Gavin, Mr R Foster, Mr G Young, Dr G Walker, Dr G Carey, Mr J Roberts and Dr T Rowbotham.

3. BT currently had an R&D and information technology expenditure of around £500 million, of which 20 per cent was spent on research. At Martlesham and at BT's other software centres BT was running 2000 research projects simultaneously. Emphasising the importance of research, Dr Rudge said that this was the only activity in the company where the number of employees had risen since privatisation.

4. An information superhighway was defined as being ubiquitous (having millions of people connected), digital, switched (i.e. interactive) and broadband. On that basis the superhighway did not yet exist, but BT was involved in trying to build both the network and a market based on "chasing the challenge" of customer expectations. BT was trying to develop the network by a process of evolution through medium band to the broadband of the future. At the same time the company was faced with increasing traffic being carried on its network which was not BToriginated (20 per cent now and likely to be 50 per cent by the year 2000).

5. Technology was being used as appropriate to allow the network to evolve gradually from narrow band to medium and broad band capacity. The actual network would ultimately resemble a massive version of the modern computer with the processing power and switches located away from the home, running software and applications over a wide area. It was these applications (and services provided) that would be profitable, but they required the infrastructure to be in place first.

6. The regulatory process and the weakness of the market were slowing down the infrastructure developments by BT, and several times in the past they had stopped BT from making investments in broad band in the United Kingdom. The Information market place

7. The need for advanced electronic communications was evident in the measures that people would take to communicate - for instance flying abroad for a meeting. The cost of physical travel was falling, but the cost of moving information to the people, rather than vice versa, was falling much faster. The National Lottery was one example of the general trend towards "moving bits not atoms". Developments in computing, storage, modems and video coding had all caused costs to fall at the same time as the power and speed of technology had increased.

8. Traffic volume on the World Wide Web had increased exponentially and it was still accelerating. However, this was just the start. The Internet represented a relatively basic level of communication; it lacked true functionality and something much better was required.

9. Developments for the home market would now come from a number of different angles as technologies converged and became digital. The four main industries involved were computing (e.g. Microsoft and Oracle), telecommunications, content (e.g. Disney), and those based on "home platforms" for specific uses (e.g. for games). Collaboration between these industries was the key to an integrated approach. Technical issues

10. Many similar technical issues were being faced by the four main industries. These included:

    (i) Content

    Formats, management tools, "legacy databases" (past technology);

    (ii) Servers

    Capacity, indexing, searching, security, billing, customer handling;

    (iii) Networks

    Speeds, resilience, evolution, tariff options;

    (iv) User interfaces

    User skills, applications;

    (v) Terminals

    Costs and capabilities.

11. In terms of physical infrastructure, fibre optic cables would still be BT's choice if a network were being installed from scratch, but the cost of completely replacing the existing United Kingdom telecommunications infrastructure would be prohibitive. Digital compression technology could already supply limited broadband capabilities (i.e. 2 Mbit/s video) over 5.5 km on standard twistedpair copper wires. This technology was being used for BT's Interactive Television trials in Ipswich and Colchester, and the technology would allow BT to reach over 90 per cent of its customers with this bandwidth from local hubs.

12. A new form of advanced transmission technology would increase the bandwidth to 25 Mbit/s over 1 km, thus allowing simultaneous transmission of a number of video channels or a mixture of video, Internet and interactive services. To achieve this BT would need to install optical cables from its local hubs to streetside boxes and then use the advanced Tx techniques from there to the home. In one of the technology demonstrations it was indicated that such a system might also be partially intelligent in deciding what bandwidth to allocate to which service. Thus higher quality delivery could be obtained if only one service were being accessed from the home at a time.

13. Although fixed networks were considered to be the best option, medium bandwidth radio and satellite networks were also seen to have some potential. They would be particularly useful for point to point connections in rural areas and could also be the "trail blazer" for new services. For instance: radio coverage of a large area could be set up very quickly and cheaply and produce income as scattered users signed up; as customer numbers increased, more services could be developed and a fixed infrastructure gradually put in place to meet longterm demands. Networked multimedia

14. The advantages of networked multimedia were that (i) it provided an efficient method of communicating information with ease to the largest number of people, (ii) it could be interactive and (iii) it could be updated in real time. For networked multimedia to become a reality developments were needed in a number of sectors of a chain between content producers and the home audience, and it was crucial that no sector in the chain was left out.

The networked multimedia chain:

1. Content
producers and
2. Packagers
Service providers
3. Network operators 4. Customer Premise
Equipment (CPE)
(PC/television/set top

15. Examples of companies in this chain were Viacom and Warner Brothers (sector 1), television companies and electronic banking (sector 2), Sony (sectors 1 and 4), cable companies (sector 3) and BT (in sectors 2, 3, and 4). For companies to be involved in more than one sector was costly and Dr. Rudge wished to see many thousands of service providers, not just BT and a few others in sector 2.

Interactive Television

16. BT's Interactive Television experiment in Ipswich and Colchester was one of the largest in the world, serving 2,000 homes. The only home equipment required was a signal splitter to split the telephone and video signals from the standard phone line connection and a desktop "black box" which was manufactured for BT by Apple. Eleven different services were offered including video films on demand, banking, home shopping, education, local information and networked games. The most successful services had been television programmes made available ahead of national broadcast times, films on demand and educational services (including access to over 600 titles of educational videobased material).

17. The films on demand service was offered at typical videorental costs, but the uptake was three times higher than for standard video rental, probably because of the ease of access and convenience. The picture quality of the demonstration was high, all the standard capabilities of a video machine were available over the network (e.g. fast forward, pause, search and rewind), and the system could be programmed to bar unauthorised access to films in inappropriate age categories.

18. The home shopping service was one of the slowest to gain users (rather than browsers), but its use was increasing as the retailers moved away from just providing a two dimensional online catalogue to running a dynamic three dimensional online store where prices and promotions changed. A demonstration of online shopping at the Ipswich branch of House of Fraser included both static index pages and video clips of the products. Interactivity in the video allowed users to browse as if at a fashion show, and then request details and closeups of items of specific interest. The improved colour reproduction of a video in comparison with a still photograph in a catalogue, and the ability to see garments being worn "in action", helped to reduce the number of returned items, something in which Freeman's had been particularly interested. The action of buying the product then proceeded in the logical order of choosing the colour and size of garment, placing it in a basket and then paying for it as one left the store. Secure payment was arranged as credit card details were taken when initially signing up for the service and these had to be confirmed with a pin number at the time of purchasing an item.

19. The speed of interactivity for some services demonstrated was still rather slow, but a number of shortcut steps were available (for practised users) to reduce the need to undo one's steps back to the home page if switching to a new service or area of interest. In each of the services demonstrated care had also been taken to ensure that a suitable, consistent and simple user interface had been created. For example, a red button (on screen and on the remote control unit) always took the user back to the previous "page", a blue button moved the user forward, and green and orange buttons provided other interactivity.

Campus World

20. BT was running a commercial educational network called Campus World, linking 2,000 schools (estimated at 6,000 users) across the country. This was believed to be the largest on-line educational service in the world. The system was password protected and the content, and access to the Internet, were limited to approved, "suitable", material in a "walled garden" environment. Applications specifically designed for three age groups were provided (infant, primary, and secondary) as well as standard features including a help desk, electronic mail and an online question and answer service similar to the information one might expect from an encyclopaedia in book form. BT had employed educationalists and curriculum consultants to help develop the system, and, again, the development of a suitable user interface had been critical. There was potential for an American version, and Campus Home would be launched in the near future.

21. BT had also produced advice for schools on when it was more effective not to use the Internet, and when traditional resources were better. They had no interest in "turning people off" new technology by encouraging unsuitable or ineffective applications.

Problems to be resolved

22. At present the Interactive Television trial was run under special dispensation from Oftel and it had not been made clear to BT what rules and regulations would apply if it were to try to offer a similar service on a national basis. One of the main problems was in supplying a comprehensive service to customers without overloading the system. For example, if 90 per cent of users wished to view a certain programme at the same time it would make more sense to broadcast this over the network, rather than offer it on a one to one basis; this would reduce the number of switches required at the local computer hub and thus reduce the scale of investment needed to provide an efficient and reliable service. BT was not currently permitted to broadcast on its network, while cable companies were so allowed. Dr Rudge said that seven years of this "asymmetry" was enough and that the regulation was now seriously slowing down further development by BT.

23. Dr Rudge also questioned the validity of reducing BT's capacity to earn money from its telephony services any further. These were the mature products of the industry that would provide the funds necessary to develop future services and products. A further problem was that of encouraging new, and thus comparatively small, markets for new products and services whilst the price remained high. For example, BT's tariff for installing an ISDN line was currently c. £400, whilst the actual cost to BT is much greater.

24. Finally, Dr Rudge suggested that there was a real need for a national player (i.e. BT) in the area of advanced interactive communications. This would be the only way to ensure high quality, a good standard of service across the country, and to keep the infrastructure, content and products up to date. BT played a major role in establishing standards. There would still be a need for local and regional companies as they would serve to keep the national player on its toes, but a system based only on scattered regional activities was backward looking and would be at the mercy of international competition.

Quotations from Dr Rudge

25. Defining a Superhighway

    "Nobody has got a superhighway today other than in a lab."

    "The Internet is the ham radio of the information age."

    "The information age is a reality ... especially for us in the business, we know it is a reality."

    "When someone says superhighway there are three things you should think of: digital, broadband and switchability."

26. The window of opportunity

    "There is a window for new technologies ... There is a time when it is the best time to do something, and it doesn't last forever."

"If we are late into that [information technology] game nationally, then I can assure you that in 10 years' time we will be buying things from people further up the learning curve than we are."

27. Respective roles:

    Of BT: "There is a role for a national player".

    Of Government: "Take the blinkers off and stop thinking of the UK as a little island."

    Of the Regulator: "Seven years' asymmetry was enough start for the cable companies."


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