Examination of witnesses (Questions 60
TUESDAY 14 NOVEMBER 2000
and MR JIM
60. What timescale would you put on that judgment
(Mr Edmonds) I would look back on that probably at
the end of next year. If at the end of next year this roll out
process, this smooth process of implementation, is not delivering,
we will then be able to take a judgment, yes.
61. Then you possibly would not expect to say
"Well, yes it has been a failure for the consumers"?
(Mr Edmonds) I hope very much not to say that. With
respect, I cannot produce consumer demand. I cannot produce orders
from the other companies. I do not know whether you are seeing
BT in the course of this particular discussion, asking BT what
the rate of orders are for their own ADSL product, asking the
other companies what orders they are putting in, what demand they
foresee. There is a market place there. I do not think the regulator
can actually sayI think it would be wrong for the regulator
to sayhow many lines would be unbundled, how many people
would be taking these services. It is my job to get a process
there which enables competition to come into the market place
and that is what I am committed to doing.
62. You will be responsible then if that does
(Mr Edmonds) I will be responsible for the process.
I take full responsibility for all of my actions.
63. Sticking with competition, you said to us
approximately a year ago that you would give some consideration
to the unbundling of cable companies' local loop service.
(Mr Edmonds) Yes.
64. Where are you at with that? Have you made
any progress at all?
(Mr Edmonds) Yes, we have. We produced a consultation
document in April. I used the words it was a "genuine"
consultation, it was a genuine consultation. In that document
we said we thought there were three tests you needed to apply
against mandating access to cable. Was the Regulation proportionate
to the problem that you were facing? Was there dominance in a
market place? Were the benefits greater than the costs? In the
consultation document that we published, and we are now taking
comments on that consultation, we concluded that against those
three tests the presumption was against the mandating of compulsory
access into the cable networks.
65. Would you like to try and flesh out for
me why you came to those conclusions? Was it the weight of evidence
(Mr Edmonds) It was the weight of evidence received.
Again, I have to be slightly careful because we are in a consultation
period and I will have to produce some conclusions which will
have to stand up to meet challenge. The cable companies pass 52
per cent of homes in the UK. Their market share of end connectivity
to consumers is less than 20 per cent. It is difficult to sustain
the case that in this particular market place under the definitions
that we have to operate within, like dominance in the market place
or significant market power in a particular market place, they
fall within those criteria. Therefore, the question about mandating
access is a very different question from that applicable to BT
who still have 83 per cent of those connections into the home.
That was the conclusion we reached in the consultation document.
I am looking at my colleague who was involved. Do you want to
add anything to that, Jim?
(Mr Niblett) Yes. I would just say that we considered
various markets. We considered the television market. We considered
the market for fast internet access. We considered higher bandwidth
markets. In all those cases the weight of evidence, based on the
cable companies' market share, was that imposition of an open
access requirement on the cable operators would not, at this stage,
add significantly to competition.
66. Is it something that you may be tempted
to revisit should we see a fairly sizeable increase in market
share for cable companies? Say when they reach the point of saying
they have passed 60 per cent of homes and their services have
picked up by 30 or 35 per cent, is it something that you will
(Mr Edmonds) Yes. We have introduced into Oftel in
the last 12 months a very rigorous system of market analysis and
we have committed to reviewing each market place on a systematic
and regular basis. The answer to your question is, yes, at a particular
point in the future we would come back to it, we would look at
what has happened in developing that particular market place and
we would consider again whether or not mandatory or any other
kind of access should be imposed.
67. Have you given any thought to the creation
of a separate company for the ownership and control of assets
of local loop?
(Mr Edmonds) As far as Oftel is concerned no, because
I think that would be going well outwith the statutory and other
responsibilities that we have. The decision by BT to produce its
own asset holding network company I think is a very interesting
decision. As I read it, and a lot of detail is still to be resolved,
and I think when you talk about the assets and then you talk to
BT about the assets, actually defining very particularly what
is going into that company, what the relationship of that company
would begoing back to one of the earlier questionsto
BT retail, how much of the local loop would be involved in the
central company, will be key to the regulatory framework that
is then established. I have to say that the transparency that
comes from Netco and the ease of defining the interfaces that
should come from Netco are significant benefits as far as we are
concerned. That is not to say there is not an awful lot of scrutiny
still to be done, and an awful lot of consultation still to be
had on what BT are proposing.
68. Can you explore with us a little more about
Oftel's position on BT's restructuring and setting up a separate
(Mr Edmonds) Yes. I have said quite clearly that the
implications of BT's proposal to create Netco in particular will
be the subject of a major Oftel consultation. When, in Oftel,
we understand the precise parameters of the assets which are going
into that company, when we understand the relationship that BT
are proposing between it and particularly the retail side of the
organisation, we will produce a consultation document. There will
be a full and thorough consultation with other operators, and
indeed with the general public. There are some interesting issues
to do with licensing which are for the Secretary of State, which
parts of the new company will need a new licence. There are some
very fundamental issues which will be exhaustively discussed with
all the people who have a stake in the telecommunications sector.
69. Could I draw out of your timescale perhaps
the end date for this? BT have a superb track record for drawing
things out as long as they conceivably want to and Oftel having
to come back and give evidence saying you were not able to do
something because you did not have the information given to you
or you did not get the co-operation, or you had to hit BT with
a stick six times before you got anything. I think we would be
a lot more confident if we could know what your timescale is going
to be and I think it is absolutely essential that BT is aware
of the fact there is going to be a timescale and there is no point
in waiting to hit them six times with a stick, they must come
up with the information.
(Mr Edmonds) BT are carrying through their reorganisation
for commercial reasons. One can only assume, therefore, that putting
into place the new organisation is something they will want to
do on a realistic timescale. I have made it clear to them, and
Anne has made it clear in her discussions with the Director of
Regulatory Affairs in BT, that we need full comprehensive information
about the nature of Netco. We need full information about the
licence that they perceive they will need. We have said that we
cannot be rushed in a timescale that means that we do not fully
and properly consult with other stakeholders, the general public
and consumers. I do not have a timescale because I do not yet
have the information I need from BT to take a judgment on what
they are proposing.
70. What is the deadline you have given them
for giving that information?
(Mr Edmonds) BT have said that they want to have parts
of this operation up and running by April of next year. If BT
fail to provide Oftel with the information that we need to do
the analysis of what they are proposing, to do the consultation
that we need, that will clearly be difficult for them. I have
not set a timetable at the moment. I am in a totally reactive
mood on the one hand but I am in a totally proactive mood on the
other hand because I have said you cannot do this without going
through this particular process. It is a commitment I have given
to some of the other operators who are worried that BT may try
and produce something which is anti-competitive. It is a commitment
I give to this Committee this morning. There is no question of
BT driving something through or producing something which is not
fully consulted on and is not given total regulatory scrutiny
by Oftel. The timetable is in their hands.
71. That seems a very relaxed way of looking
(Mr Edmonds) It is not relaxed. I have already said
to them "Can you say what licence you want and where would
you like that licence to be?" I have already said to them
I want to see the full range of details about the various parts
of the new company that will emerge. I have already said to them
that having got all of those details we will analyse that in very
considerable detail. I cannot do any more until
72. You have not said when you want it?
(Mr Edmonds) The setting of a deadline, as far as
I am concerned, would be arbitrary and, with respect, would not
73. Have you given them a helpful indication
of how soon it would be useful to have it?
(Mr Edmonds) I have said I would like to see this
information as soon as they have it available. I think the issue
is that they may not have all the information we want yet available.
They made their announcement last week and I think there is a
lot of detail still to be filled in around the edges.
74. You were not consulted before the announcement
(Mr Edmonds) They talked to Oftel about the general
structure that they were going to announce, yes.
(Mr Edmonds) I have been talking to BT about the general
structure probably for the last eight weeks, something like that.
76. You did not ask them for the information
within a prescribed timescale following the date of their announcement?
(Mr Edmonds) I think, Sir, as I said in my answer
to the last question, their business case, their commercial drive,
surely dictates when they produce the material that I will want
to see. The fundamental question for me is is this a structure
that is going to be consistent with the Regulation that applies
to the company? Once they have decided the structure they want
and what is going to be within the various components we will
then give them advice, but until they produce that material I
cannot. I have told them in general terms. I have told them what
the licence position is, where they may need a licence, where
they may not need a licence. We have started to talk about Universal
Service Obligation and where that will lie. We have not been holding
back but, as I have said, we have been both proactive and reactive.
Anne, do you want to say anything?
(Ms Lambert) Can I just add one point which I hope
might help the Committee. As you have read from BT's announcement,
they have said they want to sell to up to 25 per cent of Netco.
I think what is absolutely clear is they cannot do that until
Oftel and DTI are totally happy with the regulatory arrangements.
Whilst how soon they want to do that is a matter for BT, Oftel
and DTI are in control of the actual overall timetable because
BT cannot do that sale unless we are totally happy that we have
the powers and the information to regulate.
77. When you were speaking to them over this
eight week period, did you suggest any routes that they might
choose to go down or were you merely the recipients of information?
(Mr Edmonds) It would be wrong for me to define the
commercial future of the company or to say "You should structure
yourself in one way or another". What we did do was to say
"If you do this the following consequences will follow".
I think Anne has just described one set of consequences.
78. Let us face it, BT are chancers here. They
are driven, quite correctly, by shareholder value and by the need
to maximise profits for those shareholders. As long as they keep
pulling small rabbits out of the hat you do not need to turn round
to them and say "We are not really that happy about the way
you are handling what is in effect almost a natural monopoly,
the ownership of the wire." It is analogous to the Transco
arrangements for British Gas. It is a former public utility behaving
in an arrogant manner, trying to keep one step ahead of regulators
and trying to do as little as possible to open up markets at any
reasonable speed. That is the background to it. If the market
was going to be opened up then there would be these questions
of natural monopoly. Six months in advance of it they come up
with this deal. Allowing for the fact that there were eight weeks
of nods and winks and polite discussions, did you never think
that this might be something that you would have to impose upon
them at some stage, seek the powers to break them up because of
the way they might behave?
(Mr Edmonds) They were not nods and winks, they were
discussions based on me saying to them "If you have organisational
proposals that you want to get a view on from Oftel, we will give
you a view. We will give you a hard edged view based on our view
of what is right and what must be put in place to protect the
consumer." It is what my job is all about. As to a wider
decision on BT and its structure and its future, that is a decision
that I think, Sir, in legislation rests with the Secretary of
State for Trade and Industry and not with me.
79. You have a responsibility to promote competition.
(Mr Edmonds) Indeed.