Examination of Witness (Questions 128
WEDNESDAY 31 JANUARY 2001
Chairman: Mr Hochhauser, welcome to the
Select Committee. We are very pleased to see you, and we will
start the questioning right away. Mr Fearn.
128. Good morning. In your brief, which we have
read, you describe the HomeChoice package, which you now make
available. Would it be fair to say that this service complements
rather than replaces the terrestrial television service that we
(Mr Hochhauser) It certainly complements
it today, because, using the method we distribute, ADSL, we do
not, today, provide normal broadcast channels; however, we do
intend to do so at the earliest possible opportunity, to combine
traditional forms of television, whether they be the terrestrial
channels or cable television, with our true on-demand and time-shifted
variants that we offer today.
129. As soon as possible; what does that mean?
(Mr Hochhauser) We could do it within the year; much
depends on how the ADSL networks are implemented, both by BT and
alternative operators. It is a software issue, if you like, related
to the way we provide broadcast channels.
130. And you argue that video-on-demand services
should be regulated in ways similar to the Internet; that is also
in your brief. How far do you think that is what is envisaged
in the White Paper itself?
(Mr Hochhauser) It is, to a degree. I think, to put
this in context, that video-on-demand is tending towards, this
ugly word of "convergence", a so-called broadband Internet,
over the next few years. We have to recognise that, as more and
more capacity gets built into our telephone and distribution networks,
the sort of material that is available on a true television quality
video-on-demand service, like ours, will be available over the
broadband Internet; and, therefore, we have to recognise that
regulation must tend towards whatever regulation we intend to
impose on a broadband Internet. In that sense, we would expect
the sort of regulation that comes through OFCOM, that comes to
these truly interactive, true choice types of services, like ours,
to recognise what has been happening on the Internet so far, in
the form of the inability, in some cases, to regulate, but in
some cases to find other ways of regulating, and perhaps looking
at more transnational types of regulation. And that is the point
131. So you welcome OFCOM?
(Mr Hochhauser) We certainly welcome OFCOM. The difficulties
we have today, in dealing with, essentially, two different regulators,
would be much eased if we dealt with one regulator, and we have
always recognised the importance of OFCOM.
132. What do you need more, as it were, apart
from the software, to extend your service, what is it that is
sort of stopping it, as it were?
(Mr Hochhauser) The primary issue for us is the availability
of networkbroadband network. We have proved that ADSL works,
we have demonstrated it, we demonstrated mass demand for it. The
key issue for us nowand we have dealt with our technology,
we have demonstrated that we are able to get the programming that
customers want, in the broader sense and in the narrower sense
that people wantthe key question now is to get these networks
rolled out rapidly, efficiently and at the lowest possible cost.
133. So you are dependent upon a third party,
(Mr Hochhauser) We are always dependent upon a third
party, not necessarily just from ADSL, although that is our primary
means of distribution for the coming few years; but we have to
stick to the knitting. Our job is to put together the technology
and the services, we cannot do everything, we are not a network
operator, unlike the cable companies.
134. And, essentially, what is the difference
then between HomeChoice and, say, AOL; presumably, AOL could camp
on your territory fairly quickly, if they wanted to, or perhaps
(Mr Hochhauser) They do not, not yet, and it would
take quite a long time. What we have done here is, over the last
eight years and certainly in the last four years of active play,
we have developed a forward technology that delivers true quality
television, instantlya thousand movies, thousands of hours
of television programming, music videos, specialist programmingwe
have done it in a way that recognises the need for true quality
of service, instant connection to a television set. AOL and other
Internet service providers develop services for today's Internet,
and, whatever the expansion of today's Internet, it is impossible
to provide true, full quality and very, very high usage of television
on demand, as well, of course, as I mentioned earlier, broadcast
television. So, in effect, we have jumped, leap-frogged, into
135. I am sure that, unless I have misunderstood
this, if AOL wanted to put out an ADSL service, they could decide
to do anything you do; if I have understood the Napster thing
yesterday, in the FT, Bertelsmann hoped to do the music "pay-per-view"
that way. So there is a way of doing things differently?
(Mr Hochhauser) It is not different, because, in a
sense, we are converging on the same area, and there is a convergence.
Unfortunately, the technologies needed, not just the ADSL technologies,
the server technologies, the set-top box technologies, the integration,
the development of services, the trialing, this all takes time,
it takes years of development, it takes years of integration.
And, therefore, yes, it is true that Internet service providers
can use ADSL, and we hope that they will, because it will drive
these networks forward, but the particular services we run, which
is true television services, full quality television servicesand
those of you that will have seen television services over the
Internet will see the difference between the twothat cannot
be done today, on today's full Internet.
136. You can tell that we were pretty unimpressed
with what we heard from BT last week. I say that as a shareholder,
sadly. How do you think OFCOM actually could deliberate and act
and say, so that BT came into line faster, quicker and did things
that we would like, as citizens; what sort of power base, or power
and authority, do you think the regulator would need, since, currently,
there is a regulation, obviously it does not work?
(Mr Hochhauser) There are weaknesses in the way the
current regulation is taking place. I would not say it is not
working, because the method of regulation, the method of unbundling
the local loop, has been a little bit messy. To start with, and
we really have not learned the lessons of other territories, like
the United States, for example, in unbundling. I think, where
OFCOM, the future regulator in this area, could be of extreme
assistance is, first of all, to smooth out the methods of regulation,
to ensure that we have homogeneous, single operators competing
with BT, rather than this so-called Swiss cheese effect, where
you have one operator in one telephone exchange, another operator
in another telephone exchange; we do need to see a movement towards
single true competition to BT across a contiguous area. We also
need to concentrate, with the regulator, on some of the lessons
learned from the United States. I was in the US last week and
a lot of play is being made on the alternative operators of DSL,
on the problems they have in simply exchanging data with the incumbent
operator, something which seems quite trivial but makes it very
difficult to operate in practice. A lot of times, for example,
when we go to customers, we have to exchange data with BT. That
process needs to be regulated, needs to be looked at, so that
there is a smooth operation of competition between alternatives
137. By tradition, we seem to have developed
regulators that are single people, we have a Director of OFTEL,
of OFWAT, and we get to know them. The FCC has five Commissioners;
do you favour that sort of role? And they vote every day, as you
know, and the vote is on the Internet, you can see the decision-making,
it is quite transparent, each vote is recorded every time, I think
there have been 1,000 votes in the last year on the Internet for
the FCC. Is that the sort of transparency that you would expect
from a single or a group of commissioners?
(Mr Hochhauser) As with every situation, there are
pros and cons. I do believe it is useful to have a powerful, single,
understanding regulator, because we can work more efficiently
with a single regulator rather than a vote system. The fact of
the matter is, in the United Kingdom, we are more advanced than
the United States in digital television, as in other areas, such
as mobile telephony, and I think a lot of that is to do with the
fact that we do have single regulators, and certainly in the case
of OFTEL, in the past, that has worked quite well; but much depends
on who that single regulator is and their views and their knowledge.
138. Lastly, do you feel that the Government,
any Government, either side, I say either side, we try not to
take sides here, but do you think it would be better, once and
for all, that basically we devolve this decision-making out of
Government and give it to the regulator, and let the regulator
decide about content and competitiveness, and so on, and for us
not to interfere?
(Mr Hochhauser) I think it would make sense to do
so, but with clear guidelines as to where the boundaries are,
what form the regulation should take. We heard earlier about the
need to create effective competition in access, and, by the way,
I include, within that, access through the cable networks. As
long as that guideline is set. The details of regulation are themselves
evolving. I think one of the issues about regulation is, they
have to take into account the day-to-day changes in technology,
the day-to-day changes in consumer attitudes, and, therefore,
to impose specific regulations, and specific areas on how to regulate.
So I think, within policy guidelines, I would leave it to the
regulator effectively to develop regulatory policy.
139. But who regulates the regulators? We have
seen, over the last year, or so, serious incompetence among regulators
appointed by Government, the messy saga of the next licensee for
the National Lottery, the hash that the ITC made of News at
Ten, and continues to make of News at Ten. It is one
thing to repose one's faith in a quango, but to whom should a
quango be answerable? What has happened, in the case of both of
those decisions, is that, in the end, they have gone to the courts,
in this increasing litigiousness that we are facing in this country.
Is that the path down which the new OFCOM would travel, with its
decisions, if they are not liked by one party or another, being
taken to the court, possibly under the Human Rights Act?
(Mr Hochhauser) I think it is inevitable that certain
matters, and certainly in extremis, will be taken to the
courts, and I think that is true of the old system and any system
you devise, there will be argument. But, ultimately, the responsibility
lies with yourselves, with Parliament, you are our representatives,
and the regulator has to be controlled by Parliament and by the
needs of the population. I think the needs of the population are
for innovative, true and good quality services, in this particular
area. The regulator will go through different periods of instability.
I am not particularly fazed by the fact that there are periods
when, for example, difficulties occur in unbundling the local
loop. We go through periods of difficulty, but these are relatively
short periods, we come out of them whole. In general, we come
out of them after a period of debate and of argument, we come
out of them actually healthier than when we went into them; so
we should not be too fazed by the fact that there are periods
where there is argument and debate. The question of courts, access
to the courts, yes, in extremis, there will be situations,
such as in the case of the Lottery, where people will resort to