Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 1260 - 1279)

THURSDAY 8 JUNE 2000

MR JOHN DRYDEN AND MR SAM PALTRIDGE, PHD

  1260. If there are disputes are they in the public domain?
  (Mr Dryden) No. We are an intergovernmental organisation and much of our core work takes place in committees which use documentation with a restricted circulation.

Lord Faulkner of Worcester

  1261. The committees are all private, are they?
  (Mr Dryden) Yes. They are delegates from the administrations of the member countries. In this particular field, the information society, electronic commerce, we invariably have private sector people at the table and sometimes even NGO people. They are not sworn to secrecy exactly but they agree to play by the rules of the game. Governments come and discuss things here sometimes because it is a little bit behind closed doors, and they talk about things among themselves without it being in the public domain. If we do not provide them with that facility they will go somewhere else to have that discussion. On the other hand, the other half of our events are public. Our documentation is unclassified, it goes on the Web for everyone to read and we have a very broad participation in the meetings. We are very careful to distinguish which are which, which are formal OECD events and which are conferences, workshops, fora and so on.

Chairman

  1262. So we go back to The Hague Conference and agenda problems. Who were the principal players who delayed your progress on setting up the conference. Is that public or private?
  (Mr Dryden) You will have to ask the UK delegation about that. I will say that it is not only countries. Let us just take a random country, for example the United States. There could be different agencies within those countries, for instance the Federal Trade Commission on the one hand and the Department of Commerce on the other, who have different views within the US, so there is if you like a friendly, brotherly struggle between them as to which line they want to push as the US Government in the OECD ambit before moving forward on something. This is the kind of thing which can arise which may delay things a little bit. It can happen in other countries where complex issues which have a trans-ministerial implication prevent a national position going forward.

  1263. But there could equally be in this topic, for example, a differing state position adopted between those who are in favour of directives and regulations as distinct from self-regulation.
  (Mr Dryden) Oh yes, absolutely. We try to work to resolve those kinds of issues and move the agenda forward. This does not necessarily mean that we are in favour of action in the sense of regulation.

  1264. No. I am not asking you to express a policy position in that sense. I am just trying to get to the process and how open it is.
  (Mr Dryden) It is getting more and more open.

  1265. It should do given the kind of topic that you are dealing with.
  (Mr Dryden) Yes, but on the other hand we stray into topics sometimes which are extremely sensitive and countries just may profess their willingness to be open but in practice they do not really want to be open but they want to have a discussion. We provide a forum for governments to talk to each other and it would be very sad for the OECD if those countries were to go away and talk somewhere else because we did not know how to keep our mouths shut, we did not know how to be discreet.

  1266. I can understand that. The purpose of our inquiry is to facilitate the promotion of e-commerce and part of it is within our terms of reference anyway. If there are delays in important areas which affect confidence we have an interest in trying to establish why those delays arise and who is responsible.
  (Mr Dryden) Just to react very quickly, one example that we are struggling with at the moment is the issue of security of networks, very widely publicised hacks of electronic commerce websites, of viruses bringing down networks. There is on the one hand, "Oh, my goodness, this is national security, this is military, this is law enforcement" and so on, "This is not the OECD's job", and on the other hand people saying, "Well, this is extremely damaging for the economy. There is nothing worse for confidence than a widely publicised hack whether or not this fear is justified or not by the technological facts of the situation. This cannot be a good thing. This is economic and this is doing not only millions of dollars' damage in actually putting it to rights but also millions of dollars of economic growth and incomes foregone by the lack of confidence that it engenders. This is definitely something the OECD should be getting into". Resolving that one and getting an agenda that is something people can discuss round the table is not that easy with 29 member countries who are just feeling their way even within their own administrations.

  1267. The lowest common denominator can hold you back sometimes.
  (Mr Dryden) Yes. It is both a strength and a weakness, this kind of consensus that we need to obtain.

Viscount Brookeborough

  1268. So in effect prior to any conference like that the governments may well have met here, and indeed, if you are talking about security, their security services may well have had a chat between them to see how far each of them could go on a particular field, and then they go to the conference and have an open conference up to agreed limits of progress if you like where they will all be at least in a united forum?
  (Mr Dryden) Yes. At this conference we are going to have in December one of the rules of the game is that it will not result in commitments to action. It will be discussion, dialogue, clarifying the issues and clarifying the options, but then as regards action there are other fora.

  1269. Away from that?
  (Mr Dryden) Yes. They will then take the results and there will be appropriate fora for action. We do this the whole time. Telecom liberalisation we have been doing for years, and no telecom liberalisation deals were ever cut here in the OECD. A lot of the discussion, the economic analysis, the arguments, were clarified, the data was collected, and then the member countries took those ideas away into other fora, into the European Union institutions, into the WTO. They then cut deals on telecom liberalisation internationally and also domestically. They liberalised one by one. We think we pushed that process along by decades in some cases but it was very much unsung because we are seldom seen to "act".

Lord Paul

  1270. My question is really tailor-made for an international civil service. Which of the main European countries do you rate most highly for its e-commerce policies?
  (Mr Dryden) I think the Nordic countries are extremely successful. The UK has not done a bad job but I certainly think there are lots of lessons to be drawn from the Nordics who have done a lot of very good work. I think it largely stems from their success in enabling their users to have access to networks and services. They have done that better than anyone else but other countries are coming along. The UK is probably the leading large country in Europe, just, but they are pretty much of a muchness. Can I introduce Sam Paltridge who is our telecommunications analyst. He has developed some very innovative Internet indicators and he can explain who is out in front. To me the question starts with access.

  1271. Are there any other important indicators which prompt you to make that judgment?
  (Mr Dryden) The kinds of indicators would be the share of electronic transactions in total transactions, so for example it would be the share of electronic commerce retail sales in total retail sales, the share of electronic business to business transactions in total intermediate transactions between enterprises. Other indicators would refer to the use of electronic commerce techniques by government administration. To us it all stems from access, who has access to it from the perspective of users, whether the user is a vendor or information provider or whether the user is a purchaser or information seeker. If there is access at the right price to the right kind of enhanced services, then electronic commerce will take care of itself to a great extent, provided of course the regulatory and legal framework to support it exists. Would you like to add something to that, Sam?
  (Dr Paltridge) Perhaps I could pass round a couple of charts with some of the indicators that we use to look at the infra structure side of electronic commerce and how we try and compare developments across countries. I can certainly make more information available on the indicators we use to compare different countries' performance with electronic commerce. As John says, the UK is probably the leading large country in Europe but, having said that, it is well behind a number of smaller European countries. Generally with most of the indicators you tend to find the UK around the OECD average. That is about the position of the UK at the moment. John mentioned pricing. We think that pricing is a key element in the development of electronic commerce. I am sure you are well aware that in the UK there is a tremendous revolution happening with telecommunication pricing. Unmetered telecommunication pricing becoming available which will allow people to stay on the Internet longer. We think that this is a very important development in terms of developing electronic commerce. The UK has been one of the earliest countries to recognise that local telecommunication pricing is very important in Internet development. Some countries inherited unmetered local pricing from the telephony pricing on their telecoms system. Other countries, that had metered local pricing are now having to make that transition. It is not an easy one for the telecommunications network operators. In the longer term we think that people will want to have an always-on connection so that they do not have to log on to the Internet and the Internet becomes as easy to use as television or radio. In other words that you do not have to log on and you are not thinking with the clock ticking in your mind, "I must log on, make my purchase or look up my bank account" and then log off. That is really the direction that most people think communications networks are evolving towards.

Viscount Brookeborough

  1272. So it will be live connection permanently?
  (Dr Paltridge) It should be a permanent connection and a high speed connection. In the interim most people will continue to use the Internet via the public switched telecommunications network and dial up their Internet Service Provider using a modem. For the next several years that will be the way by which most people will connect to the Internet. In the longer term what we are all trying to work towards is a permanent connection that is always on and has pricing appropriate to new ways of usage. Traditionally we made three-minute telephone calls and the pricing was geared around making those three-minute telephone calls. That pricing is not appropriate for somebody who wants to stay online for an hour or even someone who wants to have a permanent connection.

  1273. Which is the leading country in this technology that will enable this to happen?
  (Dr Paltridge) In terms of broadband connections?

  1274. And permanent live.
  (Dr Paltridge) We are still very much at the early stage. There are about five OECD countries that were fortunate in inheriting unmetered telecommunication calls. They are the US, Canada, Australia, New Zealand, and Mexico to a lesser extent. There the problem is that the telecommunication network is very underdeveloped so it really has not had the impact it should have.

Lord Faulkner of Worcester

  1275. The calls are free. You just cannot get through.
  (Dr Paltridge) In terms of other countries in Europe there has been a strong swing, in the growing number of countries, this year towards having unmetered local access offers but still there are limitations with the public switched network. What we are trying to work towards is DSL technologies which mean that you can continue to use the copper wire that runs into your home but at a much higher speed.

  1276. And DSL stands for?
  (Dr Paltridge) Digital subscriber line. With both DSL and cable networks, using a cable modem, you can get much higher speeds and they are permanent connections. The barrier here is still that the technology is very new. It is only in the last two or three years that people have been building and upgrading these networks and it simply takes time to roll out the networks and to make them available. There is more competition in this area—between cable networks and telecom providers—than we have ever had before in communications because traditionally we have monopoly networks. We think that prices will fall as the networks roll out and, as we evolve in that direction, we will have permanent connections and much higher speeds.

Viscount Brookeborough

  1277. This morning when I was getting up there was a programme on BBC World and it was about the new telephone system that Microsoft wants World Telecoms to use. They are in competition to Nortel and people like that. They say this is revolutionary. Are we about to see a complete change? Is there something very new coming out?
  (Dr Paltridge) This is an industry in which there is always something new coming out. The main things that will happen in the near future is first of all we are moving in the next two or three years to what we call the third generation mobile networks. I am sure you are very familiar with that. The simple way to understand it is having wireless connections with much higher speeds. Today if you use a mobile phone to connect to the Internet in most countries you will have a speed of around 9.6 kilobits. This is the speed at which a user on the fixed network was connected to the Internet circa 1990-91. In two or three years, if you are stationary with your wireless connection, you will access the Internet at around two megabits per second which is a huge increase. With a wireless terminal you will be able to get a performance that is better than the fixed network today, but of course the fixed network will continue to evolve. So by then the performance of the fixed network will be ahead of that capability. In terms of the connection speed via wireless networks it is going to be faster and it is going to be mobile. I suspect what you are talking about with Microsoft is that it may be software or some other application. In that realm what we are seeing over the longer term is a general switch from circuit switched networks to packet switched networks.

  1278. Yes, excuse me, I did mean Cisco when talking about Microsoft.
  (Dr Paltridge) In that case it would be something to do with the backbone of the Internet because Cisco provide most of the equipment that runs Internet backbones, so it will probably be faster equipment or something in that area.

Chairman

  1279. Can you tell me what packet switches are?
  (Dr Paltridge) With the traditional telephone network you had circuit switched connections such that if I made a telephone call to you we would have a circuit open between us all the time. With a packet switched network we do not have a continuous circuit. The data simply is put in the packets and it can travel over many different paths and then when it reaches you it is re-assembled.


 
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