Examination of witnesses (Questions 20
WEDNESDAY 13 DECEMBER 2000
and MR CHRIS
20. No doubt we will pick up some information
from BT on the 19th. It was clear, when we looked at some of the
exchanges involved, that some of them were remote exchanges in
terms of business activity and it is difficult to correlate what
they are going to be requiring with the way they were providing
it. Do you think there is anything to be read into what has been
reported, the decision of Ntl to disengage from this process?
I mean, they are an extremely large cable company.
(Ms Hewitt) I think the only thing to be read into
it is that the telecommunications' sector is making very, very
big capital investments at the moment. If you look at last year's
figures in the CAPEC scoreboard that we have just published, you
will see that the four top telecommunication companies, which
do not include Ntl, themselves accounted for £9 billion of
capital investment in the United Kingdom last year. There are
very big investments here. There is a lot of different infrastructures
in which to invest: there is local loop unbundling and ADSL, upgrading
of copper wires; there is the upgrading of the cable networks
to carry broadband; cable modem; there is the new wireless local
loop with broadband fixed wireless access; there is 3G; there
are all the IP-based backbone networks; and probably a whole lot
of other things as well. It therefore, from my perspective, seems
to make very good commercial sense for each company to look at
what the priorities are for its own capital investment programme
and how those relate to its business plan, whether it is acting
as a retailer or as a wholesaler or, in some cases, a combination
of both. Different companies will make different commercial judgments.
I do not think there is anything more to be read into that.
21. Finally, can I come on to the issue of radio
data licences and the auction, which was, in a financial sense
or a practical sense, not as successful as the 3G licences. Where
do we stand in this particular area? Where do we go from now,
in terms of the disposal of these licences and the impact that
that may have upon rural areas and various geographical sectors
of the United Kingdom?
(Ms Hewitt) First of all, perhaps I can stress once
again to this committee we do not hold auctions in order to raise
money. All the comments about how we were expecting £1 billion
and were therefore thoroughly disappointed are simply rubbish.
We had no such expectation and nobody who understood the market
could possibly have had such an expectation. What we were interested
in with this auction, and, indeed, with the third generation mobile
auction, was in getting the most economically efficient allocation
of what is a very scarce resource: the radio spectrum. The result
of the broadband fixed wireless access auction is that we now
have licences in seven different regions covering nearly 60 per
cent of the United Kingdom population, and including, of course,
Scotland, Northern Ireland and the North of England, where we
will have the potential for a wireless local loop giving high-speed
internet access and competing with both broadband, cable and the
upgraded local loop. So that is very good news. Of course I would
have liked to have seen licences sold in every other part of the
country as well, and what the outcome of the auction has probably
told us is that there was not actually a commercial case for rolling
out high-speed internet access wireless in those areas but I have
asked the Radiocommunications Agency to give me a reportand
they are already of course working on thisof what lessons
we should learn from the auction and how we should now move forward
in the remaining regions with the spectrum that has not been yet
disposed of. So they are now talking not only to those who successfully
participated in the auction, but those who indicated earlier in
the year that they were intending to and then did not. They will
learn from that how the market has changed, how people's view
of that spectrum and the possibility of high-speed wireless internet
services has changed, and on the basis of that we will then decide
what we do with the unallocated spectrum.
22. Perhaps give some of the spectrum away?
(Ms Hewitt) It would be wholly improper and probably
unlawful to undermine the auction that has already been held by
allocating unused spectrum at less than the reserve price for
23. Is it not the reality in many rural areas,
and even in some urban areas, that there is never going to be
a commercial case for firms to install ADSL or some technological
equivalent? Unless these areas are going to fall behind, as they
are falling behind at this very moment, is the Government not
actually going to have to provide the infrastructure in the same
way as it provides roads? When is the decision going to be taken
to do that?
(Ms Hewitt) I think the short answer to those questions
is yes and yes. Quite clearly, in the short to medium term there
is unlikely to be commercial demand for high-speed internet access
on any technology in some parts of the country, and therefore
there is likely to be a need for public sector intervention. We
are not prepared to end up with a situation where high-speed internet
access is the province of urban areas and better off areas, and
the rest of the community, particularly rural areas, is simply
left out. We have commissioned a piece of work from Analysis (one
of the leading consultants in this area) to give us a better idea
of where the commercial market is likely to take broadband. This
is such an early stage market it is not always easy to seeand
of course we already have cable and the upgrading of cable; we
have ADSL; we have broadband fixed wireless access; we have the
potential of satellite, and they do not all cover exactly the
same parts of the country, although satellite has the potential
to cover everything. The report that we have had from Analysis
will form the basis for a meeting that I am chairing tomorrow,
where I am bringing together the key stakeholders in both the
private sector and the public sector, which we will use both to
develop our understanding of where the commercial market will
take us, but also our understanding of what is already happening
in the public sector. In Wales, for instance, the Regional Development
Agency is using European Union infrastructure funding to roll
out broadband infrastructure into parts of Wales that are not
at the moment going to be reached by the commercial market. The
Department of Education has the major procurement going on at
the moment to upgrade Super JANET, or to put in place Super JANET,
which is the backbone internet network linking the education and
academic institutions. What we need to look at is the extent of
the possible market failure, and then, secondly, at what kind
of levers we could have in the public sector to overcome that
market failure and ensure the roll out of broadband infrastructure
across the United Kingdom.
24. Before we leave this area, maybe you could
clear up in my mind the problem I have about the local loop and
unbundling. You said you had a meeting in September or October.
(Ms Hewitt) Yes.
25. We were getting fairly fierce representations
from the disgruntled players or non-players at that stage in June
and July. You must have been getting letters and representations
at that time as well. Would I be right in saying that until the
EU laid down a fairly hard timetable which might result in financial
penalties if it was not achieved, very little was being done.
The concentration of minds was as a consequence of the EU and
(Ms Hewitt) No, that is not the case, with respect,
Chairman. A great deal has been done, because of course the European
Commission draft regulation only surfaced in, as I say, the early
summer. There had already been months, indeed nearly a couple
of years of work, from Oftel, putting in place the licence agreement,
which was agreed, I think I am right, in April and came into effect
in August. That had nothing to do with the European Commission
regulation at all and it was that licence amendment, agreed with
BT, that provided, and still provides as of today, the legal basis
for local loop unbundling in the United Kingdom. It means that
we were complying in August with the European Commission's proposed
regulation that of course comes into effect on 31 December. At
the same time there had been a great deal of work going on across
the summer by Oftel, and within the industry's roots, to start
putting in place the practical arrangements for local loop unbundling.
What had been happening was that the original timetable that had
been negotiated between Oftel and BT was a timetable targeted
on July of next year. You will remember Oftel's statements on
that and, indeed, the Chancellor's statements as well. But it
then became clear, as the European Commission made progress with
its regulation, that that timetable had to change. It also became
clear, but really at the end of August, that the industry group
could not agree on the issue of the space allocation. They were
all agreed that they wanted a fair system but they had conflicting
views on what a fair system was going to be because they had commercial
interests of their own. I will have to double-check, but I do
not recall until September having the other operators coming to
me and saying that they were not happy with the process. There
was a great deal of work already being done but it really was
given a shove, it was speeded up very considerably, after that.
26. What about the question of sanctions on
BT. Was there any means whereby you could have enervated BT to
move more quickly?
(Ms Hewitt) The first priority and the priority of
the Director General was to get the licence amendment in place
because, as you will recall, Oftel had no power to impose that
licence amendment. Until the regulation comes into effect at the
end of December, there was no power to impose local loop unbundling.
It either had to be done through an agreed licence amendment or
it would have required a reference to the Competition Commission
which of course would have delayed matters very substantially.
27. It depends on how early you referred them.
Really what I am getting at here is this: It was not in BT's interests
to move at any speed at all until there was an EU directive in
place. I mean, let's face it, they have responsibilities to their
shareholders; conceding part of their business to other people
is not consistent with that obligation.
(Ms Hewitt) BT had opposed local loop unbundling during
the earlier consultation process. Once they had agreed to the
licence amendment in April that took effect in August they were
legally bound to implement local loop unbundling. They had originally
agreed to a timetable with a target date of July next year. That
had been part of their negotiations over the licence amendment
but then of course the timetable was changed as a result of the
European directive, and, as I say, it is very clear from my own
discussions with BT that they completely accept that obligation,
they are signed up to it, and believe it
28. They do not have any choice, do they? The
point I am getting at is this, Minister, that it might be all
right for you and Oftel to say that you have done a great job,
that things are now running. We see the 10 per cent of the exchanges
are now available. We also see that in the recent past, when there
have been other liberalised issues which your departmentnot
necessarily your section but your departmenthas been responsible,
the people required to concede monopoly or near monopoly power
have moved at glacial speed towards the realisation of that objective.
One would have thought that, within the collective wisdom of the
DTI, there would have been a memory of the recalcitrant attitude
of the near monopoly players and that a touch of the cold steel
might have been applied, to use Mr Jones's expression, a little
earlier than it was. Some of us are not confident that the 600
are necessarily the ones that everybody wants or the ones that
are most useful, or that they will even be delivered on time.
We are going to see some of them at the weekend.
(Ms Hewitt) I will come back to that point but let
me underline the fact that the previous administration and the
previous director general of Oftel had been against local loop
unbundling. It was not part of the competition policy that they
were pursuing. There was no preparatory work on local loop unbundling
at the point where we arrived in government. The policy changed
with the arrival of David Edmonds in 1998. He then drove through
a process of consultation which he had to do, not only for legal
reasons but in order to ensure that the policy was indeed the
right one and properly put in place. It would have been very helpful
if the European Commission had been able to do their regulation
on local loop unbundling earlier. The DTI, the government and
Oftel were saying to the Commission last year, when the idea of
a local loop unbundling regulation was first mooted, that the
quicker they did it the better. Having said that, the speed with
which the European Commission has delivered agreement on a regulation
that will come into effect at the end of December is almost unprecedented
within the European institutions. It is very fast. Yes, if we
had had it earlier, that would have given us a stronger legal
basis. In a sense, that is all water under the bridge because
we have the legal basis with the licence amendment that was agreed
in April. We have the timetable in line with the European regulation.
Everybody now understands that. I completely agree with you that
the issue is not what BT says they will do; it is what they actually
do. That is why I was encouragedjust encouragedto
hear from them on Monday that, on the stage of the orders where
they are at for the first round of orders, they are delivering
full quotations for the building work and stuff that has to be
done for local loop unbundling in many cases earlier than they
said they would.
29. What if someone says, "We do not agree.
We want our own builder"?
(Ms Hewitt) That is all right. That can all be negotiated.
It is up to the competitors. As far as the issue of will the competitors
get the sites they want, that was a problem with the first bowwave
process because they had not sorted out how they were going to
allocate the most popular exchanges, which are the ones where
demand exceeds supply. Oftel has now put in place a process for
that space allocation. The orders are being received at the moment,
or indeed may already have been placed, for the second bowwave
process and clearly that is going to include the exchanges that
the operators most want because they are being asked to nominate
the exchanges in priority order. BT, very sensibly, is taking
their own view of what they think the top 120 or some of the top
120 will be. They have already done surveys. As soon as they get
orders for those surveys, they can hand them over instead of having
another delay of some weeks while those surveys are done. The
progress is encouraging but I am not going to let this one go
away. I will continue to keep in touch with the competing operators
and with BT month by month as we drive this out. We have a very
clear programme from BT of the commitments they are making and
we will be able to track whether or not those are delivered and,
if they are not, why not.
30. You will be publishing the results of this
(Ms Hewitt) I think when you see BT next week you
will receive from them a table of their own commitments.
31. You are going to be monitoring it. Will
you be putting it on the web?
(Ms Hewitt) Yes, I will certainly look at doing that.
32. One of the governments commitments is to
remove the remaining regulatory and legal obstacles to electronic
ways of working. When Ian McCartney in May announced the targets
of placing 70 per cent of the orders necessary by the end of 2001,
what would that mean in terms of the number of orders?
(Ms Hewitt) You are focusing here on e-procurement
rather than general government services?
33. I am referring to the statement Ian McCartney
made in May where he announced that 70 per cent of the orders
to remove legal impediments in a variety of areas would be done
by 2001 and the rest would be done by the end of 2002. When Ian
McCartney made that statement, he did suggest that some departments
had not identified any statutory requirements that required updating
at that stage. What needs to be done? Are you happy with the speed?
How many orders are necessary?
(Ms Hewitt) I hope in a minute to have to hand a table
which I think would help the Committee. Under the Electronic Communications
Act, we now have the power to make statutory orders to update
Acts of Parliament and remove statutory obstacles that specify
pen and paper and delivery of documents by post and so on. Every
government department has been analysing its own statutory and
regulatory position in order to identify what orders are needed.
The DTI made the first such order to update the Companies Act
to allow companies to communicate electronically with their shareholders.
The DETR are consulting under the Vehicle Excise and Registration
Act. They have made one in relation to the Local Government Housing
Act to allow for electronic filing of statistical returns. The
Lord Chancellor's Department plans to issue a draft order very
shortly for electronic conveyancing. The list of orders that are
expected to be made before the end of 2001 is on the e-envoy's
website and it is updated monthly.
34. Why is it only 70 per cent by the end of
(Ms Hewitt) What we discovered when we were preparing
the Electronic Communications Bill was that there were something
like 40,000 different statutory references to paper and pen and
documents by post and all the rest of it. It is an enormous task
to go back, not just through the statute books but through all
the regulations, to spot the problems. Some of them are very obvious,
like the issue of companies not being able to communicate electronically;
some of them are not so obvious. We are therefore consulting with
industry to understand what their priorities are for such orders,
whether they are finding they cannot do things electronically.
In other cases, there are policy considerationsfor instance,
in the whole field of consumer credit. We have to balance the
convenience of being able to do a consumer credit transaction
on-line with the need to ensure that consumers are properly protected.
Some areas like electronic conveyancing may also need primary
legislation. It may not be quite enough to do it all by order.
We are trying to do it just as fast as we can and I think we will
have hit most, if not absolutely all, of the priority areas certainly
before the end of 2001.
35. I understand why Ian McCartney did not make
the announcement in May until the Telecommunications Act received
Royal Assent. Presumably an enormous amount of work should have
been taking place before that stage in identifying the orders
that would need to be made. At that time, unless my memory is
incorrect, as a matter of fact, Ian McCartney did say that some
departments had not yet identified any statutory requirements
which required updating which seemed a little strange. Also, in
the annual report, the phraseology is interesting in that it says,
"Following Royal Assent it is now essential that we move
quickly to use the power in section eight." The message I
am getting there is that somebody is flagging up that things have
not gone as quickly as they should have gone in the past; we are
now accelerating the rate of progress. Is that the case? Are you,
in all frankness and candour, concerned that things have not moved
more quickly hitherto, albeit obviously that this is being addressed?
(Ms Hewitt) It is being addressed. It is true that
some departments moved faster than others, before the legislation
received the Royal Assent, to anticipate what they would be able
to do with it once it was enacted. If you look at the summary
of the orders, you will see happily that the DTI is way ahead
of the game. We have identified a very large number of areas where
we would want to make orders to take advantage of the Act. The
DETR has done a fair amount of work. The Home Office, the Office
of National Statistics and some of the others have done a lot
36. Which departments do you feel could perhaps
have done rather more a little earlier?
(Ms Hewitt) I am going to duck that one, if you will
37. It is a good question though, is it not?
(Ms Hewitt) If you look at the website table, you
will see the departments that appear and you can draw your own
conclusions. The government departments generally did undertake
a pretty widespread consultation, even while the Electronic Communications
Bill was going through. Ian McCartney and his officials in the
Cabinet Office were pushing this. Indeed, Mo Mowlam wrote to colleagues
at least once, if not twice, alerting them to the need to do this
analysis and get prepared for the arrival of the Act itself. There
is no doubt at all that the speed has picked up since Ian McCartney's
announcement. I think the Human Rights Act has also required a
huge amount of work by lawyers in every department, checking through
all the statutes and all the regulations to see whether there
were Human Rights Act issues, so we have been placing rather a
lot of demands upon government lawyers.
38. You mention government lawyers, Minister.
Could you tell the Committee what outside legal expertise the
government might or might not be using to speed up this process?
(Ms Hewitt) In this area, government lawyers are best
placed to deal with the necessary process of drafting the consultation
documents and drafting the orders. I do not think that has been
holding us up. I just make the general point that a huge amount
of legal analysis has been required not only for the Electronic
Communications Act but also for the Human Rights Act.
39. No legal expertise has been secured from
(Ms Hewitt) We regularly secure legal expertise not
only from the law offices but also from independent counsel when
that is required. In the DTI, I do not think we specifically needed
that on the Electronic Communications Act. We are also working
very closely with the Alliance for Electronic Business. They have
their own legal sub-committee which is helping to identify priority
areas and barriers that need to be removed.