We believe that the Government's overall policy
objectives are still similar to those that existed when the Committee
last reported. There may be some changes of emphasis but, in our
view, the key objectives remain as follows:
to make the UK the most dynamic and
competitive communications and media market in the world
to ensure universal access to a choice
of diverse, high quality services but particularly to public service
content through all media.
to safeguard citizens and consumers
by protecting consumer's economic interests (by making key services
'affordable') and protecting citizens on the grounds of decency,
privacy and freedom of speech.
Within the scope of these overall objectives,
the key areas of Government focus that impact Telewest are:
Targets for conversion to digital
broadcasting (and analogue switch off)
Target for universal internet access
Target for greater broadband availability
The future role, and regulation,
of public service broadcasting
We provide some views on each of these areas
Telewest Broadband has over 650,000 digital
TV customers and it plans to convert all existing analogue customers
to digital by end 2003. Therefore, we would not expect to be an
inhibitor to analogue switch off.
In our view, the overall UK figure for digital
take up at c.8,000,000 represents good progress to date and we
anticipate similar growth in the near/medium term. Because this
market is still quite new, we believe that it is premature to
make subjective projections of take up over the second half of
this decade although we do support positive action by stakeholders
to maintain progress.
As such, we are involved directly with the `Go
Digital' project. and the Government's Digital Television Stakeholders
However, from our experience so far, we are
concerned that progress could be slowed by the conflicting interests
of different groups.
We see the primary objective as conversion to
digital transmissionin order to free up the existing analogue
spectrum for potential re-use. We do not see the objective as
replacing all existing analogue television sets with digital sets
or needing to convince consumers to move to subscription services.
Today, conversion to digital can be achieved
through the use of a single digital set top box with the existing
analogue sets acting as digital TV monitors. With internal cabling
being able to cover additional sets as required, together with
additional set top boxes, this situation could continue through
the consumers replacement cycle.
Whilst this is not a complete solution, it provides
a path to a digital home today and with the developments in in-home
wireless technology, it could still provide a solution in the
future, until, at least, digital television sets reduce in price.
But it is still not clear to us whether the correct route is to
incorporate the relevant technology in the television set or,
with the changing requirements for content and its delivery, to
develop a `home terminal' serving dumb monitors with the required
The use of digital set top boxes does not imply
that consumers have to move to subscription services although
any box, whether intended only for free to air in the first instance,
should allow consumers to access both public service or subscription
services as they require; ie even basic boxes should have interfaces
that will allow consumers to `trade up' to whatever subscription
level and platform they wish to use.
However, we recognise that retailers and set
manufacturers may have different objectives and the current promotion
of digital sets, and the associated standards issue, clearly creates
uncertainty in the market.
We do not see any need to change the current
target for analogue switch-off unless the Government's expectations
for sale/re-use of the analogue spectrum change markedly.
In our view, universal (dial up) access to the
Internet is available now and take up is impacted primarily to
consumers' personal circumstances.
The vast majority of consumers already have
access to a telephone, or to a location that can offer internet
access. Increasingly, homes will not require a personal computer
to achieve access, as it will be provided via the television set,
computer game consoles and mobile telephones. Therefore, we do
not believe that any additional regulation is required in this
However, we recognise the desire to reduce the
cost of internet use and we have sought to do this through the
introduction of flat rate tariffs. We continue to keep pricing
We acknowledge the Government objective that
the UK should have "the most extensive and competitive broadband
market in the G7 by 2005, with significantly increased broadband
connections to schools, libraries and further education colleges
Telewest Broadband sees itself as a key player
in delivering this objective (although not one that will deliver
universality alone). Currently, Telewest has broadband access
network available to c.25 per cent of UK consumers and has seen
its broadband customer base increase from 7,000 to 70,000 during
2001. Together with ntl's coverage and that of BT's ADSL based
service, around 65-70 per cent of UK consumers have access to
a broadband service.
Despite this, there is still unsatisfied demand
outside of the main areas of population and, although this demand
will ultimately be met by existing and/or emerging access technologies,
it will not necessarily occur at a pace that meets the Government's
However, the Government's broadband expectations
can be interpreted as either the leader in availability or in
usage or best in both. And it is not entirely clear over the role
it should play.
Telewest has been a member of the core Broadband
Stakeholder Group (BSG) that submitted its report to Government
on 30th November 2001. This Group considered the broadband issue
from supply and demand side perspectives as it saw a need to consider
actions to address both availability and take up.
From the supply side, we believe that the Government's
underlying target is to provide higher bandwidth, local access
infrastructure on a near universal basis as quickly as possible
(to support economic development and social inclusion across all
regions). In this respect, universal coverage could be achieved
by a combination of wired and wireless transmission technologiesfixed,
mobile and satellite. However, there are some areas where the
market cannot make a commercial case for investment in broadband
access at present, particularly to provide a higher speed return
path to complement high speed delivery to the user.
In terms of demand influences, it is argued
that prices are too high and/or that there is no compelling content
or service to drive more rapid broadband take up, although we
believe that there is an increasing willingness to pay for the
`always on' and `high speed' access to the internet. The recurring
question, notably from the investment community is `what is the
killer application that will support broadband investment?'
In this respect, we believe broadband itself
should be regarded as the killer applicationie the 'new
electricity' driving the development of new unforeseen serviceswhich
will allow applications and services developers to have the confidence
that adequate bandwidth will be widely enough available to justify
If Government believes that `broadband networks
will transform communications between people, homes and businesses
and will offer to businesses exciting opportunities to provide
new services', this must occur nation-wide to be of most benefit
to the economy.
A major conclusion of the BSG was that the capital
investment required to extend the reach of broadband access is
substantial and, in the current economic climate, very difficult
Therefore, we are faced with a Government objective
that really requires the supply of broadband access to precede
the established demand for higher bandwidth services, whilst the
investment community does not appear willing to commit to anything
that does not show a committed revenue stream.
One approach is to allow the market to progress
at a pace that investors will support (and we can only see this
situation improving and progress accelerating). Alternatively,
Government must consider whether it should take a role to support
infrastructure provision in the same way that it is looking to
stimulate usage, notably through public sector procurement and
other fiscal measures to stimulate connection to, and use of,
broadband services and the development of broadband applications.
One option is to consider, together with the
investment community, whether different lending criteria should
be applied for funding such infrastructure projects. In this respect,
one recommendation of the BSG, not accepted by Government, was
the possible use of fiscal incentives (possibly in the form of
R&D tax credits) for the provision of broadband local access
Another BSG recommendation was that the industry
should try to make better use of existing infrastructures. Since
a significant requirement for capital is in primary infrastructure
(ie ducts, buildings, masts and poles), which supports the transmission
infrastructure (ie fixed cable or wireless based systems, including
satellite), the sharing of ducts, poles and buildings would reduce
the need for capital, which could be better deployed for the provision
of transmission systems and other network components.
Since public service broadcasters have a combination
of market power and a privileged position, there is a need to
ensure that, if they abuse these positions and act anti-competitively
(either consciously or unconsciously), they face the same controls
in the new era as commercial broadcasters; ie they should be subject
to the same competition law as the rest of the industry and should
probably be more tightly regulated that smaller, newer companies.
In terms of the objectives of diversity and
plurality, as mentioned above, the public service broadcasters
(as well as other broadcasters with market power) should have
obligations to provide diversity. We believe that the issue of
diversity should be considered independent of plurality as we
believe that diversity can be regulated but plurality requires
a willingness/ability to invest and to operate within a market.
Our primary concern in the current debate relates
to the Government's wish to retain existing foreign ownership
rules. For Telewest specifically, we do not see that a rule that
allows BSkyB to own a terrestrial broadcaster, but excludes Telewest
from doing the same thing, is appropriate.
In any event, we would question whether the
current foreign ownership rules are relevant or sustainable given
the need for the UK to attract global capital. Notwithstanding
the reciprocity issue, particularly in respect of the USA, we
believe that the difference in scale between the two markets does
not justify retention of reciprocity and could work against the
Plurality can only be achieved if there is a
willingness and ability to invest whereas diversity can be achieved
through legislation/regulation, irrespective of ownership of the
regulated entity. In essence, if any entity has a position of
dominance or significant market power, it can have obligations
to meet certain objectives (such as the universal service obligation
in the telecommunications area).
Cross-media ownership must be possible, subject
to the ability of the competition authority to control abuses
by those having dominant positions in one or more markets, and
where market power in one area might be leveraged unfairly in
There may be some problems in the application
of competition law in the new media, notably in the definition
of relevant markets and the speed with which it could be applied
to curb a major abuse, but we see the application of competition
rules as a preferable option to too prescriptive regulation that
can be difficult to monitor.
Whilst we note the Government's concern that
the market will not deliver some of its objectives, it is equally
true that market management, through the use of regulation, will
create its own problems in such a fast changing sector. We are
firmly of the view that the market should be as unfettered as
possible, because of the uncertainty over how the future will
evolve, and that competition law principles should be predominant.
If we accept that achievement of the Government's
main objectives hinges on the investment climate that exists within
the UK, it follows that the regulatory framework and other Government
policies must create a climate for such investment.
The current regulators have a very important
role in creating the right climate and it follows that proposed
OFCOM will play an even more vital role
While we have supported the creation of a single
regulatory body, although preferably with a single reporting line
to Government, we have some concerns about its potential remit
and the exercise of its powers.
It is essential that the actions of OFCOM, in
fulfilling its central regulatory objectives, does not inhibit
innovation and competition by undermining the business planning
of the various players in the market. We believe that the quest
for an effectively competitive market can be inhibited by regulatory
provisions. Sometimes, further regulation may be introduced, possibly
to adjust for the effects of previous regulation, when the aim
should be to withdraw.
Therefore, to guard against potentially distortionary
action, the regulator should not take action without full and
transparent consultation, and should have a statutory duty, similar
to that of Government, to carry out impact assessments of any
new regulation, which would both review the impact on the regulated
entity (ie the target of the regulation) as well as assess the
direct and indirect impacts on other industry players (and, hence,
on the development of the industry as a whole).
We believe that OFCOM should have a primary
duty to promote investment and competition and ensure that its
duty to protect consumer's interests does not result in short
term benefits that lead to medium term disbenefits.
For example, the objective of providing `access
at affordable prices' is a sensitive issue. Clearly, Government
recognises that the use of existing services and the take up of
new services (both public and commercial) will depend upon the
cost of access and use. However, this is equally recognised by
the commercial companies in the market, who need to price services
at a level that will both drive take up and recover costs of provision.
In recent times, subsidy of new services, such
as digital broadcasting (and mobiles), has stimulated take up
but cannot continue indefinitely. Similarly, unmetered access
for internet use has also seen the introduction of various pricing
packages, some of which have been `loss leaders'. This suggests
that price regulation must be treated very cautiously to allow
new pricing structures and commercial models to develop.
11 January 2002