Examination of Witnesses (Questions 620
WEDNESDAY 14 FEBRUARY 2001
SMITH MP AND
620. But you have a definition in the White
(Ms Hewitt) We have a definition and we use it to
cover a range of speeds but considerably higher than narrow band
frequencyin other words, from about 512 kilobytes right
up to very, very fast always on Internet.
621. But I thought in the White Paper in one
of the annexes it defines it as 2 megabytes?
(Ms Hewitt) That is one of the definitions we use
but there is, in fact, a much broader range which starts somewhat
below that and goes right up to ten and beyond.
622. Let us start with 2 megabytes. How many
residential homes in Britain have access to 2 megabyte broadband
at the present time?
(Ms Hewitt) At the moment 40 per cent of homes and
businesses are in the area of BT exchanges that have been enabled
to carry ADSL.
623. ADSL is about 500 gigabytes. It is nothing
like two megabytes?
(Ms Hewitt) No. It depends. It starts at 500 and of
course, as we get local loop unbundling and as other operators
start offering other versions of DSL, we will get much higher
speeds, up to two and indeed beyond two, depending on the technology,
the number of users, how far you are from the exchange and so
on, and the quality of the copper wiring. We start from that figure
of 40 per cent of exchanges already enabled with the caveat that
obviously not everybody living within the exchange area will necessarily
be close enough to the exchange. ADSL in particular only works
within about three to three and a half kilometres. We also have
about 50 per cent of homes covered by cable roll-out and of course
the cable companies are now starting to make cable modems available,
also offering speeds up to broadband width. On top of that, and
I am sure you have seen the map we have published in that broadband
report, we have now allocated licences for broadband fixed wireless
access which potentially cover 60 per cent of the population,
although in reality, as we say in that report, of course not everybody
living within the licence area will actually be reached by those
services. On top of that we have the growing prospect of fibre
to the end user, although at the moment because of the cost that
is really only a big business proposition; similarly satellite,
which of course can reach anywhere but where at the moment the
costs rule it out for anybody except big business, but those costs
will come down. The upshot of this is that our preliminary analysis
is that 15 to 20 per cent of the population are likely to be left
out of the broadband market as it is currently developing and
as we can see it going forward for the next three to four years.
I am sorry that is not a one sentence answer.
624. It is not an answer to the question either.
(Ms Hewitt) There is not one number on this, I am
625. There are now parts of America which have
access with DSL technology of up to seven megabytes. That is with
genuine video quality access. We are nowhere near that, are we?
(Ms Hewitt) We have got very expensive fibre IP backbone
networks from a very large number of providers. As I say, the
cost of fibre to the end user is falling quite fast. As we get
more roll-out of cable modems and as we get local loop unbundling
we have got the prospect of other operators coming in with other
forms of DSL, not simply the asymmetric DSL which BT is currently
putting into the exchanges. As you rightly say from the American
example, those other DSL technologies, even using the existing
copper wire, will enable much higher bandwidths and you can then
get, whether it is from a provider or whether it is consumer to
consumer, broadcast quality video on the Internet.
Mr Maxton: At the moment, both in the
USA and in France, you are six times more likely to have broadband
access than you are in the United Kingdom, and many times more
in Germany than you are in the United Kingdom. Are we not in danger
of lagging very far behind in all of this in comparison to other
countries, not just in terms of the number of people but also
in terms of costs to the consumer in terms of access? I am not
blaming this Government because the decisions that caused this
were taken back in the late eighties and early nineties, but what
are we now going to do about it? What are we going to do to ensure
that BT upgrade their own network to make it profitable?
626. This is a matter that the Secretary of
State himself spoke about to the Financial Times on Monday.
(Ms Hewitt) Indeed. Getting broadband networks out
there beyond the backbone networks to the end user, whether it
is the small business or the consumer at home, is hugely important.
I do not accept some of the very pessimistic views that are around
that we are hopelessly lagging behind. If you look for instance
at Oftel's latest bench marking study what you will find is that,
specifically on the issue of local loop and of DSL or ADSL availability,
we started behind Germany and the USA on local loop unbundling.
That is certainly something that I think is a great pity but,
as you have yourself indicated, it is because the last administration
and the previous Director General of Oftel were not interested
in local loop unbundling. They were pursuing a policy of getting
competition from the cable networks against the local loop rather
than getting competition on the local loop as well, which is the
policy that we are pursuing. We have started behind and that is
why at the moment DSL and unbundled local loops are more available
in Germany and in America than they are in the United Kingdom
and the price is somewhat lower in both of those countries. In
fact, in France we are probably a bit ahead or directly comparable
in terms of the number of exchanges. We are actually ahead in
terms of the number of exchanges that have been modernised and
in terms of price again we are a bit better. But on top of what
is happening with local loop unbundling, which Oftel is driving
through with a set of very tough decisions, and we are completely
backing them on those decisions, you have got the availability
of broadband coming through cable. I think it is fair to say (and
they would accept it) that the cable operators themselves have
been very slow to roll out cable modem. Perhaps a lot of the criticism
has been directed at BT and the cable companies have escaped unscathed
but they are now rolling those out and of course, compared with
a retail price for ADSL of around £40 a month, you have got
cable modem offerings of about £34 a month and £25 a
month. What we are seeing from those two technologies alone is
the beginning of a very competitive market place. You have got
other providers coming in. You have got over 40 providers now
also offering ADSL based on the wholesale deals they are doing
with BT, again a consequence of regulatory action. You have got
other providers like Tele Two coming in with their own infrastructure
and making high speed Internet services directly available to
the end user. On top of that, as I say, we will have other sources
like broadband wires coming into play very soon, I think. Therefore,
the goal that we have set is to have the most extensive and competitive
broadband market in the G7 by 2005. The independent estimates
that we have published suggest that already on the basis of the
market investment taking place by 2003 we will be ahead of Germany
and France. That is why, although the goal we have set is a stretching
one, I am quite confident that we can reach it.
The Committee suspended from 4.42 pm to 4.52
pm for a division in the House
627. We adjourned in the middle of an answer
by Patricia Hewitt and I understand she would like to complete
her answer, which seems only fair.
(Ms Hewitt) Chairman, I am most grateful to you because
what I think might be helpful to the Committee is if I just spelt
out the definition of "higher bandwidth" and "broadband
services" that we are using and which were contained in a
footnote in yesterday's report on the broadband strategy and I
am afraid I did not have the footnote in my head at the point
when Mr Maxton asked his question. We would define higher bandwidth
networks as more than 384 kilobits per second, current generation
broadband as two megabytes and above, and next generation broadband
as ten megabytes and above. Generically we incorporate the whole
as being broadband and higher bandwidth.
628. Can I move on to continue on the theme?
Is not one of the major barriers the disincentive for BT as both
the owners of the network and the providers of services on the
network to maximise the profits and the money that can be made
from the network and is there therefore a case for separating
the two out into two separate companies?
(Ms Hewitt) BT of course are currently themselves
considering restructuring which would include separating within
the United Kingdom their wholesale and retail businesses. Clearly
there may well be some gains in terms of regulatory simplicity
and transparency, particularly to other operators, were that to
be done. It is also a very complicated issue and the restructuring
of BT raises a lot of issues about, for instance, where the licence
would sit, where the universal service obligation would sit, what
the regulatory implications generally would be. My officials and
those of Oftel are in discussions with BT at the moment about
that. On the issue of disincentives, I think the situation has
changed very significantly largely as a result of regulatory action.
BT is now under an obligation as a result of the licence amendment
that they agreed last year to unbundle the local loop. They are
also under an obligation, again a regulatory obligation, to offer
access to their networks, including their upgraded networks, on
fair and non-discriminatory terms. In other words, they are not
allowed to discriminate between their own retail arm and other
operators. They have to charge the same wholesale price for network
connections to their own retail arm and other operators. That
is extremely important in getting these services rolled out. They
are also making very substantial investments, probably totalling
about four or five billion pounds over some years, in the ADSL
upgrading of those exchanges. They have a very clear incentive
to get a return on that investment both by maximising the success
of their own retail operation and by ensuring that they have as
many other customers, basically wholesalers and resellers, connected
to those networks as well. I think that through tough regulatory
action we have given BT the right set of incentives.
629. Will you give OFCOM greater powers to ensure
that that regulatory pressure will be likely to continue and in
fact is made greater?
(Ms Hewitt) We make it very clear in the White Paper
that there are occasions when you need tough regulation and issues
to do with access to basic networks is precisely one of those
occasions. Therefore what we propose in the White Paper is that
OFCOM should have the same toolkit if you like, the same set of
sanctions available to it, that Oftel already has but in addition
it should have the power to fine for breach of regulatory conditions
which Oftel does not have at the moment.
630. Does not the fact that we have had to invite
in order to cover this area the Secretary of State from one Department
and yourself from another Department perhaps indicate that the
time has now come when we require one department of communications
to cover this area which is so important to our economy and will
be of even greater importance to our economy?
(Ms Hewitt) My feeling is that we have had a model
of joined-up working in preparing this White Paper and the different
Departments have got different expertise which we have pooled
and we have learned from each other in the process of preparing
this White Paper. That process of joint working is now being taken
forward as we look to draft the Bill. I think that is very valuable.
I guess on reorganisation of Government Departments it is really
a question you might need to ask the Prime Minister.
Mr Maxton: Maybe we should have him before
Chairman: I think it would be a good
idea. Whether he comes is a different matter.
631. To follow up on a couple of questions that
have been asked by members of the Committee, Ronnie Fearn asked
about the concerns that many people have about the need to increase
subtitling, audio description and signings, both on terrestrial
digital and cable and satellite, and you talked about, as a result
of the consultation, the targets that you have set. Can I ask
about those targets? Are they voluntary or are they statutory,
and if they are statutory what penalties will there be if those
targets are not met by the providers?
(Mr Smith) The existing targets are statutory. Fifty
per cent has to be reached on DTT by the tenth year. The extension
of 50 per cent to 80 per cent would require, I think I am right
in saying, secondary legislation in order to achieve. The extension
of the targets to cable and satellite would require primary legislation
because that is not in the existing legislation. We have said
that we would like to seek the first legislative opportunity that
we have in order to do so. That might conceivably be at the time
that we bring forward any Bill to establish OFCOM.
632. Like the Chairman, I too and I think all
of us in this Committee recognise the real role of community radio.
We have talked about diversity and plurality and we think it is
very important that there is a real place for community radio.
In the way that he talked about his community radio, I have got
Cinderford FM. One of the problems that they encounter is the
cost of the 28-day licence, the inability to run a continuous
radio station because they do not have those funds. Mr Wyatt touched
on that with the access fund. Do you think it would be helpful
if you had an experimental expansion of community radio prior
to new legislation so that first of all we might see the explosion
that might carry on in community radio that is there underneath
but has not been able to fulfil itself, and also to learn some
lessons ready for the legislation? Would you be prepared to do
(Mr Smith) I am certainly prepared to consider such
a proposal. There are technical practical issues to be taken account
of in relation to the spectrum that radio signals use and the
overall geographical area that might be covered and so forth.
Provided that those technical issues can be resolved I would very
much welcome looking at what sort of pilot scheme could be put
in place to encourage the growth of community radio to see what
the extent of demand is, to see what might be possible, and to
see what the problems could be. I would certainly look very sympathetically
on such a proposal but we would need to be sure of course that
there were not any technical impediments to doing it.
633. Their impediment of course is always the
problem about the financing of it. Mr Wyatt asked about the access
fund. You said that you were not happy about using any slicing
away from BBC's licence fee. Is there a political will to take
it either from taxation or to take it from maybe ring-fenced local
(Mr Smith) We are examining a number of possible avenues
on this. It is something on which we have not yet come to a conclusion.
I think it would be difficult to try and slice it out of local
authority funds. It is certainly an issue on which quite a number
of people have expressed views to us through the consultation
period and we are considering those very carefully.
634. Do you have any view about which one you
(Mr Smith) At this stage I would have to say not yet.
635. Lastly, about the questioning that Mr Maxton
had, when Ms Hewitt was talking initially about the people that
were covered through BT, 40 per cent of homes covered, 50 per
cent covered by cable roll-out, this makes it sound as though
it is 40 per cent accessible but actually they are lying on top
of each other, are they not? What are we going to do about that?
You came with a figure that you felt 15 to 20 per cent were left
out. I think that is a very cautious assessment. I suspect that
there are many more and that there are many businessman like the
one that was having his article written in the Financial Times.
Are we saying then to those individuals, "The Government
is not going to do anything about it. You are going to be left
on the margin. There is no opportunity for you to make use of
this revolution."? We are not going to do it other than the
regulatory framework that you have outlined. Are we just going
to wipe off 25 per cent of the country's homes and businesses?
(Ms Hewitt) No, we are certainly not, and that is
precisely why we have published the broadband strategy published
yesterday. You will see, if I can recommend The Broadband Strategy,
that the map that we publish shows where there is an overlap between
the technologies and where there is only one. Roughly, we believe
that by 2003 50 per cent of homes and businesses will have access
to ADSL and cable modem and another 25 per cent would be covered
by exchanges that had ADSL but not cable modem. On top of that
we think there might be around ten per cent with broadband wireless.
It is a mixture of overlapping and separate technologies. That
is our analysis of the market as it currently looks going forward.
What we have set out in this report is a strategy to drive the
market into the rural areas in particular where otherwise people
would be left without the broadband networks.
636. But commercially there are going to be
some areas that they are never going to want to go into.
(Ms Hewitt) What we are doing so far are two crucial
things here. One is to pull together all the public sector procurement
of broadband that is already planned. As a very rough initial
estimate we believe there will be half a billion pounds worth
of investment over the next three years to get broadband connections
into schools and colleges and hospitals and GP surgeries and police
stations and public sector office accommodation.
(Mr Smith) And public libraries.
(Ms Hewitt) And public libraries, absolutely crucially,
many of which will be in rural areas. At the moment what the private
sector is telling us is that this is all very fragmented, so they
are being asked to tender for little pieces of broadband in different
parts of the country. We are going to get that brought together
under the aegis of the regional development agencies or the devolved
administrations in other parts of the country so that we get better
value for money on our own procurement but, crucially, so that
the private sector can say, "Ah, in this area or within this
market town there is already this demand. There are already these
networks going to be built. Therefore, for a relatively modest
additional investment, we can do something much bigger".
That is absolutely crucial and, as I say, very much welcomed by
the private sector. We have also announced yesterday a new fund,
£30 million, as a challenge fund for the regional development
agencies and the devolved administrations to come up with innovative
new ways of getting broadband into areas which it would not otherwise
reach. We give some examples in the report, for instance, the
Tees Valley broadband development, where, even before we created
our pump priming fund, our challenge fund, they have created a
public/private partnership that is putting in place a 45 megabyte
broadband network covering 17 different centres across the Tees
Valley so that, even if you have not quite got it into every home
that might want it, you have centres where people can go and use
it. All of that we think will stimulate the market but we are
creating a broadband stakeholder group that will enable us to
track this much more effectively, keep an eye also on what is
going on in other countries through our bench marking studies,
and, if we see that we are still not getting the speed and the
extensiveness of development that we need, we can take further
action in future.
637. Are we not aiming at, say in a decade's
time, if we are not going to get through to the commercial sector,
that the challenge bidding or public procurement is going to give
us virtually total cover one way or another?
(Ms Hewitt) We have set the goal for 2005 of the most
extensive and competitive broadband market in the G7. Despite
the demand that many of us have for broadband, this is still a
very, very new market. The technologies are developing very quickly.
Nobody can say with great confidence beyond a couple of years
ahead where the demand is going to go or what the applications
and services will be that will drive the demand for consumers
or for small businesses. Therefore, to try and set a target for
2010 is really not feasible. We have the 2005 target. We have
a process whereby we can make sure that we are hitting that target
and we have put in place, particularly with the challenge fund
and the public sector procurement exercise, a mechanism whereby
we can drive this much more effectively into rural areas. If that
is not working as we go forward, we will have to look at what
other action we need to take to make sure businesses and consumers
particularly in rural areas are not left behind.
638. Could I go back to taking what you called
unilateral action to try and promote the manufacture and sale
of digital television and/or set-top boxes? You mentioned a moment
ago joined-up government or how well you have worked together.
Janet Anderson, in an answer the other day, said that the Government
has no plans to undertake any kind of forcing of the manufacture
of digital sets because it would be "contrary to our international
commitments." Could you elaborate on that a little and what
your understanding of that is?
(Ms Hewitt) Janet Anderson's answer was saying exactly
what I said earlier on. There have been proposalsthere
was one in that particular parliamentary question that she was
answeringthat we should impose a requirement upon manufacturers
that in future televisions, and presumably VCRs, should have to
have an integrated digital reception capacity. She was making
the point, as I did earlier on, that our understanding is that
that would not be compatible with our single market obligations
under European Union treaties; but it is an issue that I have
asked officials to look at, because there are already some European
obligationsspecifically the one to have the slot at the
back of the television setwhere we may need to look at
developing those requirements further in the future.
639. How, as a Government, are you going to
increase the take-up of the manufacture or the take-up of digital
sets? When the broadcasters do come to see us, they are commercial
organisations and they want to speed up the digital take-up and
they say they would like to see the Government take a lead in
doing that. How do you think you can do that and work with them
to speed that up?
(Mr Smith) There are a number of ways in which this
can be done and is being done. The first thing is that take-up
of digital television has been very fast. We now have over 20
per cent of households in this country taking digital television
after a little over two years since it was first launched. There
is still very strong growth. Secondly, I suspect it will not so
much be the technology that draws people into making the switch
from analogue to digital; it will be the choice of programmes
that are on offer, the quality of picture that is on offer and
the range of opportunities that they have through their television
set as a result of making the change. Those will be the things
that ultimately will drive whether people make the decision to
change or not. In all the research that we have so far done, there
do appear however to be one or two stumbling blocks on the smooth
path. I would highlight two. The first is that most people assume
that digital television is subscription television. Most people
believe that in order to make the move to digital they have to
take out a subscription and the only benefit they get from making
the move to digital is the availability of subscription services.
This is not the case. There is a range of both BBC and ITV services
that become available to people for free if they simply make the
switch to digital. One of the important things that I need to
bear in mind as I consider, for example, the BBC's application
to me for authority to proceed with new digital services is both
the impact that that may have on the existing commercial market,
a very important point to consider, and also whether this is going
to be to the advantage of digital roll-out or not. These are issues
that I will need over the coming weeks to consider very carefully.
The second feature that is coming through quite strongly in the
research is that a lot of people are worried about investing in
technology that may become obsolete. They are worried about making
the move now into digital and then finding that if they want to
change to another platform of digital or upgrade to something
in the future it will become more difficult for them. That is
one of the reasons why in the White Paper we talk about the role
that is going to be needed in ensuring that consumers can make
the switch between platforms in an easy fashion, so that if someone
invests now in one particular digital platform they can at a later
stage transfer to another.