Examination of Witness (Questions 480
WEDNESDAY 22 MARCH 2000
480. You will be interested to hear that we
wrote to Nokia in Finland and the letter came back from the Finnish
Post Office "Not known at this address".
A. It is ironic, is it not, they are the largest
item on the Finnish Borse.
481. Vis a vis the rest of Europe, where
do you place us? Do you think we are ahead?
A. In terms of the number of connected and connectable
users, we appear to be number two in the league after Germany.
The crude statistics currently run as Germany, the United Kingdom,
France, Italy and Spain. Whether those proportions will change
over the next few years is really a question of the encouragement
given by the European Union through their investment programmes.
482. Can I ask you, does that actually mean
that if you took as a proportion of population, because the German
population is much higher than our's, we could be number one.
A. The absolute number of Internet connected
A. So applying that to per head of population.
I think a more significant statistic would be the number of what
we call secure Internet servers. Forgive me for being technical
for a moment. The whole process of commerce enablingbeing
able to do business over the Internethinges on your being
able to trust the party you are dealing with, knowing that the
host, the organisation which holds the web site, is totally secure
and will obviously effect the financial transaction you are expecting.
We call those facilities "secure hosts". Inside Europe
we have a freak situation whereby Luxembourg statistically has
got more secure hosts per head of population but, with respect
to Luxembourg, it is such a small population that it is perhaps
an unfortunate use of a statistic. In terms of the countries we
accept as being mainstream for this purpose, and again no disrespect
to the Luxembourgers, it would be Finland. Britain comes some
way down that chain and if I may I will deliver to the Committee
the actual statistics at some later juncture if you wish to have
484. Yes, please.
A. In fact, Britain is currently third in that
chain. We run about half the rate of the Scandinavian countries.
This goes back to the tremendous communications channel and openness
of communications of Scandinavia, about the same time as Britain
but taken up more opportunistically than we did.
485. You would not subscribe to this view which
is commonly put around that Britain is leading the rest of Europe?
A. Oh, in many parameters we are leading, yes.
We have got a higher number of web sites per thousand of the population,
yes. We have got those common statistics but since most websites
not really do much to do business over the Internetthey
are merely advertising forathen I think more relevant parameters
are going to be the number of commerce-enabled sites, that would
be a more effective parameter. I should add, also, countries like
Belgium, which we assume are going to be very advanced, in fact
have significantly lower penetration of secure commerce servers.
I find that most interesting.
486. If you could drop us a note on this.
A. Yes, indeed.
Chairman: Your introduction has been very helpful
to the Committee.
487. Mr Casey, I have one question. You say
you have been analysing and talking to the companies and other
journalists, I am sure. Now it is quite established that this
whole technology has made life easier, cheaper, all those things,
but still this industry has managed to break all the rules of
what used to be considered financing, etc.. For the first time
we are seeing money pouring into companies which are using their
share. This is something that is very difficult for me to comprehend.
The volatility is such that one day the share price is twice as
much as the next day. Where do you think this is going and where
do we come from on this?
A. We are going through what is called a correction
process and I think we are going to be correcting for a few more
weeks to come. I think there will be a great deal more rationality
applied by the institutions who are more than happy to plough
the funds into the so-called .com environment. They are the people
who really need the rest of us to follow suit.
488. One hears this but on what basis can they
go for correction? There is not a base which can say "Okay,
these things are not coming together so this is our basis for
A. The basis for correction is that fund managers
are looking at the total portfolios they hold and they are taking
the decision on investments, and I would cite an example like
lastminute.com where there has been a great deal of hypeI
can say that in these four walls, my Lordand that has yet
to substantiate itself.
489. The fund managers are able to make money
because they are able to offload but it is the poor little shareholder
who is not able to offload.
A. I think this is part of the dream created
by the new Internet revolution. With great respect, I feel that
this is a veneer on top of a much more fundamental change of environment.
That is what I have a great deal of passion and enthusiasm for.
I am less enthusiastic about the volatility of the market.
Lord Cavendish of Furness
490. Lord Chairman, should we not warn Mr Casey
there are not four walls here, it is a public meeting.
A. I appreciate that, yes.
491. I have two questions. First of all, I think
you almost cut off at a very crucial point in your fascinating
presentation, saying that if Europe or any member country was
to catch up there was going to need to be something in euro government
or national governments promoting. Now then, we are all bit politicians
here, some of us more than others. To me, we speak off our own
bat, I am very sceptical of the ability of Government to promote
A. Well, my Lord Chairman, at the expense of
being terribly boring, I am sure that my Lords are familiar with
the European Policy on Regional Investment. There are assorted
grant schemes which have designated the whole of four countries,
specifically Portugal, Greece, Spain and Ireland, as being "Objective
1" countries. There are other Objective 1 regions within
the other countries, roughly 24.5 per cent of the whole of Europe
is deemed to be Objective 1 in some part. Objective 1 status allows
massive capital investment grants for infrastructure projects.
I would refer the Committee to the Irish Government which has
put out a paper to attract e-commerce infrastructure projects.
They are defining those to be IT projects which of course qualify
for 40 per cent grant, fully approved by Europe. So capital projects
involving the infrastructure of e-commerce, which means everything
from secure servers to "pipelines" in the road, would
qualify under this heading. There is already within the European
philosophy the mechanism for encouraging this kind of development
and growth. There are areas like Northern Portugal, for example,
which have benefited greatly in the last three years from infrastructure
projects. I happened to be on business in Portugal a little while
ago. When got out of my motor car and switched on my mobile the
networks were fighting for my business because the funds had been
available to promote telecommunications and roads and associated
facilities. That means that you can have more capacity (or erlangs,
as we say in the trade) per person than you know what to do with.
We will see projects arising in countries like particularly Northern
Portugal where there is a great incentive; in Ireland and certainly
in Spain, although perhaps less so in Greece, to see a major influx
of e-commerce centred projects. It does not mean to say that these
projects are going to be serving the local community, they will
be the source of hosting of technology for the rest of Europe.
Communications are borderless. When I log on to a web site, I
do not know whether that site is being hosted in London, Lisbon
or New York, all I know is that I see it. So what a wonderful
idea, you might say, to have secure commerce hosts in a country
like Portugal where Europe has given a great deal of money for
that type of project. Instead of my buying software to run in
my PC at my office I can rent it from somebody who is putting
it on to the server in Portugal. They call this Application Service
Provision. I have referred to it in my briefing note. In my professional
opinion, the growth within electronic business and electronic
commerce specifically as defined in Europe will come from the
growth of the Application Service Providers. These are organisations
which hold applications to run on behalf of customers. It is a
growth area, it requires tremendous resources. It is very cheap
to deliver. It means that users change the way they think because
they do not have to buy software. For example, if I were using
my new PC, I would not need to have a copy of Microsoft Word on
it. It would be held for me on a host somewhere. Go on to the
Internet, I see it there. So this is a change in the way we are
thinking about using the Internet, and because I am renting that
software I am performing an e-commerce transaction. So I believe
we are going to see quite a few new techniques and developments
brought about simply because of investment in e-commerce-centric
projects. The Objective 1 scheme is a clear way forward, whether
other countries are going to follow suit I do not know. I have
not seen evidence that Spain is doing this yet and I have seen
no evidence that Greece is doing this or that Portugal is looking
to do the same. We are going to see Europe coming up by leaps
and bounds in specific areas, however due to the grant structure.
492. So you believe the taxpayer, one way or
another, can help the development and the catching up? If I can
add to that, where do you see the obstacles that national and
supranational governments can put in the way of this through regulation?
A. Providing a free and easy framework is only
part of the story. You have to be able to encourage and provide
the mechanisms by which a company can get online and not just
get online but be able to run a business, ie become commerce-enabled.
Looking through the projects which have started up, we have, for
example, our own E-Envoy in this country, a very fine individual,
no question about the person involved, but there may have been
questions whether the post should have been filled by somebody
from the IT industry or the head of one of the e-commerce associations.
What I am saying to you, my Lord Chairman, is that I do not believe
governments just creating roles like that of the E-Envoy are going
to stimulate interest just by their presence, you need people
who understand both sides of the commercial coin. If this is applied
across Europe, as it is in countries like Sweden where you are
having industrialists invited in to assist in major projects,
then that is where the incentive is going to come.
Lord Faulkner of Worcester
493. I wonder if Mr Casey can say a bit more
about the differences in practice between the United States and
Europe? I am particularly taken by your comments about the development
of GSM being largely European.
A. GSM was conceived in Europe, yes.
494. Did I understand you correctly to say that
the next generation of mobile technology will produce the emergence
of convergent technology?
A. It is designed to do that, yes. The dominant
digital technology in North America is something called CDMAa
digital protocol for communication and, like so many things American,
they created it themselves. The GSM movement in Europe, which
has spread through more than 170 countries around the worldvirtually
every country in the world has got access to GSMis a totally
different technology. It was realised that you needed convergence
to make mobile communications physically and logistically compatible
across the globe.
495. How much has the absence of that convergence
attributed to a shortfall in the growth of e-commerce do you think?
A. Certainly it would, if not rectified, prevent
the likes of myself going to America, ordering my airline ticket
from my mobile. Whether you regard that as being a serious omission...
The real growth of e-commerce is not at the mobile level, it is
a future potential, it is not the dominant force in e-business
today. The real force producing the growth and stimulus both in
North America and in Europe is simply trading communities. I can
quote the example of the famous ball bearing company, SKF in Sweden,
that has recently stimulated a trading community amongst all its
industrial suppliers and distributors, a massive operation. There
was announced today a venture between Nestlé and Danone,
the idea being to produce a packaged goods trading network. All
of these are initiatives not by the European Government but by
communities of interest which see the opportunity, and they will
trade. There are communities of interest in North America already
and they are relying on the traditional Internet. What it does
mean is if you extend that into the mobile arena and you have
an executive of a European company who happens to be in New Guinea,
shall we say, and wishes to correct an order that his colleague
has made somewhere else in the world, then by using a mobile device
totally compatible with a world standard, whether it is in New
Guinea or in New Hampshire, he has got the capability so to do.
496. Can I just nip back to a comment you made
at the conclusion of your last reply to Lord Cavendish when you
were somewhat dismissive of the E-Envoy concept, unless I am being
a little bit harsh in the way I am putting it. It was the reference
you made to what I believe you were saying was a positive way
of approaching it was the nature of the relationship between the
private sector in Sweden
497. And was it the government there that you
were talking about?
A. I believe there is a great deal of opportunity
for a positive relationship between the initiatives inside the
private sector working closely with government, yes.
498. What do you mean working closely with government?
Is it just in terms of formulating the environment in which they
operate, doing the sort of thing you do as a result of Objective
1 status on a money basis, but of course you cannot do that because
that would be state aid?
A. May I illustrate the point? In Britain we
have a loose federation of five leading bodies, the CBI and four
other institutions, called the Alliance for Electronic Business,
the AEB, a very keen, very professional organisation. That organisation
has forged an alliance with the Consumers' Association and the
Government to promote the Trust Scheme for use in e-business.
That was an initiative which started off in one of the five members
of the Alliance for Electronic Business, the Direct Marketing
Association in fact: they pioneered it. It grew as an AEB project
because the AEB has got access to the corridors of power. It is
a project which the Government has now promoted and sponsored
but not in a financial sense and, of course, the Consumers' Association
logically came into that triumvirate. That was an initiative which
was evolved in the corridors of Whitehall as well as in the corridors
of the CBI tower. I would not say that this was a Government initiative,
but what the E-Envoy did was to provide the cement to bring it
all together. It was one of his first new projects, to bring that
to a conclusion, when he took office in January.
499. I would like to ask a supplementary to
Lord Paul's question, if I may, and then ask a question that is
more of my own. I think Lord Paul was asking the question that
if we look at traditional businesses we can understand the way
in which those businesses are valued mainly through ratios, such
as the PE ratio.