Examination of witnesses (Questions 1
TUESDAY 14 NOVEMBER 2000
and MR JIM
1. Good morning. Would you like to introduce
(Mr Edmonds) On my left is Anne Lambert, who is Deputy
Director General of Oftel and the Director of Operations. On my
right is Mr Jim Niblett, who is a Director in Oftel. His main
responsibility at the moment is work on local unbundling.
2. We start this morning by looking at the European
dimension. There seems to be a question of two different horses
pulling the issue at the moment, the European one and the Whitehall
one. I wondered if we could start off with where we stand on the
EC negotiations in relation to local loop unbundling?
(Mr Edmonds) The EC produced a draft Regulation in
the middle part of this year, which is designed to empower the
unbundling of the local loop across European states on a consistent
basis. That Regulation requires the incumbent, the company with
the power in the local loop, in our case of course BT which still
has some 80 per cent of local loops, to publish a reference offer
for local unbundling, to set out its contract terms and its prices,
to meet reasonable requests from 1 January and to introduce a
product that is cost-orientated. As far as Oftel is concerned,
we are required by that Regulation to ensure that the pricing
is fair; we resolve disputes; and that there is fair competition
in the marketplace. My own view is that the work that we did in
Oftel, which I described to this Committee at the last meeting,
which was incorporated through a licence amendment into the BT
licence in August of this year, and the further work that we have
done since August of this year, means that the UK will be fully
compliant with the EC Regulation as of 1 January.
3. Am I correct in saying that a Regulation
was chosen in preference to a Directive? Could you explain the
difference between the two and why one was chosen in preference
to the other?
(Mr Edmonds) Can I turn to my European expert?
(Ms Lambert) Very simply, a Regulation is something
which does not have to be transposed into national law; a Directive
has to be transposed into national law and, as you know, Chairman,
the UK Government normally does that by means of statutory instruments.
A Regulation does not have to be implemented. In the jargon, it
is directly applicable. The Commission chose that for its proposal
and the Council and the European Parliament agreed to ensure speed,
so that this could be done as quickly as possible, because with
a Regulation you do not have to allow a time for implementation
in national law.
4. Am I right in saying it is still binding,
even though it does not require national ratification by means
of what in the UK we have as an SI?
(Ms Lambert) You are right; it is binding. Obviously
it has been negotiated by the Council of Ministers and the European
Parliament. Both have reached agreement in principle, although
final adoption has not yet taken place. Yes, it is binding.
5. As of 31 December, you have got to get in
a fairly precise and specific form the terms and conditions of
the unbundling arrangements, which, as I understand it, you were
not going to be required to do until 31 July. Is that correct,
or could it have gone at a different pace?
(Mr Edmonds) The arrangement, as I described to the
Committee at our last meeting, was based on persuading BT to accept
voluntary licence amendment. As I explained to the Committee,
we were doing that through a process of negotiation and argument.
As far as the UK is concerned, not only did I not have a European
Regulation to back up the unbundling of BT's local loop, nor did
I have primary domestic legislation. Therefore, the licence amendment
that we drove through, which BT accepted in the early part of
this year, was on the basis of an agreement with me as Director
General that unbundling in the UK would start to take effect from
1 July 2001. As the negotiations proceeded in the earlier part
of this year, it became apparent to us in Ofteland again
I made this point to the Committee on the last occasionthat
if the industry could up the pressure on BT, if we in Oftel could
up the pressure on BT, I would wish to see that 1 July date brought
forward in any event. What happened in the middle part of this
year was a combination of that pressure from Oftel, from the industry,
and then the announcement that the European Regulation to bring
a different timescale to bear.
6. With hindsight, do you think it would have
been better if you had had an EU Regulation last year rather than
this year and you would have been able to get the arm up BT's
back a bit more quickly?
(Mr Edmonds) Yes, sir, to be honest. In fact at a
conference in Madrid in the middle part of last year I actually
did ask the European Commissioner to bring forward the Regulation
with more speed than I thought was likely to happen. In fact,
as I think Anne Lambert will confirm, in European terms, moving
from where they were to the publication and adoption of the Regulation,
has been very quick. As far as we in the UK are concerned, it
would have been helpful had that Regulation been applicable because
it would have meant that I would not have had to go through the
process of negotiation with BT; I could actually have looked to
7. Really, the fact is that you have not had
the powers to require BT. It is not in their interests to move
on this issue, is it?
(Mr Edmonds) It was not in BT's interests. If we go
back to the first proposals by Oftel to introduce local loop unbundling
into the UK, which came within about six months of my arrival
as Director General, we did that on the basis of a number of options.
BT argued that there should be no unbundling. BT argued that the
operator should take from them a wholesale product, that BT should
roll out its own ADSL and everyone should take it. Whether it
is in BT's long term interests not to go for unbundling is a different
question but certainly in the context of the negotiations over
the two years since I have been negotiating, arguing, directing
indeed BT, not having that statutory backing was a problem until
August of this year. In August of this year a licence amendment,
which gives Oftel now the same force of law that it will have
from 1 January, came into effect.
8. The fact is as well that three of BT's rivals
complained to you in the summer, did they not? The impression
I have is that people in the business, in the industry, were genuinely
concerned about the slowness with which BT was addressing this
issue and the apparent impotence of your organisation to require
them to do anything else.
(Mr Edmonds) The industry became very frustrated in
the summer because of detailed negotiations which were leading
to the implementation of local loop unbundling, detailed negotiations
about the nature of the contract, about where the main distribution
frames were from which local loop unbundling was to come, a whole
series of discussions being run by Oftel. You talked about the
impotence of Oftel. I genuinely do not think that is fair. From
the moment that we published the licence amendment, which was
in April of this year, through the summer we were heavily engaged
in a number of working groups. Again, I said quite openly to the
Committee, in response to Mr Laxton's question last time, that
if we could get the rest of the industry integrated into this
process, it would be easier to roll out. The problems that I have
faced, that Oftel has faced, in September/October of this year,
the criticism we have taken, stem from the failure to actually
produce a working methodology for distributing space in those
exchanges where there is a surplus of demand for space over supply.
I said clearly and I repeat it to this Committee: had I known
that the industry competitors who were actually charged, working
with Oftel, to find a route of allocating space, would be unable
to agree, with hindsight, I would have intervened earlier. In
fact, I was told in August that they could not reach an agreement
on space allocation. Within a few weeks, I had actually produced
what can only be described as a transitional space allocation
methodology. Within a few days, I will be producing a second space
allocation methodology, which will take the thing a step further.
9. I do not want to labour this point but it
does seem that the amount of pressure that you were able to exert
on BT was such that BT had no sense of urgency about trying to
establish where there exchanges were. For example, it has been
put to us that BT did not have up-to-date postcodes for some of
their exchanges because they had not been there for such a long
time. It did seem, frankly, that BT were taking you for a ride
(Mr Edmonds) No, I do not think that is correct. The
first part of your statement, sir, is correct. It beggars belief
that BT did not have accurate postcodes for their exchanges. We
suggested that they rang them up and asked the people who were
there! I have been very open about this, and I have said the same
to the other licensed operators who did come in at the beginning
of September and complain very powerfully and articulately to
me that they thought BT was holding up the process. I think there
was a series of examples during those months in the early part
of the summer when BT were deliberately holding back on information,
when BT were not progressing the roll-out of local loop unbundling
as fast as we would have wished. I do not think Oftel was impotent.
I think that we got stuck in very heavily on a number of occasions.
We sent them number of statutory letters demanding information.
10. Mr Edmonds, I have to say that in the collective
memory of the British regulatory system there is the £600
gorilla in the shape of the old British Gas, which behaved in
exactly the same way towards a predecessor of yours in another
regulatory role, where they just did nothing for years. It ended
up with court actions and the old Monopolies and Mergers Commission
inquiries. Did nobody in your organisation say to you that these
people should be kicked into action a lot earlier than they were?
It is 12 months almost to the day since you last came here. On
that occasion we were surprised that there was unmetered access
provision posted that morning by BT and we were too polite to
draw any conclusions regarding cause and effect. The fact is that
it seems that only when we start to rattle the cage does the telecommunications
industry in this country begin to get its collective finger out.
This is the impression we have.
(Mr Edmonds) If I may say so, sir, I do not think
that is a fair impression. Can I put it very crudely? If Oftel
had not in December 1998 said, "Here is a set of proposals
to unbundle the local loop", who else would? If Oftel then
had not driven through a licence amendment, with no statutory
powers, none whatsoever, into BT, where would we now be in the
UK in terms of meeting the European Regulation? If I even go back
to last year, and we talk about the July deadline that had been
set for BT for next year, we have now driven that forward. We
have pulled months, I suggest, off that timetable. I think that
is due to proactive intervention by Oftel. I think that the level
of detail we are now getting into is probably some of the most
intrusive Regulation that any British company has ever suffered.
11. Do you think you would have been able to
deal with this more effectively and more quickly if you had statutory
powers at your elbow, rather than having to duck and dive to get
to where you wanted to be?
(Mr Edmonds) Yes.
12. Did you ask for these powers? Did you go
to the Minister and say, "Look, I have not got sufficient
(Mr Edmonds) No, because I set off down the other
route. I set off down the route, which I suspect, probably given
the state of the legislative calendar, was a much quicker route
of forcing through into BT a licence amendment. By August of this
year, I had got a licence amendment which gives the same impact
or effect as the European Regulation, or primary Regulation in
Germany. That gives me the same set of powers to control BT. I
did that within 18 months from the first consultation paper. You
asked about European comparisons. I suspect, if you look at any
other European country and you go from the point of the first
introduction of the concept to the actual delivery of those powers
on the ground, the 18 months that we took in Oftel would compare
13. The Queen's Speech is coming up. From what
we can gather, there is not going to be much on the IT business
in that. Were there to be a Telecoms Bill, what would powers would
you want to put in that to make life that much easier, or is the
European Regulation effectively giving you what you want?
(Mr Edmonds) The European Regulation and the licence:
the two will run in parallel. I must come back to the point that
the licence amendment that we drove through in August gives us
the power that we need. If BT fail to comply with the licence,
we have the ramp of powers that currently exist. I think that
the process that we have at the moment is that if we find a breach
of a licence, we consult on what that means and we then make that
a provision or an order. If BT breaches the order, companies have
the right to redress in law. That is a cumbersome process. I suspect
if I was looking at powers, it would be looking for a more effective
and more immediate way of bringing home the consequences of some
actionsfines, to be crude.
14. We are where we are now. We have now identified
the exchanges and postal codes and telephone numbers; we are in
business. There are 361 out of the 5,500 which are to be opened
first. How did you decide on this figure of 361? What were the
criteria you applied to that?
(Mr Edmonds) The critera that were applied was to
ask the operators, and there are some 30 operators. We have, as
you know, Chairman, and you have looked at this certainly for
a long time, in the UK a very successful and disparate telecommunications
sector. We have some 30 operators wanting space in the BT exchanges
to unbundle. That is a tribute to the liberalisation of the industry
we have. We said to the 30 operators: "Actually list your
top 1500 sites". We then said, "Of those 1500 sites
once ranked, we will take what is a workable number in terms of
BT's ability to respond". Do not forget, I did actually say
to the Committee last time that unbundling would start in July.
We now have unbundling starting probably rather sooner than that.
We have orders going in now. We said, "On the basis of the
operators' ranking, we will select 360 sites". What is very
important is that there was a lack of agreement in the summer
between the operators. On this occasion it was not BT being awkward
but the operators saying, "We cannot actually agree on a
basis of allocating space". In very simple language, some
operators wanted twice as much space as other operatorssix
racks as against three racks. Because no agreement came from that
particular working group, we said that we will exclude sites where
there is a huge surplus of demand over supply. We then said that
we would take out any site where more than nine operators were
bidding for space. What we have come up with is, if you like,
a transitional list; it is not a very satisfactory list for many
operators because it is not their top 360 because the top 360,
almost by definition, were those that most operators wanted. So
we have 360 sites. They are all within the top 25 per cent of
operators' choices. That is the process that is now in hand.
15. How many exchanges are there where demand
exceeds supply? How many have you identified of the 30 plus BT,
where there really is not enough space for them?
(Mr Edmonds) We have not because this was a mechanistic
process. We will only find out where demand exceeds supply when
we get into the actual ordering process. We are now in the ordering
process. We are looking at the first tranche of numbers. Can I
ask Anne to take this because she was chairing the group on this
in the last week.
(Ms Lambert) I think it is important to make clear
that there are actually 381 because Oftel selected 361 in Great
Britain and there are another 20 from Northern Ireland. We should
be clear that we are talking about 381. That is just the initial
phase. It was the thing that Oftel did to get the whole process
started and unblocked. As David has said, later this week we hope
to decide the methodology that will determine the space allocation
and the most popular sites. Once we have selected the sites, we
will ask BT to do a survey to see the sort of space that is available.
Until a survey is done, we do not know whether all operators'
demands can be met. Once the initial survey is back, then operators
can decide whether they want to ask BT to do a full survey, design
and costing. If we take the first 381 sites, orders for initial
surveys have been made in 364 sites. The initial survey has found
that in 83 per cent of those 364, there is enough space to accommodate
all those who want to go in. That I think is quite positive. So
we have 187. In some of those we may have to do a bit of adaptation
for space and use other rooms and back-up rooms to accommodate.
With goodwill and a bit of flexibility on all sides, that can
be done. In 83 per cent of these 381 there is enough space. Now
what is happening is that operators then have to decide whether
they want to go to a full survey with design and costing, and
orders for that have been submitted in 166 sites. I can go on
with lots of statistics. I want to show that the process is now
happening. It is clear and there is transparency in what is happening
and we in Oftel are going to monitor it very closely.
16. You have given us the numbers. That is the
quantities. What about the quality? For example, 44 of the 100
most desired exchanges were in London; 92 of the 361 were in London.
Yet, as I understand it, in this first wave, the bow wave, there
is only going to be one from London. That means a lot of unhappy
(Mr Edmonds) It is a lot of unhappy people and it
is an unsatisfactory outcome to the debate that went on between
the operators in terms of an allocation methodology. Had the operators
agreed on an allocation methodology at the beginning of September,
those sites would have been brought into the process. I had a
decision. I had a choice to make in September when the working
group in effect came along and said, "We cannot decide how
to `divi' up the space". I could stop the process or I could
go to what I described to you in my last answer as a transitional
process whereby we skipped the most popular sites. We would make
no secret of the fact that these were not the sites with which
operators would have preferred to start. What we will now do,
having consulted very hard over the last four weeks, is produce
an allocation methodology, I hope later this week, which will
actually mean that these more popular sites can be pulled into
17. As I understand it, of the 361 GB sites,
only 190 are going to be available for co-location by 1 July.
Is that correct? Co-location is the word you use for having several
people using them.
(Mr Edmonds) Indeed, that moves us on to the announcement
that BT made on Friday. It was an important announcement because
it came after another month of very tough Oftel pressure. It was
an important announcement because it made clear that BT would
commit to the delivery of 600 sites, of which about 190 will be
full co-location and perhaps 400 will be some form of distant
location by July of next year. That is a major step forward in
terms of BT committing themselves to the process because, as I
say, if I go back to the original agreement with BT, which was
July, that brings it forward really quite significantly.
18. Just a small point before my colleagues
come in: on this question of which sites, it seems that the other
operators want to keep this a secret. Is there any reason for
(Mr Edmonds) There is a degree of commercial confidentiality
which the operators asked to be attributed to the sites that have
been chosen so far, on the grounds that there were bilateral agreements
between them and BT and the publication and announcement of those
sites might give away their own, if you like, business plan, their
own competitive programme. I think it is strange and I take the
point that you make. I will look at that again.
19. Just to compete this point, my understanding
is that the agreement was that Oftel would select only those sites
where a maximum number of operators want to co-locate.
(Mr Edmonds) For initial surveys, yes.