Examination of Witnesses (Questions 852
WEDNESDAY 17 MAY 2000
852. Good afternoon, gentlemen. My apologies
for the delay in starting. I would like to thank you very much
indeed, particularly for the written evidence you sent to us,
which generated some interest, and the letters following inviting
you to come to give oral evidence today. I understand that today
was not a particularly convenient date for your colleagues.
(Mr Sayer) Not at all!
853. But we are very pleased to have you with
us. This session will not be unduly long because we are seeking
to accommodate the Minister, Patricia Hewitt, who is coming to
see us, so I hope you will bear with us if we do have to close
down a little bit faster than we would like and certainly faster
than you would like. If I may, I would like to turn to your paper
in the first question. You gave us an indication, in the paper
you put to us, that you are concerned that the United Kingdom's
competitive position was, to use your phrase, "continuing
to decline". I am wondering if you could spell this out a
little bit more. What is the evidence you have that our position
is starting to decline? Linked to that, you suggested that OFTEL
is "not following an energetic timetable". Perhaps,
again, you would care to comment. What would you like to see OFTEL
to be seen to be doing?
(Mr Sayer) First, my Lord Chairman, thank you very
much for the opportunity to present our evidence. You will see
that I have produced a pack of charts. If I could refer you to
the third page, where we analyse some of the key prices for users
accessing the Internet. The three charts I am referring to are
the "Monthly rental dial-up line charge for a business user";
"Connection charge for the ISDN basic access"; "Monthly
rental charge for basic ISDN"; and on the bottom of the following
page, the "Monthly cost for national private 64 kilobits
circuits". You will see that in each of those the United
Kingdom cost is the highest in Europe. These are lists of tariffs.
The comparison is published by Phillips Tarifica and although
the information was published at the end of 1999, we have been
in contact with that organisation this week and are assured that,
if anything, the situation has deteriorated against the United
Kingdom since then. So that is our basic evidence. That for a
number of key costs relating to e-commerce, which is accessing
the Internet, that the United Kingdom's position is currently
not favourable compared with Europe. Also, at the top of the following
page, we show the "Monthly cost for [a] national private
2 megabit circuit" for the United Kingdom, which is slightly
worse than the European average. The reason we mention these costs
is because the costs of maintaining an Internet service provider
infrastructure, one of the major costs is the cost of the leased
line connecting those together. Again, the costs of operating
Internet infrastructure, the United Kingdom is not in a good position
in Europe. So that is the current position.
(Mr Wilson) Just to add something to what was said
at the beginning of our short written note, which we have presented
to you as well. The data communication costs are the key driver
behind driving e-commerce. If the United Kingdom has the ambition
of becoming the most competitive environment for e-commerce in
the world, then a global competitive data communications environment
has got to be a prerequisite.
854. Last week we had BT with us and they were
insistent that the position was changing very rapidly indeed.
They were praying in aid very much indeed as to what will happen
after Surf comes online on 1 June. Do your figures take that into
account? They freely conceded that in the past, perhaps the allegations
might have made some sense to them, but they quoted OECD figures
and particularly drew attention to the Surf coming online.
(Mr Sayer) Before I answer that question, perhaps
I could refer you to some later charts, which demonstrate the
deterioration of the United Kingdom's position over the last eight
years. If we put that question to bed: you will see at the back
of the pack that there is a section starting "Price Trends",
and a number of charts on calls to adjacent countries in the USA
and then some charts on leased line costs. The basic position
on the first two, the calls to adjacent countries and the USA,
in 1992 the United Kingdom was amongst the most competitive and
now it has become the most expensive. The countries have reduced
price much more rapidly than the United Kingdom. The block diagrams
refer to leased lines, where the evidence is that United Kingdom
prices have hardly moved at all in eight years, whereas in other
countries they have dropped rapidly.
(Mr Wilson) These are the charts Index 4a), 4b), 4c).
(Mr Sayer) So the position has gone from the situation
where the United Kingdom was, in many cases, by far away the cheapest
to a situation where it is the most expensive. That is the relative
decline in the United Kingdom's competitiveness. You asked a question
about Surftime. It is too early to reach conclusions as to the
impact of Surftime on Internet access in the United Kingdom. The
international comparisons do suggest that BT pricing is approximately
in line with the European average, so things may well improve.
We are reporting the situation as we see it today.
855. We do know the costs of Surf. They were
quoting costs to us. Therefore, if you know the costs and what
is going on in the European Union countries and America, surely
you would be able to make a judgment? The fact is that we were
told a completely different story from what you are saying, only
last week. That is the point.
(Mr Sayer) I must apologise. I have not got the comparative
study on Surftime.
Chairman: I do not think it will be needed because
we were quite harsh on BT last week.
856. Very harsh.
(Mr Sayer) We would be delighted to work with Tarifica
and other members of the industry to have a look at that. Surftime
is one of the key ways of providing effectively fixed cost access
to the Internet. The other one is ADSL, who have unbundled local
loops, where again the situation the United Kingdom finds itself
in is that we will be the last major country in Europe to unbundle
the local loop. Effectively, what that has done is that it has
given BT a year's head start to develop and cherry-pick the market
to the detriment of potential competitors. BT will roll-out its
ADSL in the major cities in the United Kingdom, and some of their
major competitors will conclude that it is not worth trying to
compete. Even when they have rolled out local loop unbundling,
the evidence is that we may have presented BT with a near monopoly
of the market. Monopolists generally do not offer the lowest prices
857. But we have a regulator whose job it is
to deal with incumbents and monopolies. What do you suggest?
(Mr Sayer) Our concerns about the regulator are listed
in the slides we have recorded.
858. I am sorry that we have not able to give
you the facilities to take us through them.
(Mr Sayer) Just to look at the summary, the three
areas that we are concerned about are, firstly, the timetable
for consultations and complaint resolution. I am Chairman of the
United Kingdom Service Provider Interest Group, and our members
have stated that no complaint has ever been satisfactorily resolved,
in their opinion. We have a particular case at the moment on unfair
subsidy in mobile, which 14 months on and three case officers
on we have no resolution. OFTEL has now called for further data.
The evidence seems to be that mobile service providers are going
out of business while they wait for OFTEL to resolve some of these
859. Is there evidence of that?
(Mr Sayer) There is evidence of that, yes.