PART 7: GOVERNMENTS' ROLE IN STIMULATING
206. The Part should be read in the context of the
detail provided by Part 4, The e-Commerce Environment,
and Part 5, What Governments are Doing Currently.
207. Whilst overall transaction costs are lower for
Internet trading (see Part 4, p 19), there are some aspects where
costs are unnecessarily high (see Access, paragraph 239).
Payment mechanisms for B2C can be unnecessarily cumbersome and
expensive. Customers take time to fill in their personal and credit
card details, and have to answer questions (for example in the
purchase of medical products particularly) every time a purchase
is made. Some established vendors, for example Amazon.com, have
proprietary, patented processes to make this as easy as possible
but can simply form an entry barrier for smaller companies.
208. A smart card is a credit card sized piece of
plastic. It incorporates a computer chip which can hold substantial
amounts of data securely. Its uses include carrying electronic
cash, making e-commerce transactions and storing personal data,
for example medical data. The data can be read via special devices
attached to a cash machine, personal computer or mobile telephone.
Smart cards can contain all this information which can then be
entered automatically whenever a purchase is made. Smart cards
also have wider benefits. They can, for example, be used in medical
emergencies anywhere in the world to provide summary medical histories.
The Sub-Committee's evidence is that smartcards, which are less
widely used in the United Kingdom than in other parts of Europe,
would help to promote e-commerce for all citizens.
The United Kingdom's failure in this area has, according to one
witness, been mainly a question of poor project management.
209. We recommend that
the United Kingdom Government encourage the development and wider
use of smart cards. Given the unhappy record of smart card
projects in the United Kingdom, we recommend that the Government
address the following questions:
(i) Why is the United Kingdom less advanced
in the use of smart cards than other Member States?
(ii) Is the Government looking at best practice
(iii) Is the Government reviewing the future
of United Kingdom smart card projects?
210. Credit cards are the usual form of B2C payment
but they are not always the best.
- For small value transactions they can be expensive
- Not everybody owns one, or wishes to own one
- There is no effective payment method for purchases
outside the range $10 to $1,000.
- In some countries, for example Germany, the use
of credit cards is limited.
- Not every vendor is admitted to a credit card
scheme by the issuers.
e-Money and e-wallets
211. So, for both vendors and purchasers other forms
of e-commerce payment are needed.
The use of "e-money" and "e-wallet" schemes
is more prevalent outside the UK.
212. e-cash is money stored on a smart card. Via
an interface with a bank's computer it can be "charged"
with cash which can then be spent using a similar interface in
a shop or on a computer linked to the Internet. An e-wallet is
a small software program that can be used for online payments.
It stores and manages secure payment details and allows several
methods of payment such as credit and debit cards, and electronic
213. The lack of effective payment mechanisms is
also likely to affect the growth of mobile telephony.
This is particularly important at the European level since this
could be an obstacle preventing Europe capitalising on its competitive
lead in mobile telephony.
214. We recommend that
the EU and the United Kingdom Government continue to encourage
the development of cross-Europe e-money and e-wallet arrangements.
215. Governments try to weigh the need for regulation
against the need to create environments that are supportive of
and attractive to e-commerce. Evidence to the Sub-Committee has
highlighted industry's concern that the United Kingdom Government
and the EU will tend to do what governments are prone to do. They
will err on the side of caution and over-regulate, thus stifling
the growth of e-commerce.
It was pointed out that it is in companies' own interests to self-regulate
competently and securely
and that self-regulation is not the low cost option for companies.
But if companies do not self regulate competently, governments
will be under pressure from consumers to introduce legislation.
216. We welcome the stated intentions of both the
EU and the United Kingdom Government to adopt a "light touch"
on e-commerce regulation but think that vigilance will be needed
to maintain this approach.
Liberalisation of the
217. The basic platform on which the Internet operates
is the telecommunications infrastructure. Competition to provide
services on this platform will stimulate the development of e-commerce.
Evidence from the US emphasises the importance of this infrastructure
in the development of e-commerce.
The Sub-Committee has heard evidence that the United Kingdom,
despite being the first European country to privatise telecommunications,
has lagged behind in truly opening the infrastructure to competition.
See Access (paragraph 239) for recommendations.
218. There is also evidence that members of the EU
are at different stages in the liberalisation process.
France and Germany have not yet fully liberalised the infrastructure.
While this is in part to the disadvantage of these countries which
will find it more difficult to attract Application Service Providers
(ASPs), it is also to the disadvantage of companies from other
EU member states which are seeking to enter these markets. This
runs counter to the EU's single market and competition policies.
219. We recommend that
the EU take steps to enforce its competition policy in respect
of telecommunications infrastructures by ensuring that the Telecommunications
Directive is fully implemented across the European Union.
220. The Sub-Committee's evidence shows first that
the quality of venture capitalism is essential for the growth
and, second, that US venture capitalism works better for e-commerce
than European venture capitalism. It provides funding earlier
and the re-payment structures are more suitable for the new companies.
221. We recommend that
the EU and the United Kingdom Government promote the lessons of
US venture capitalism in Europe. We note that EU heads of government
endorsed the Risk Capital Action Plan at the Special Economic
Summit at Lisbon (23 and 24 March 2000) but we find the deadline
We feel strongly that the United Kingdom Government should move
faster produce a comprehensive re-statement of policy with the
objective of creating conditions for venture capital similar to
those which exist in the USA.
222. Stock options can be seen as the remuneration
currency of start-up e-commerce businesses. Their tax treatment
is less favourable for entrepreneurs in Europe than the US, making
it harder to attract top quality managers.
In the United Kingdom stock options are treated as income rather
than capital. They are also subject to the deduction of National
223. We recommend that
the United Kingdom Government treat stock options as capital and
not income and that it should also respond to the concerns about
National Insurance Contributions currently levied on stock options.
224. In the US it has been found that high technology
clusters of companies, universities and research groups stimulate
research and development,
and the diffusion and application of new e-commerce technologies.
They also increase the training and mobility of qualified knowledge
The University of Cambridge Science Park is, however, an example
of a United Kingdom cluster although it is not yet on the same
scale as US counterparts.
225. We expect the United Kingdom Government to encourage
the growth of technology clusters. The barriers to growth, particularly
the absence of affordable housing, around existing clusters should
be the subject of review in formulating planning policies.
Competition and barriers
226. Competition promotes growth. Entry barriers
do the opposite. Away from e-commerce, barriers to entry are typically
high capital costs of entry and access to distribution. In e-commerce
such barriers are much reduced or do not exist at all, for example
Internet banks do not need a branch network. However, e-commerce
entry barriers do include telecommunications access costs, regulation
and red tape.
227. We agree that policies of increasing competition
and reducing barriers to entry are critical to continued development
of e-commerce into Europe.
Small and Medium Sized
228. SMEs are important drivers of business activity.
B2B e-commerce is based on large companies purchasing their supplies
from SMEs, which may be located anywhere in the world. The success
of B2B relies on companies of all sizes having e-commerce knowledge
Likewise B2C encourages SMEs to be able to trade with consumers
in different countries. Unfortunately the knowledge and capabilities
required are extensive, and SMEs need help. Large organisations
also face difficulties but they have the resources (if not necessarily
the will) to tackle the problems.
229. We recommend that
the EU provide improved support for SMEs in respect of e-commerce
cross-border trading, by providing clear and easily accessible
information especially on the Internet on trading conditions and
consumer protection regulations throughout the Union.
230. We recommend that
the United Kingdom Government monitor the effectiveness of the
DTI's support provisions for SMEs. (One witness revealed a
private sector initiative which appeared to replicate what the
SBS intended to do.)
231. Individual consumers will only buy on the Internet
if they are confident that their unseen purchases are of good
their financial transactions are secure,
their personal data will be kept private
and they will be able to get redress in case of unsatisfactory
These are not such major problems for B2B where transactions are
generally covered by contracts.
232. Multinational companies sometimes voluntarily
offer different levels of protection in some countries compared
to others. For example, AOL in the US underwrites transactions
undertaken on its sites but does not offer the same protection
Credit card companies offer different levels of protection in
the different countries where they operate.
233. We commend the work
currently being carried out by the Directorate-General for Health
and Consumer Protection (SANCO) with credit card companies to
secure credit card customer protection guarantees in common throughout
the EU. We recommend that SANCO extend this work in order to
afford European customers similar levels of protection to those
enjoyed by customers in the USA. We recommend that SANCO engage
in a similar dialogue with the ISPs and urge the United Kingdom
Government to do the same.
234. We recommend that
the United Kingdom Government work to clarify and develop the
responsibilities of credit card companies in Internet trading,
and where appropriate, collaborate with e-commerce traders who
are seeking to improve consumer confidence.
235. B2C e-commerce is only possible if individual
consumers understand it and know how it works.
Schools and universities provide user education and training but
this leaves large gaps in provision across the generations and
social divisions. Certain groups, such as the elderly, the unemployed
and the under-privileged and others, may be left out.
There is evidence that this wide-ranging education is better provided
in the US.
236. On the supply side, education and training in
IT skills is provided at universities and colleges of further
education although there is uncertainty as to what is on offer
and how courses with similar titles differ from one another.
There is concern that too little education is being provided.
The flow of trained IT workers is insufficient and that this lack
of skills will soon hinder the development of e-commerce.
237. The Department for Education and Employment
(DfEE) might wish to discuss with universities how this shortage
could be redressed.
238. The EU and the United Kingdom Government should
work to identify gaps in the provision of Internet/e-commerce
training for the whole population, and ensure adequate funding
for universal access to life-long learning courses.
239. The populations of the
EU and the United Kingdom should have ready access to the Internetaccess
in terms of physical access. Both the EU and the United Kingdom
Government are committed to universal access. However, as technologies
develop, one of them may dominate as dictated by market forces.
The possibilities include personal computers, mobile telephones
and digital televisions, or some combination.
They each present different opportunities and obstacles on the
road to universal access and the Government will need to consider
how poorer groups in society will be able to afford access. Meanwhile
the Swedish government offers tax breaks for the purchase of personal
computers by individuals.
240. Employers can and do help in this regard by
allowing employees to use and/or borrow corporately owned equipment.
However, it seems this facility, although growing, will still
involve only 300,000 employees in three years' time.
241. The EU and the United Kingdom government should
consider how their aims of universal access are to be met and
by which technologies. In particular, the diffusion of emerging
technologies such as e-commerce-enabled digital television, should
242. We recommend that
the EU and United Kingdom Government gives greater encouragement
to schemes whereby employers allow employees to use or borrow
corporately-owned computers to access to the Internet. We recommend
that the United Kingdom Government and the Public Services should
give a strong lead that the CBI and the TUC should encourage more
take-up of this non-taxable benefit through all the channels open
243. If e-commerce is to thrive the population should
have good quality access to the Internet.
The slowness of delivery from local exchanges to residences is
inhibiting the growth of B2C. Technologies are available to deal
with the problem but lack of true competition may be inhibiting
their deployment. The availability of other delivery technologies
such as cable television and satellite will help as well as providing
the spur of competition to telecommunications companies.
244. We recommend that
the EU and the United Kingdom Government insist on Local Loop
Unbundling throughout the EU by the end of 2000, in line with
the eEurope Action Plan.
245. The EU and the United Kingdom Government should
continue to encourage the deployment of other delivery technologies
such as cable television, satellites, and mobile telephony.
246. We recommend that
OFTEL insist that BT roll out Asymmetric Digital Subscriber Loop
(ADSL) technology across the country by the earliest possible
247. If e-commerce is to thrive, the population of
the EU should have inexpensive access to the Internet.
Currently Internet access is cheaper in the US than Europe and,
according to Reuters, cheaper elsewhere in Europe than the UK.
In evidence, BT rejected this argument by stating that the United
Kingdom has the cheapest off-peak access. DTI witnesses
including the e-Minister, Mrs Hewitt, supported the BT view. However,
off-peak access is not very relevant to business, especially SMEs,
which needs peak-time access. It may seem strange that
the DTI, as home of the regulator, should be taking the BT view
when it is clearly biased in some respects.
248. Europe is reckoned to be ahead in the development
of mobile telephony and in particular Internet access via mobile
telephony. However, mobile telephony is currently expensive, and
performance is not uniform geographically.
249. We recommend that
the EU and the United Kingdom Government work to reduce Internet
access costs to the levels of the lowest, and to reduce mobile
telephony charges in preparation for Internet access by this means.
250. We recommend that
OFTEL conduct a critical and continuing review of its current
methods for monitoring true access costs.
62 See BT Cellnet p 403. Note that a US witness, Pincus,
was concerned that smart cards could be used to restrict access
by non-Europeans. Back
According to the Communication Workers Union (Q 631), the failure
of the Horizon system was because it used a software package which
had been used successfully on a small application but which proved
unreliable when applied to a very much larger and more complex
Dr Michael I Shamos, Q 715. Back
Barclaycard, QQ 827 and 828. Back
Barclaycard, p 244. See also First Tuesday, pp 23-24. Back
BT Cellnet, p 403, and Centre for European Reform, Q 251. Back
First Tuesday, p 20. Back
Mobile Age Technology, p 482. Back
Evidence along these lines came from numerous sources including
Consumers in Europe, Corporation of the City of London, PwC, Tesco,
and WiF. The TUC, however, was concerned that self-regulation
would not be enough. Clifford Chance and British Music Rights
wanted more legislation on IPR. Back
AOL, p 31, and ICL p 29. Back
Clifford Chance Limited Liability Partnership, Q 387. Back
See BT, Motorola and Dr Robert Shapiro, Appendix 5. Back
Reuters Ltd, p 246. Back
Motorola, Appendix 5. Back
The Honorable Donald Upson, Appendix 5. Back
ICL, p 29, and Mr Bob Litan, Appendix 5. (See also Funding
Technology: Lessons from America, David Gill, Chris Martin,
Tim Minshall, and Martin Rigby, Wardour Communications, March
First Tuesday, p 28, and Mr Bob Litan and The Honorable Donald
Upson, Appendix 5. Back
Dr Robert Shapiro, US Department of Commerce, placed particular
emphasis on the need for substantial R&D investment (Appendix
Mr Bob Litan, and The Honorable Donald Upson, Appendix 5. Back
See Silicon.com, Q 217, and Dr Michael I Shamos, Q 688. BT is
caught in the middle of this debate. They argue that regulation
stifles competition (p 201) while at the same time being accused
by others, principally Reuters, of stifling competition by holding
on to a quasi-monopolistic position in the UK market (pp 246-247,
Q 854). Back
See Alternative Thinking Ltd (pp 394-395), CBI (pp 415-417), CIPS
(pp 407-408), Silicon.com, (Q 241) and PricewaterhouseCoopers
(p 500). According to Freeserve, the range of EU Directives and
regulations is "bewildering" (Q 557). Back
Consumers in Europe Group (CEG), p 423. Back
Adhocracy Consulting Ltd (UK & AUS) and DIT Solutions (UK)
Ltd, p 388. Back
National Consumer Council, p 490. Back
Many witnesses stressed the need for this. See Part 8, Regulation,
for more details. Back
AOL, Q 149. Back
Barclaycard, pp 235-237. Back
The Chartered Institute of Purchasing Supply, p 407; European
Informatics Market (EURIM), p 68; National Consumer Council, p
490; Silicon.com, p 55; Telecommunications Managers Association
(TMA), pp 522-524; and World Internet Forum (WiF), pp 119-120. Back
OFTEL Advisory Committee on Telecommunications for Disabled and
Elderly People (DIEL), evidence starts p 84; Royal National Institute
for the Blind (RNIB), evidence starts p 513. Back
Dr Michael I Shamos, evidence starts p 179. Back
Mrs Patricia Hewitt MP, Q 893. Back
Dr Peter Jagodzinski, School of Computing, University of Plymouth,
p 463. Back
Centre for European Reform (CER), p 57. Back
Ministry of Industry, Employment and Communications, Stockholm,
Sweden, p 481. Back
European Information and Communications Technology Industry Association
(EICTA), pp 446-228; Institute for the Management of Information
Systems (IMIS), pp 457-459; Silicon.com, p 55; Telecommunications
Managers Association (TMA), p 522. Note, however, that in the
view of the CWU, allowing other companies access to BT local exchanges
will prejudice safety (Q 644). Back
Centre for European Reform, p 56; CBI, p 415; European Information
and Communications Technology Industry Association (EICTA), p
447; Informix Software Ltd, p 454; National Consumer Council,
p 490; Silicon.com, P 55; OFTEL, P 496; Reuters Ltd, p246; Telecommunications
Managers Association (TMA), p 522; Trustmarque International,
p 529. Back