Select Committee on European Union Minutes of Evidence


Examination of Witness (Questions 540 - 559)

WEDNESDAY 22 MARCH 2000

MR DAVID MELVILLE

  540. Protectionism is unlikely in same way regulation is?

  A. Protectionism certainly, however I think there is an argument for some kind of moderation or ability on a domestic level. I do not think it can be done at a European level because I think it is just too big, certainly on a domestic level. To try to give you an example, we host Chat and we have to be very careful about what content emerges from the conversations that take place between people online and we are finding it increasingly difficult to do that as volumes increase. There is also within the Internet a cultural objection to wanting to interfere and interpose yourself in a dialogue between consenting adults. I think that it is an enormously difficult area to regulate. One's instinct is to say, "Please keep way from it until such time you as you see fit".

  Lord Cavendish of Furness: We are taking more responsibility for our lives.

Viscount Brookeborough

  541. You talked about attracting small retailers and small businesses onto Freeserve, how do you monitor the quality of the businesses that you are attracting on? Do you have a responsibility to the 30 per cent of the households which you are linked up with?

  A. For a start we began by acknowledging there is a responsibility. If one looks at our e-commerce offering, we had to address the question of trust and confidence on the part of the consumer. We did that for obvious commercial reasons because we realised that the consumers' lack of faith in this new environment was one reason why they were not participating. We looked around and there are a number of accreditation schemes we could have signed up to as a business, which would have required some kind of self-auditing process, and the like, and none of them were impressive.

  542. Are these unique to the Internet?

  A. No, these are ones which have established themselves as being unique to the Internet. What we decided to do was create our own charter, if you like, which we impose on the merchants we bring in and offer up to our consumers. That may be a rather clumsy way of putting it, we developed something we called the Freeserve Shopping Promise and we had to do a couple of things. Legally we had to make sure that it was binding as a matter of contract on the merchants. Freeserve is essentially there to facilitate, arguably perhaps, an agent as a matter of law. I think we are getting very close to agency at Freeserve. I think we are getting close to acting as an agent sometimes and at the end of the day once one acknowledges the responsibility to the customer one hopes that one does not build up a huge tranche of litigation if things ever go wrong. I am trying also to distance myself at the same time. We impose obligations on merchants. We do that in a number of ways. First of all, for the most part of your trading with businesses which have a track record we select them essentially, we require them to sign-up to the Freeserve Shopping Promise and the guidelines for that are essentially the Office of Fair Trading's website because the Office of Fair Trading has an extremely good source and is an extremely good source of online advice for consumers. We build a high pulling from our merchants to the OFT website and we said that must be available at all times. We required the merchants to make sure they had proper fulfilment procedures, that they had a consumer redress mechanism in place and consumers did not just have to buy with a credit card, they could send a cheque in and that consumers did not just have to contact the merchant by e-mail that there was a telephone number that had to be available. We put all of that together, we wrapped it up as the Freeserve Shopping Promise and we imposed it as a condition of placing it on the Freeserve website. So far we have gone through our first Christmas, and that has gone down extremely well, touch wood.

Lord Faulkner

  543. Do you have sanctions against merchants if they break your shopping promise?

  A. We reserve the right to throw them off.

  544. Under what circumstances would you do that?

  A. For persistent material breach of the Freeserve Shopping Promise, a failure to respond properly to consumers' requests for information, a failure to comply with the Sale of Goods legislation, a breach of privacy, all of those would be deemed by us to be material breaches.

  545. What about the nature of the goods they sell, do you have any control over those?

  A. Yes. In fact we had to do quite a big sweep across United Kingdom legislation anyway because a number of products people ask us to sell we cannot sell anyway, I am thinking particularly of things like medicine. Tobacco we do not permit.

  Lord Faulkner: None of your merchants sells tobacco.

Baroness O'Cathain

  546. What about booze?

  A. Booze is all right.

Chairman

  547. AOL came to give us evidence.

  A. You mean America Online.

  548. They said that in America they gave stronger guarantees for all trade that took place on the network there by comparison to what we currently offer in Europe, do you know anything about this? They are your principal competitor as well.

  A. Yes, very much so. Do American consumers have better rights than European or United Kingdom consumers?

  549. They offered better guarantees and underwriting in the United States than in Europe.

  A. I have to say I honestly do not know. I think consumers' rights within Europe and in the United Kingdom are pretty strong in terms of consumer rights and remedies.

  550. I think it was business to a consumer rather than their rights.

  A. Where we have fallen down in the United Kingdom has been on access to redress. The law is okay but I think that within the United Kingdom consumer organisations have sometimes represented that it is actually the access to redress where we have fallen down. The Office of Fair Trading have accepted that. I have to say I have no knowledge of United States consumer redress mechanisms, so I cannot really comment.

  551. I think it was a company sponsored form of redress role rather than a statutory one.

  A. The Office of Fair Trading, and I tend to agree with this, have always rather stood shy of trade association redress mechanisms. The examples that have usually been cited are things like the motor trade, the shoe industry and furniture. I have to say they have not covered themselves in glory over the past fifteen to twenty years. One thing that the United Kingdom has, which the United States certainly do not have, is the home authority principle. In my own experience in retailing this is a European issue as well because there is a proposal that European redress mechanisms be put in place, and I think it would be tragic if the United Kingdom lost access to the home authority support that retailers have, which means they can consult, discuss and talk about problems as retailers with the local authority Trading Standards Association who happen to reside in their area. It would be tragic if the EU redress mechanism ended up in the hands of a consumer lobby rather than the people who are out there every day acting on behalf of the consumer.

Viscount Brookeborough

  552. One last point about delivering services, is delivery of the goods going to be a major, or could it be a major, problem in the future? You hope your business grows and so will other people's, who is going to actually deliver it and keep up delivery times? Is that going to become a problem?

  A. I think it has the potential. The DTI are certainly worried about the impact on town centres from white vans flying about all over the place. I have heard of the white van site, because they expect so many white vans to be bought over the next few years. Again, if we can get our infrastructure together, if we can do the kind of things that they do in Holland, where they get the trucking done outside the town and small vans come in and make the delivery, it would be marvellous. The great thing that the Internet does give the consumer is the ability to track the product. One can only say that if fulfilment does not work or if fulfilment is late or is delayed then consumers will not buy it, it is as simple as that. That is true also for telephone catalogue based ordering systems, so there is nothing new in that.

Lord Sandberg

  553. Like all commercial companies you all try and increase your market, quite properly, and it seemed to me the other day Alta Vista had the ultimate in suggesting free access. I am sure they will get some money back on advertising, I cannot think they could possibly cover that free service—here is a chance for you to undermine your opposition—does this sound a bit stupid?

  A. Absolutely.

  Baroness O'Cathain: We expected that answer from you.

Lord Sandberg

  554. Where do we go with ultimate goodies being served out?

  A. Following the Alta Vista announcement, from a Freeserve perspective we had to think very quickly about how we could respond, which meant that we analysed very closely, as the business did when it first reached the view that it could offer a subscription free for Internet access in September 1998 when Freeserve was launched. How could we offer something which would reduce the cost of Internet access for the consumer whilst at the same time recognising there is a telecommunications infrastructure which needs to be paid for at some point by somebody? We were able to negotiate with BT to offer—it is not immediate, we launch it in May—£6.99 off-peak un-metered Internet access on-line and with our current telecommunications provider, Energis, from June we will offer a completely un-metered all day peak and offpeak access proposition. We can do that provided the consumer spends £10 a month.

  555. Un-metered I can understand, but free I do not understand.

  A. In the United States they do have what they call free. Of course the telecom environment is different. Alta Vista cannot, in my view, turn that proposition into a realistic commercial undertaking.

  Lord Sandberg: Okay. Thank you.

Baroness O'Cathain

  556. This is absolutely fascinating. I know we could go on for hours in this area of Freeserve and its involvement in the British market. During the course of the conversation I had a thought that this is a marvellous opportunity for the Post Office, however leave that to one side. What we have to remember is we are a Sub-Committee of the Select Committee on the European Union and we are looking at this with our European Union hats on. You must have some views on the activity of the European Union, is it tackling e-commerce in the right way or what role should it have?

  A. Our view is that it is now starting to get to grips with eEurope.

  557. It is.

  A. The eEurope initiative is, perhaps, the start of that. There is a bewildering number of European directives facing us as a business at the moment, the commercial impact of which we find very difficult to grasp. It is an area where one is required to take quite specialist advice which costs a reasonable amount of money. It is an area which then has to be fed into the organisation for some impact to be understood. You always find when you look at European directives they are presented for one reason, which may be harmonisation; harmonisation is the reason for a number of these e-commerce related directives coming forward. They then have consequences in areas which nobody has ever thought of. A good example of that is, perhaps, the Copyright Directive, which is intended to harmonise copyright law across Europe, which could have an impact on us as a business here because it may tilt the balance in favour of the owner of the media of the content in such a way as to require us to pay fees or levies or, indeed, not get access to the product at all, which could stifle a market before it is even born. I do not think when the European Community were looking at the Copyright Directive as a harmonisation vehicle they would have considered its impact in this environment. Although there is now clearly a grasp of eEurope with the eEurope initiative, I still think there is probably a serious gap in the knowledge of those that are legislating at the moment over how these principles will fall to be applied in a particular sector, which is emerging and changing as quickly as the e-commerce sector is. I am not sure I know the answer to that because those of us in the sector find it enormously difficult to take the time to educate, if you like, and to inform. If I were to say to you that I do not really see where that process can happen in Europe anyway, perhaps in part that answers the question because there is a whole series of different offices and commissioners facing me and I have to ask myself the question, "Who should I talk to?" That is when we take advice and try and find the time for a trip to Brussels to explain what is happening. Also it is probably worth noting there are no trade associations in this area either. Legislators and policy makers have generally benefited from being able to go a trade association. I do not think that exists at this moment in this sector and it is something that we should be considering.

  Chairman: That is very helpful.

Baroness O'Cathain

  558. Perhaps we might be able to help you. The reality is that these reports of the Select Committee of the House of Lords are looked at and gone over with a fine tooth comb. In order to make it even more pertinent I would find it extremely useful if you could actually, wearing your general counsel's hat—you have a lot of experience dealing with the legal side of the European Union—give us an aide memoire of your view of directive by directive what you think they are likely to achieve—you must have done this work, we would not want you to do anything extra—and say where you think the problems are going to. That would give us, it would certainly give me as lay person, a complete idiot as Lord Paul would say, some sort of handle on it.

  A. We do not have it but we are working on it. Once we have it, we will be very happy to share it with you.

Chairman

  559. How long do you think that may be?

  A. Within the next couple of weeks. The reason we have to do it is because these policies have a direct impact on the commercial proposition so it has to be done anyway, as you said.

  Baroness O'Cathain: That would be very helpful and we might be able to help you.


 
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