Examination of witnesses (Questions 360
TUESDAY 19 DECEMBER (AFTERNOON) 2001
and MR IAN
360. Can I first declare an interest as an ex-employee
of BT and someone who holds an infinitesimally small shareholding
in BT, regrettably passed to me by the company in lieu of pay
increases at the time. Given the choice and probably the current
share values I would have gone for the other thing. You are rolling
out ADSL products yourself as a company, what has the take-up
been like and has it been as high as you expected?
(Sir Peter Bonfield) Yes. Demand is higher than we
can supply at the moment. I think there are two ways to look at
it. We are doing ADSL at the moment, which is primarily the consumer
product, and we have the exchange enabling programme which is
just about on track, the one I mentioned earlier to your colleague.
That programme is on track to get the 840 exchanges. I think we
are up to 620 at the moment. Where we are behind, again it comes
back to the system problems, is getting end to end system supply
of a full ADSL circuit. We have 25,000 deployed and, we offer
it wholesale. There are about 100 wholesalers involved in that
product. The demand is outstripping supply. We are ramping up
the supply now and we hope to get to 3,000 a week by the early
part of next year and then to ramp it up considerably. I think
there will be a backlog now well into next year.
361. Okay. It was said this morning by one of
the licensed operators, and this may be one of the services that
is wholesale products, that BT were selling services at below
cost. Would that have been a fair comment for them to make?
(Sir Peter Bonfield) We are selling ADSL products
to our own internal operation, which is called BT Openworld, at
the same cost as everybody else. We sell it at £35 wholesale.
BT Openworld then on-sell that retail at £39.99. This is
one of these products which in its first phase is probably going
to be loss making anywayeverywhere else in the world it
has started off loss makingbut you build extra services
around it, e-commerce services, advertising services, and it is
getting that business model right. At the moment there is no discrimination
between BT and the other operators. Of the 25,000 that we have
currently got installed I think probably less than half are BT
Openworld, the rest are wholesale to the industry.
362. Can I broaden out that question by asking
are there any services that BT as a company sell below cost? That
was an allegation that was made this morning.
(Sir Peter Bonfield) No. From a regulatory point of
view we are not allowed to cross-subsidise. We clearly do publish
extensive regulatory accounts and these are audited on an annual
basis and we comply with those regulations.
363. Okay. It is also reported that you are
in the process of rationing operators by restricting the number
of customers you can connect from January 2001 from somewhere
from about 100 lines a day down to 20. Is that correct?
(Sir Peter Bonfield) That is the issue we have got
in terms of demand. It will be more than 20 lines a day. It depends
on per customer or for the whole industry. The industry at the
moment is taking, I think, on an allocation basis more than 50
per cent of the lines that we are installing. We are currently
trying to get up to 3,000 a week.
364. Is this the problem my colleague was just
talking about about automating the back offices and trying to
cope with them?
(Sir Peter Bonfield) It is similar but obviously this
is a different system. This is the automation of the system of
getting ADSL enabled end to end. The other system we are talking
about is how we actually do the allocation of the numbering through
the MDF to the re-sellers. It is a connected system problem and,
as you are probably aware of from the past, they are very complicated
365. Yes. Under the terms of the facility regulations
you are currently prohibited from pushing not video on demand
but live television over your network. When those restrictions
are lifted do you propose to move into that area of activity?
(Sir Peter Bonfield) I think it is unlikely that we
will go into mass broadcast over the telephony network but we
certainly do want to expand the capability for screening video
over the network, internet enabled streaming video, video on demand
streaming video and that sort of thing. When this was originally
talked about many, many years ago, and you know the history, it
was looked at in terms of a broadcast media. I think the world
has now moved on and we are obviously too late to get into that
market because of the restrictions, so we are looking at new technology,
mostly IP based, streaming video types of technology. So rather
than mass broadcast distribution, very customer specific broadcast
information, video information.
366. Available through all your exchanges ultimately?
(Sir Peter Bonfield) Enabled on a wide basis but not
to every line. ADSL at the moment will not reach every home. Essentially
the throw on the distances, as you were probably told, Chairman,
is about five kilometres, so it covers about 70 per cent of the
lines. I am not sure that ADSL will achieve penetration rates
that are more than 50 per cent. I think the current feeling in
the United States is that the broadband penetration might be 25
per cent of lines within about five years, of that sort of order.
This is something where if the demand is there and it is realistic
demand then it can be rolled forward. Clearly there is another
opportunity in terms of broadband using other technology and we
are certainly supporting the DTI initiative at the moment, led
by Patricia Hewitt, that says broadband overall, is there a better
way we can look at it as a nation using all the technologies,
using all the suppliers? I think it is well worth having that
debate and we are actively involved in that.
367. On a purely technical issue, what are the
constraints with copper if we are talking about digital signals
for video purposes? When we looked at this some years ago they
said that unless you have got coaxial at least, and preferably
optical fibres, it is not a practical proposition. Now with the
new digital technology it obviously is but are there still technical
constraints that will limit your picture quality or any other
(Sir Peter Bonfield) Yes. Essentially the ADSL technology
at the moment running at two megabits, which is good for most
video, the restriction is really about four and a half, five kilometres
from the exchange. Obviously as compression techniques improve
that will get better, but that is the sort of range of reach we
are looking at in terms of the exchange. To a certain extent it
depends on the line, how good the line is, when it went in, but
that is the sort of reach we are looking at now. This is an industry
issue. This is not something which is unique to BT. We are relatively
fortunate in the UK because of the concentration of our exchanges
around the countrywe have got 5,500 exchangesand
we have got more opportunity to cover more of the lines for video
than many other countries, particularly in the US where the distances
are much longer.
368. It is purely a range constraint?
(Sir Peter Bonfield) A range constraint and it goes
up to the next range of technology which is VDSL which is the
next speed up. Then in that sort of area you either get much better
compression or you will need to start to look at shorter lengths
or maybe going up to some optical connections. Of course, we provide
optical connections to most large businesses anyway where they
need wide band width. We need to determine how the market develops
this high band width because I believe that most of the band width
demand will be driven by "always on Internet" and at
500k or a meg you can get very good information over ADSL.
369. There are a couple of points I wanted to
check up with you. This morning we were discussing distant connections
on the LLU operation and there was some doubt as to whether 500
metres would be too far from an exchange to locate a system. How
do you feel about this? That was regarded, as I understood it,
to be the outer limit but there certainly was some uncertainty
amongst the potential operators as to how far they could comfortably
be from an exchange.
(Sir Peter Bonfield) From a technical point of view
we obviously had our people look at this. We are saying if the
distant co-location is between 100 and 500 metres then it should
be okay. You can mitigate the problem by putting in fatter wires
and you can turn the wick up on the ADSL equipment, but within
200 or 300 yards. I do not think it is that much of an issue because
we are talking about kilometres on the other end. It is something
we are aware of and we have got our technical people looking at
and, again, something where we can work with the industry to optimise.
They can help if they are a little bit too far away from their
point of view by just putting in a thicker wire.
370. The other side of the coin was people were
talking today about what they considered to be a rather restrictive
approach that you took. Coming back to this co-mingling point,
it seems that other countries' operators were not uncomfortable
about having people sitting in the same room in ways that you
are not. I did not quite get why you set your face against that,
because it suggests that here is BT trying to be awkward again
demanding standards which are artificially high. The Germans can
do it; why can we not?
(Sir Peter Bonfield) We have to understand the conditions
within which we are operating. We are the universal service supplier,
we do look after some issues in terms of national security, and
we are in the end responsible for the upkeep and operation of
the network. Therefore, we must make sure that at all times we
have the integrity of the network at heart. We think the best
way to do that is physical security, which works fine at the moment
and we can separate that from the other licensed operators. I
do not think that is obstructive, I think that is just discharging
our obligations to the integrity of the network.
371. It is a different way of doing it from
presumably some of the big players abroad.
(Sir Peter Bonfield) I must admit I am not at all
sanguine on the point that many operators with the obligations
we have on the universal service would allow unfettered access
to their core network.
372. Is there any reason why we should not publish
detailed lists of the first and second bow-wave exchanges to be
(Sir Peter Bonfield) From our point of view, not particularly.
The only thing that we are under some obligation on is some of
the commercial sensitivities of the other operators because their
business plans are to a certain extent confidential to them. You
can tell where people are going to go after certain customers
if you know what exchanges they are going to target. At the moment
we have an agreement with Oftel that the information is confidential
(although clearly not from your Committee) and that is the current
obligation that we are working under.
Chairman: Thank you. Maybe we could move
on to one or two other telecoms related issues which are not quite
of the LLU kind. Mrs Southworth?
373. Why did BT take the decision to double
the minimum charge for callbox use?
(Sir Peter Bonfield) We have not increased the prices
of callboxes for 15 years. They were starting to lose a significant
amount of traffic to mobile phones. We had to balance up the long-term
value and commitment of the business versus the increase in the
pricing. What we tried to do, after extensive consultation outside,
is increase the ten pence minimum charge to 20 pence but extend
the call time. Most people who use a callbox in terms of social
need use long calls. Most people who do not use it as a social
need make shorter calls. So we tried to make that balance up.
374. Surely if the problem was fewer people
were using it then doubling the price is hardly going to be an
incentive to maintain usage?
(Sir Peter Bonfield) It does not double the price;
it doubles the set-up price. The on-going charge for a callbox
call is 11 pence a minute, which we think is competitive. We are
trying to balance up the long-term viability of the universal
service obligation on payphones clearly, but we are not allowed
to cross-subsidise so we must make sure we make that balance.
(Mr Green) At the same time we reduced by 27 per cent
the cost of making calls over two minutes. Our research shows
that most of the people who are using phone boxes because they
do not have a fixed line or a mobile line are using them to make
longer calls and longer distance calls and it is a reduction for
them, and doubling the minimum charge also includes double the
time for that charge.
375. Why did you withdraw the free 192 directory
(Sir Peter Bonfield) Basically because the competition
we are up against is mobile phones who do not offer that service,
so we withdrew it for everybody except for the people who can
show they have got an issue in terms of social need.
376. How have you advertised that?
(Sir Peter Bonfield) I do not know.
(Mr Green) The people who can use the special directory
enquiries service are already registered with us so they know
that they can do that.
(Sir Peter Bonfield) We publicise how you can register
with us if you have got a sight disability problem, for example.
377. Perhaps you can give us a note.
(Sir Peter Bonfield) Sure.
(Mr Green) We do that in conjunction with the Royal
National Institute for the Blind and similar organisations.
(Sir Peter Bonfield) I must admit that is one area
we treat very seriously because we have the social obligations
as well as the universal service obligations and we want to balance
378. Why, if you are so concerned about the
universal service obligation and social obligation, have you only
installed 130 out of the 500 promised callboxes since 1997?
(Sir Peter Bonfield) This is a very complex thing
and I am definitely going to defer to my colleague. It gets a
bit complicated about whether they are social or non-social ones.
What is the answer?
(Mr Green) We have doubled the number of callboxes
in the UK since we were privatised and what we agreed about three
years ago was that over a period of about five years we would
install up to 500 payphones where there were special needs (and
there are criteria for what is a special needs payphone) and that
is on top of the increase in the ordinary payphone population.
So this year we have put in another 356 payphones in the United
Kingdom. The 130 have come in from requests. We have measured
them against those social criteria agreed with Oftel and that
is the number it has come out at. That is an on-going process
and we are meeting our commitments. We have put in 356 this year
379. Of the 500 promised?
(Mr Green) That is 356 ordinary payphones. The point
I am making is that the payphone population is increasing anyway
so the need for these special needs payphones is reduced because
there are more payphones generally. There is no suggestion that
we have not met our obligation on that. We are doing that. As
requests come in for those special needs payphones we are complying
with the obligation to install them.