Examination of Witnesses (Questions 160
WEDNESDAY 16 FEBRUARY 2000
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
(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.
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.
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
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
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
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.
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
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.
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.