Select Committee on European Union Minutes of Evidence


Examination of Witness (Questions 480 - 499)

WEDNESDAY 22 MARCH 2000

MR DAVID CASEY

Chairman

  480. You will be interested to hear that we wrote to Nokia in Finland and the letter came back from the Finnish Post Office "Not known at this address".

  A. It is ironic, is it not, they are the largest item on the Finnish Borse.

  481. Vis a vis the rest of Europe, where do you place us? Do you think we are ahead?

  A. In terms of the number of connected and connectable users, we appear to be number two in the league after Germany. The crude statistics currently run as Germany, the United Kingdom, France, Italy and Spain. Whether those proportions will change over the next few years is really a question of the encouragement given by the European Union through their investment programmes.

Baroness O'Cathain

  482. Can I ask you, does that actually mean that if you took as a proportion of population, because the German population is much higher than our's, we could be number one.

  A. The absolute number of Internet connected users.

  483. Yes.

  A. So applying that to per head of population. I think a more significant statistic would be the number of what we call secure Internet servers. Forgive me for being technical for a moment. The whole process of commerce enabling—being able to do business over the Internet—hinges on your being able to trust the party you are dealing with, knowing that the host, the organisation which holds the web site, is totally secure and will obviously effect the financial transaction you are expecting. We call those facilities "secure hosts". Inside Europe we have a freak situation whereby Luxembourg statistically has got more secure hosts per head of population but, with respect to Luxembourg, it is such a small population that it is perhaps an unfortunate use of a statistic. In terms of the countries we accept as being mainstream for this purpose, and again no disrespect to the Luxembourgers, it would be Finland. Britain comes some way down that chain and if I may I will deliver to the Committee the actual statistics at some later juncture if you wish to have them?

Chairman

  484. Yes, please.

  A. In fact, Britain is currently third in that chain. We run about half the rate of the Scandinavian countries. This goes back to the tremendous communications channel and openness of communications of Scandinavia, about the same time as Britain but taken up more opportunistically than we did.

  485. You would not subscribe to this view which is commonly put around that Britain is leading the rest of Europe?

  A. Oh, in many parameters we are leading, yes. We have got a higher number of web sites per thousand of the population, yes. We have got those common statistics but since most websites not really do much to do business over the Internet—they are merely advertising fora—then I think more relevant parameters are going to be the number of commerce-enabled sites, that would be a more effective parameter. I should add, also, countries like Belgium, which we assume are going to be very advanced, in fact have significantly lower penetration of secure commerce servers. I find that most interesting.

  486. If you could drop us a note on this.

  A. Yes, indeed.

  Chairman: Your introduction has been very helpful to the Committee.

Lord Paul

  487. Mr Casey, I have one question. You say you have been analysing and talking to the companies and other journalists, I am sure. Now it is quite established that this whole technology has made life easier, cheaper, all those things, but still this industry has managed to break all the rules of what used to be considered financing, etc.. For the first time we are seeing money pouring into companies which are using their share. This is something that is very difficult for me to comprehend. The volatility is such that one day the share price is twice as much as the next day. Where do you think this is going and where do we come from on this?

  A. We are going through what is called a correction process and I think we are going to be correcting for a few more weeks to come. I think there will be a great deal more rationality applied by the institutions who are more than happy to plough the funds into the so-called .com environment. They are the people who really need the rest of us to follow suit.

  488. One hears this but on what basis can they go for correction? There is not a base which can say "Okay, these things are not coming together so this is our basis for correction".

  A. The basis for correction is that fund managers are looking at the total portfolios they hold and they are taking the decision on investments, and I would cite an example like lastminute.com where there has been a great deal of hype—I can say that in these four walls, my Lord—and that has yet to substantiate itself.

  489. The fund managers are able to make money because they are able to offload but it is the poor little shareholder who is not able to offload.

  A. I think this is part of the dream created by the new Internet revolution. With great respect, I feel that this is a veneer on top of a much more fundamental change of environment. That is what I have a great deal of passion and enthusiasm for. I am less enthusiastic about the volatility of the market.

Lord Cavendish of Furness

  490. Lord Chairman, should we not warn Mr Casey there are not four walls here, it is a public meeting.

  A. I appreciate that, yes.

  491. I have two questions. First of all, I think you almost cut off at a very crucial point in your fascinating presentation, saying that if Europe or any member country was to catch up there was going to need to be something in euro government or national governments promoting. Now then, we are all bit politicians here, some of us more than others. To me, we speak off our own bat, I am very sceptical of the ability of Government to promote e-commerce.

  A. Well, my Lord Chairman, at the expense of being terribly boring, I am sure that my Lords are familiar with the European Policy on Regional Investment. There are assorted grant schemes which have designated the whole of four countries, specifically Portugal, Greece, Spain and Ireland, as being "Objective 1" countries. There are other Objective 1 regions within the other countries, roughly 24.5 per cent of the whole of Europe is deemed to be Objective 1 in some part. Objective 1 status allows massive capital investment grants for infrastructure projects. I would refer the Committee to the Irish Government which has put out a paper to attract e-commerce infrastructure projects. They are defining those to be IT projects which of course qualify for 40 per cent grant, fully approved by Europe. So capital projects involving the infrastructure of e-commerce, which means everything from secure servers to "pipelines" in the road, would qualify under this heading. There is already within the European philosophy the mechanism for encouraging this kind of development and growth. There are areas like Northern Portugal, for example, which have benefited greatly in the last three years from infrastructure projects. I happened to be on business in Portugal a little while ago. When got out of my motor car and switched on my mobile the networks were fighting for my business because the funds had been available to promote telecommunications and roads and associated facilities. That means that you can have more capacity (or erlangs, as we say in the trade) per person than you know what to do with. We will see projects arising in countries like particularly Northern Portugal where there is a great incentive; in Ireland and certainly in Spain, although perhaps less so in Greece, to see a major influx of e-commerce centred projects. It does not mean to say that these projects are going to be serving the local community, they will be the source of hosting of technology for the rest of Europe. Communications are borderless. When I log on to a web site, I do not know whether that site is being hosted in London, Lisbon or New York, all I know is that I see it. So what a wonderful idea, you might say, to have secure commerce hosts in a country like Portugal where Europe has given a great deal of money for that type of project. Instead of my buying software to run in my PC at my office I can rent it from somebody who is putting it on to the server in Portugal. They call this Application Service Provision. I have referred to it in my briefing note. In my professional opinion, the growth within electronic business and electronic commerce specifically as defined in Europe will come from the growth of the Application Service Providers. These are organisations which hold applications to run on behalf of customers. It is a growth area, it requires tremendous resources. It is very cheap to deliver. It means that users change the way they think because they do not have to buy software. For example, if I were using my new PC, I would not need to have a copy of Microsoft Word on it. It would be held for me on a host somewhere. Go on to the Internet, I see it there. So this is a change in the way we are thinking about using the Internet, and because I am renting that software I am performing an e-commerce transaction. So I believe we are going to see quite a few new techniques and developments brought about simply because of investment in e-commerce-centric projects. The Objective 1 scheme is a clear way forward, whether other countries are going to follow suit I do not know. I have not seen evidence that Spain is doing this yet and I have seen no evidence that Greece is doing this or that Portugal is looking to do the same. We are going to see Europe coming up by leaps and bounds in specific areas, however due to the grant structure.

  492. So you believe the taxpayer, one way or another, can help the development and the catching up? If I can add to that, where do you see the obstacles that national and supranational governments can put in the way of this through regulation?

  A. Providing a free and easy framework is only part of the story. You have to be able to encourage and provide the mechanisms by which a company can get online and not just get online but be able to run a business, ie become commerce-enabled. Looking through the projects which have started up, we have, for example, our own E-Envoy in this country, a very fine individual, no question about the person involved, but there may have been questions whether the post should have been filled by somebody from the IT industry or the head of one of the e-commerce associations. What I am saying to you, my Lord Chairman, is that I do not believe governments just creating roles like that of the E-Envoy are going to stimulate interest just by their presence, you need people who understand both sides of the commercial coin. If this is applied across Europe, as it is in countries like Sweden where you are having industrialists invited in to assist in major projects, then that is where the incentive is going to come.

Lord Faulkner of Worcester

  493. I wonder if Mr Casey can say a bit more about the differences in practice between the United States and Europe? I am particularly taken by your comments about the development of GSM being largely European.

  A. GSM was conceived in Europe, yes.

  494. Did I understand you correctly to say that the next generation of mobile technology will produce the emergence of convergent technology?

  A. It is designed to do that, yes. The dominant digital technology in North America is something called CDMA—a digital protocol for communication and, like so many things American, they created it themselves. The GSM movement in Europe, which has spread through more than 170 countries around the world—virtually every country in the world has got access to GSM—is a totally different technology. It was realised that you needed convergence to make mobile communications physically and logistically compatible across the globe.

  495. How much has the absence of that convergence attributed to a shortfall in the growth of e-commerce do you think?

  A. Certainly it would, if not rectified, prevent the likes of myself going to America, ordering my airline ticket from my mobile. Whether you regard that as being a serious omission... The real growth of e-commerce is not at the mobile level, it is a future potential, it is not the dominant force in e-business today. The real force producing the growth and stimulus both in North America and in Europe is simply trading communities. I can quote the example of the famous ball bearing company, SKF in Sweden, that has recently stimulated a trading community amongst all its industrial suppliers and distributors, a massive operation. There was announced today a venture between Nestlé and Danone, the idea being to produce a packaged goods trading network. All of these are initiatives not by the European Government but by communities of interest which see the opportunity, and they will trade. There are communities of interest in North America already and they are relying on the traditional Internet. What it does mean is if you extend that into the mobile arena and you have an executive of a European company who happens to be in New Guinea, shall we say, and wishes to correct an order that his colleague has made somewhere else in the world, then by using a mobile device totally compatible with a world standard, whether it is in New Guinea or in New Hampshire, he has got the capability so to do.

Chairman

  496. Can I just nip back to a comment you made at the conclusion of your last reply to Lord Cavendish when you were somewhat dismissive of the E-Envoy concept, unless I am being a little bit harsh in the way I am putting it. It was the reference you made to what I believe you were saying was a positive way of approaching it was the nature of the relationship between the private sector in Sweden—

  A. Indeed.

  497. And was it the government there that you were talking about?

  A. I believe there is a great deal of opportunity for a positive relationship between the initiatives inside the private sector working closely with government, yes.

Baroness O'Cathain

  498. What do you mean working closely with government? Is it just in terms of formulating the environment in which they operate, doing the sort of thing you do as a result of Objective 1 status on a money basis, but of course you cannot do that because that would be state aid?

  A. May I illustrate the point? In Britain we have a loose federation of five leading bodies, the CBI and four other institutions, called the Alliance for Electronic Business, the AEB, a very keen, very professional organisation. That organisation has forged an alliance with the Consumers' Association and the Government to promote the Trust Scheme for use in e-business. That was an initiative which started off in one of the five members of the Alliance for Electronic Business, the Direct Marketing Association in fact: they pioneered it. It grew as an AEB project because the AEB has got access to the corridors of power. It is a project which the Government has now promoted and sponsored but not in a financial sense and, of course, the Consumers' Association logically came into that triumvirate. That was an initiative which was evolved in the corridors of Whitehall as well as in the corridors of the CBI tower. I would not say that this was a Government initiative, but what the E-Envoy did was to provide the cement to bring it all together. It was one of his first new projects, to bring that to a conclusion, when he took office in January.

Lord Chadlington

  499. I would like to ask a supplementary to Lord Paul's question, if I may, and then ask a question that is more of my own. I think Lord Paul was asking the question that if we look at traditional businesses we can understand the way in which those businesses are valued mainly through ratios, such as the PE ratio.

  A. Yes.


 
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