Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 160 - 178)

WEDNESDAY 16 FEBRUARY 2000

MR GEORGE HALL AND MR SIMON HAMPTON

  160. Do people like yourselves monitor whether the government are meeting these deadlines?
  (Mr Hampton) We are talking to them daily on the access ones because this is our top priority. We are watching them very carefully. They want to deliver. A certain company with the initials BT is trying to prevent them from delivering.

  161. In your paper, you said that one of the critical pieces of legislation in the pipeline is the so-called E-commerce Directive. You call it critical. What is it and why is it critical?
  (Mr Hampton) The e-Commerce Directive is called the Directive on certain legal aspects of e-commerce. The idea was that it would fill in some of the gaps. There is an E-signatures Directive which legalises e-signatures and you have effectively the transposition of it going on now. What it covers, for instance, is when is a contract formed online; what is the liability of some of the players involved; what sort of information do websites have to provide up front to customers; what rules apply to advertising on the net. That is a very important issue because you cannot do three for the price of two offers in Germany. Yet if I put a three for the price of two offer on a British website, a German could just as easily see it as a British person. There are some amazing differences within Europe and this is trying to say, at the end of the day, it is basically the law of the country of the supplier which applies, with the big exception of the consumer protection side which was touched one earlier. Basically, this is bringing in the key single market principles to e-commerce, which is absolutely vital because e-commerce is always going to be about the single market and probably much wider than just the European single market.

  162. That Directive is very important in your view?
  (Mr Hampton) I think it is very important to get that minimum degree of harmonisation, yes. What is unfortunate is that the Member States in their wisdom started making a few points a bit vague here and there. It is typical of Euro compromises, I guess, but the difficulty is that might allow for rather different national transpositions on some things and just make it so much harder for small and medium sized enterprises coming online if they do not want to sell to all 15 Member States, which is what should be their expectation if they have the right technology and the single market.

Lord Sandberg

  163. I was astonished when you talked about the usage in Sweden and Finland. Have we some lessons to learn from there? Are they ahead of us because of their greater exposure, especially for instance in regulation, or is it just something along the same lines as we are?
  (Mr Hall) They started earlier. The Finns in particular caught this PC wave and then the Internet wave in the early nineties. They had government programmes creating their own information society plan in 1992 or 1993. They have been going longer. They also have a highly liberalised telecoms environment so that the issues that Simon was talking about of unbundling the local loop have been removed. There is lots of competition and they have a highly skilled workforce. They invest a significant amount in their education. Their companies, people like Nokia, have been very quick to take advantage of the changes. That is what has been the driver, so social as well as commercial investment issues and regulatory issues.

Baroness O'Cathain

  164. You were saying that business to business was growing faster than business to consumer.
  (Mr Hall) I claimed that.

  165. Would that not be a natural development anyway, because business is used to dealing with technology of this type, whereas consumers are not necessarily so adept. Consumers are still on the learning curve and they are still quite technological phobes. Who should take the initiative to try and make the consumers benefit from this, because it is the way to go. I know about the unbundling, the coiled copper etc., and also the use of broad bands and narrow bands. Is there anything EU governments could do to encourage consumers to believe in e-commerce and the whole e-thing as being consumer friendly? I think there is a big question mark over that in a lot of people's minds.
  (Mr Hall) I think it is the duty of industry, the people who want to sell to consumers, to convince them that e-commerce is e-friendly and is going to give them a bargain, because that is enlightened self-interest at work. I think governments can help by removing some of the psychological barriers. For instance, HMG is pushing e-initiatives in this country. The other thing would be if more and more people encountered the network in their daily lives. This is where government comes in. It may be possible to avoid shopping but it is not possible to avoid the government, whether it is doing your tax returns, collecting social security or getting a new passport. We have advocated for a long time that a lot of the phobias around using the technology would be removed if people saw it in greater daily use. I think this will happen but it would be helpful for everybody if it could happen more swiftly.

Lord Faulkner of Worcester

  166. I am trying to understand particularly your sort of company, Mr Hampton. In the early days presumably of AOL a large part of the income of the company came from people who were subscribing to take advantage of the services you were offering. You said that the trend has been against that and the majority of service providers are now not charging subscriptions. Can you draw me a mental pie chart of how the income pattern of companies like yours has changed from a time when subscribers were an important part to where you think you may be in two, three or possibly five years? I am not asking you to give me confidential information about your company.
  (Mr Hampton) I am not sure of the breakdown between the subscription and the bit that we get from the call prices at the moment. I know that there our advertising revenue side of things is about a fifth or a quarter of our total revenue. This is people advertising through AOL. It is low there by comparison to, say, Freeserve, for whom it is about 50/50, what they receive from the customer in the telephone calls and what they receive from advertising.

  167. BT pay you for a line? Is that right?
  (Mr Hampton) Not any more. With all the free ISPs, you pay BT and then BT pay the free ISPs. That is 50 per cent of Freeserve's revenues and considerably more for all the others. Freeserve, because it is the biggest, is able to capture a disproportionately large share of the advertising market. This is one of the reasons why a lot of them are doomed because they rely solely on the telephone call prices. I do not know the split for us between the subscriptions and the calls but I know about a quarter or a fifth is the advertising revenue at the moment and for the free ISPs who do not have subscription, naturally as a statistical effect, you get a higher proportion as advertising.

  168. Do you get a cut on the goods that are sold as a result of orders placed through you?
  (Mr Hampton) There is a multitude of different deals done between companies. In some we do and in some the pay off could be different. If we do a deal with, say, a newspaper, it might be that we get advertising in the newspaper. There are lots and lots of different deals done. Some of them do involve revenue share of e-commerce, but there are other models as well.

Lord Cavendish of Furness

  169. It may be thought frivolous but I was trying to get to a serious point when I asked was it self-evident that the measurement of minutes per day was a correct way of looking at success because of the different cultures. Is this a robust measurement of where we are going?
  (Mr Hampton) There is the figure of four to one in terms of minutes per day in the US and in Europe. There is also a ratio of four to one in the amount of spend on e-commerce in the US. I would not say that the two are directly related, but I would argue that there is a strong link between the two. That is important if you assume that e-commerce is a more efficient way of buying and selling and therefore promotes economic growth. This is certainly what President Clinton would now say, that e-commerce has been underpinning this tremendous period of economic growth in the US. We do need e-commerce in that general sense.

  170. Broadly, you agree with him?
  (Mr Hampton) Yes.

Chairman

  171. As I understand what you have been saying in both your papers and in reply to our questions, your first preference is for self-regulation or coregulation. Secondly, Europe is too slow in any event. I think ICL's view was that they should call a halt for the time being and doing an overall review of what they are about and do nothing until they have done that review. Your feeling was that in any event things are moving so fast that Europe cannot keep up and they do not listen to the people they should be listening to. There are a number of issues that do require addressing. There is only one brief mention of tax. That is a major issue. It is creating big problems in the States, where there has been a free run and we find in some states they have lost their total sales tax take. That is to be addressed. We have to address some of the cross-border training and that requires, I am sure you would agree, some form of legislation within Europe. There are intellectual property rights. Do we abandon them totally? What are the consequences of that? Do we try and do something in Europe? There are a number of issues that all require to be looked at. Clearly, that has to be earlier rather than later. I sense from your papers that you are frustrated also with the machinery within Europe. Do you get a view in that? Is it left to secret committees to which the private sector is denied access or can you lobby in there? Do you lobby in other European countries in the way that you have been, in a sense, lobbying today? What could be done better to provide the opportunity for you to get your view in?
  (Mr Hampton) I am based in Brussels. The Brussels institutions are fairly open.

  172. You talked of institutional in-fighting.
  (Mr Hampton) Did I really?
  (Mr Hall) My Lord, that is not unheard of in Whitehall.

  173. Or even down here.
  (Mr Hall) I could not possibly comment.
  (Mr Hampton) You can certainly get a word in in Brussels. One of the things e-commerce does is it changes so much and it forces the possibility that so many ministries here and DGs in Brussels need to cooperate. The Brussels institutions are probably the least currently ready for this new wave of interdepartmental cooperation that is necessary. Maybe Mr Kinnock is about to change all of that. I sincerely hope so. I do not think we have yet seen any government that I am following radically change the ministry structures, although some of them have tampered at the edges. The creation of an E-Envoy, for instance, here has been a potentially important step to ensure this kind of coordination.

  174. Do you think we should have one in Europe? Would it work?
  (Mr Hampton) They would be seriously frustrated if they were created tomorrow. There are significant managerial aspects. This exposes the problem that everybody knows the Commission has, that managerially it is not very efficient at the moment. Fortunately, they do recognise that fact and there is a timing issue there at the moment. The subsequent implementation of Directives is done fairly secretively. The rules on committees specifically say private sector out. For instance, in the telecoms world, there was one committee created several years ago before the rules had been fully formalised, and operators are present there so they do get an early idea. They do get to be able to influence those committees. We are not allowed to speak there but we are allowed to influence beforehand and, I suppose, afterwards. In the new reforms, the new committee that will be created will be fully within the new rules on committees and that means private sector out. That is a source of concern because they are kicking industry out of exactly where they need us.

  175. You think that should be broken down and you should be in there?
  (Mr Hampton) Yes. One of the drafts on the e-Signatures Directive, before it came out of the Commission, talked about the committee having a formal liaison system with industry. It was kicked out by the lawyers just before it was published because it did not fit with the overall rules for committees which is private sector out. I would argue they need us in there.
  (Mr Hall) Traditionally, the Brussels structure has been more open than Whitehall. I can say that having worked in Whitehall for a long time before I joined the private sector. As Brussels has become more and more focused, the institutions themselves have come under strain and have tended to become more inward looking than outward looking. There is the problem that traditionally the DGs have represented a constituency and only that constituency; and yet in this new age where all the barriers are coming down between organisations and sectors the Commission and the institutions are in danger of becoming anachronistic. As Simon was saying, e-commerce is a manifestation of this change happening before your eyes; and yet the systems that are there to "regulate" cannot catch up with it. It is moving too fast. There does need to be a different approach. Things get very complex then when you get to implementation directives and there is no doubt that some Member States implement more rigorously, shall we say, than others. We have the benefit of rigorous implementation in this country.

  176. I was wondering if there were any additional points that you might want to put to us?
  (Mr Hall) I would like to make the point that skills in this new environment are fundamental and will affect every aspect of human endeavour. There is a real danger that our education systems will not be producing people with the skills that we need. That affects the public sector as well as the private sector. The one thing I would strongly recommend that the Commission and other European institutions focus on is getting the frameworks in place to accelerate what they call European youth into the digital age. I think we should accelerate people of my age into the digital age as well.
  (Mr Hampton) That is one of the most obvious holes in e-Europe because it simply does not mention anybody other than youth.

Lord Cavendish of Furness

  177. Could one have a comparison about how other continents are addressing that very problem of educating people? I have no idea how America does it.
  (Mr Hall) I have very little recent experience in the States but in Canada, for instance, there has been a huge programme of reskilling, starting with the state school system but also going into workplace training as well. The Nordic countries traditionally have been strong in skills and this is reflected in their success. Indeed, nearer to home the Republic of Ireland has been very good at changing, refocusing and refreshing the skills base. That is one reason why Dublin is now becoming one of the e-hubs.

Chairman

  178. We will be going across to Brussels in due course. I am wondering if there is anything that you may want to say supplementary, in writing to us, Mr Hampton, on the somewhat scathing points you make about your experiences?
  (Mr Hampton) Somebody told me I had been overly diplomatic.

  Chairman: What I am doing is extending an invitation to both of you. In the light of the exchange we have had today, if there is anything further that you think would be helpful for us or other points that you would make, perhaps you would care to drop us a note afterwards. We may even see you in Brussels. Thank you both very much indeed for your time.





 
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