Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 1 - 19)




  1. Good morning. Would you like to introduce your colleagues?
  (Mr Edmonds) On my left is Anne Lambert, who is Deputy Director General of Oftel and the Director of Operations. On my right is Mr Jim Niblett, who is a Director in Oftel. His main responsibility at the moment is work on local unbundling.

  2. We start this morning by looking at the European dimension. There seems to be a question of two different horses pulling the issue at the moment, the European one and the Whitehall one. I wondered if we could start off with where we stand on the EC negotiations in relation to local loop unbundling?
  (Mr Edmonds) The EC produced a draft Regulation in the middle part of this year, which is designed to empower the unbundling of the local loop across European states on a consistent basis. That Regulation requires the incumbent, the company with the power in the local loop, in our case of course BT which still has some 80 per cent of local loops, to publish a reference offer for local unbundling, to set out its contract terms and its prices, to meet reasonable requests from 1 January and to introduce a product that is cost-orientated. As far as Oftel is concerned, we are required by that Regulation to ensure that the pricing is fair; we resolve disputes; and that there is fair competition in the marketplace. My own view is that the work that we did in Oftel, which I described to this Committee at the last meeting, which was incorporated through a licence amendment into the BT licence in August of this year, and the further work that we have done since August of this year, means that the UK will be fully compliant with the EC Regulation as of 1 January.

  3. Am I correct in saying that a Regulation was chosen in preference to a Directive? Could you explain the difference between the two and why one was chosen in preference to the other?
  (Mr Edmonds) Can I turn to my European expert?
  (Ms Lambert) Very simply, a Regulation is something which does not have to be transposed into national law; a Directive has to be transposed into national law and, as you know, Chairman, the UK Government normally does that by means of statutory instruments. A Regulation does not have to be implemented. In the jargon, it is directly applicable. The Commission chose that for its proposal and the Council and the European Parliament agreed to ensure speed, so that this could be done as quickly as possible, because with a Regulation you do not have to allow a time for implementation in national law.

  4. Am I right in saying it is still binding, even though it does not require national ratification by means of what in the UK we have as an SI?
  (Ms Lambert) You are right; it is binding. Obviously it has been negotiated by the Council of Ministers and the European Parliament. Both have reached agreement in principle, although final adoption has not yet taken place. Yes, it is binding.

  5. As of 31 December, you have got to get in a fairly precise and specific form the terms and conditions of the unbundling arrangements, which, as I understand it, you were not going to be required to do until 31 July. Is that correct, or could it have gone at a different pace?
  (Mr Edmonds) The arrangement, as I described to the Committee at our last meeting, was based on persuading BT to accept voluntary licence amendment. As I explained to the Committee, we were doing that through a process of negotiation and argument. As far as the UK is concerned, not only did I not have a European Regulation to back up the unbundling of BT's local loop, nor did I have primary domestic legislation. Therefore, the licence amendment that we drove through, which BT accepted in the early part of this year, was on the basis of an agreement with me as Director General that unbundling in the UK would start to take effect from 1 July 2001. As the negotiations proceeded in the earlier part of this year, it became apparent to us in Oftel—and again I made this point to the Committee on the last occasion—that if the industry could up the pressure on BT, if we in Oftel could up the pressure on BT, I would wish to see that 1 July date brought forward in any event. What happened in the middle part of this year was a combination of that pressure from Oftel, from the industry, and then the announcement that the European Regulation to bring a different timescale to bear.

  6. With hindsight, do you think it would have been better if you had had an EU Regulation last year rather than this year and you would have been able to get the arm up BT's back a bit more quickly?
  (Mr Edmonds) Yes, sir, to be honest. In fact at a conference in Madrid in the middle part of last year I actually did ask the European Commissioner to bring forward the Regulation with more speed than I thought was likely to happen. In fact, as I think Anne Lambert will confirm, in European terms, moving from where they were to the publication and adoption of the Regulation, has been very quick. As far as we in the UK are concerned, it would have been helpful had that Regulation been applicable because it would have meant that I would not have had to go through the process of negotiation with BT; I could actually have looked to statutory powers.

  7. Really, the fact is that you have not had the powers to require BT. It is not in their interests to move on this issue, is it?
  (Mr Edmonds) It was not in BT's interests. If we go back to the first proposals by Oftel to introduce local loop unbundling into the UK, which came within about six months of my arrival as Director General, we did that on the basis of a number of options. BT argued that there should be no unbundling. BT argued that the operator should take from them a wholesale product, that BT should roll out its own ADSL and everyone should take it. Whether it is in BT's long term interests not to go for unbundling is a different question but certainly in the context of the negotiations over the two years since I have been negotiating, arguing, directing indeed BT, not having that statutory backing was a problem until August of this year. In August of this year a licence amendment, which gives Oftel now the same force of law that it will have from 1 January, came into effect.

  8. The fact is as well that three of BT's rivals complained to you in the summer, did they not? The impression I have is that people in the business, in the industry, were genuinely concerned about the slowness with which BT was addressing this issue and the apparent impotence of your organisation to require them to do anything else.
  (Mr Edmonds) The industry became very frustrated in the summer because of detailed negotiations which were leading to the implementation of local loop unbundling, detailed negotiations about the nature of the contract, about where the main distribution frames were from which local loop unbundling was to come, a whole series of discussions being run by Oftel. You talked about the impotence of Oftel. I genuinely do not think that is fair. From the moment that we published the licence amendment, which was in April of this year, through the summer we were heavily engaged in a number of working groups. Again, I said quite openly to the Committee, in response to Mr Laxton's question last time, that if we could get the rest of the industry integrated into this process, it would be easier to roll out. The problems that I have faced, that Oftel has faced, in September/October of this year, the criticism we have taken, stem from the failure to actually produce a working methodology for distributing space in those exchanges where there is a surplus of demand for space over supply. I said clearly and I repeat it to this Committee: had I known that the industry competitors who were actually charged, working with Oftel, to find a route of allocating space, would be unable to agree, with hindsight, I would have intervened earlier. In fact, I was told in August that they could not reach an agreement on space allocation. Within a few weeks, I had actually produced what can only be described as a transitional space allocation methodology. Within a few days, I will be producing a second space allocation methodology, which will take the thing a step further.

  9. I do not want to labour this point but it does seem that the amount of pressure that you were able to exert on BT was such that BT had no sense of urgency about trying to establish where there exchanges were. For example, it has been put to us that BT did not have up-to-date postcodes for some of their exchanges because they had not been there for such a long time. It did seem, frankly, that BT were taking you for a ride in this?
  (Mr Edmonds) No, I do not think that is correct. The first part of your statement, sir, is correct. It beggars belief that BT did not have accurate postcodes for their exchanges. We suggested that they rang them up and asked the people who were there! I have been very open about this, and I have said the same to the other licensed operators who did come in at the beginning of September and complain very powerfully and articulately to me that they thought BT was holding up the process. I think there was a series of examples during those months in the early part of the summer when BT were deliberately holding back on information, when BT were not progressing the roll-out of local loop unbundling as fast as we would have wished. I do not think Oftel was impotent. I think that we got stuck in very heavily on a number of occasions. We sent them number of statutory letters demanding information.

  10. Mr Edmonds, I have to say that in the collective memory of the British regulatory system there is the £600 gorilla in the shape of the old British Gas, which behaved in exactly the same way towards a predecessor of yours in another regulatory role, where they just did nothing for years. It ended up with court actions and the old Monopolies and Mergers Commission inquiries. Did nobody in your organisation say to you that these people should be kicked into action a lot earlier than they were? It is 12 months almost to the day since you last came here. On that occasion we were surprised that there was unmetered access provision posted that morning by BT and we were too polite to draw any conclusions regarding cause and effect. The fact is that it seems that only when we start to rattle the cage does the telecommunications industry in this country begin to get its collective finger out. This is the impression we have.
  (Mr Edmonds) If I may say so, sir, I do not think that is a fair impression. Can I put it very crudely? If Oftel had not in December 1998 said, "Here is a set of proposals to unbundle the local loop", who else would? If Oftel then had not driven through a licence amendment, with no statutory powers, none whatsoever, into BT, where would we now be in the UK in terms of meeting the European Regulation? If I even go back to last year, and we talk about the July deadline that had been set for BT for next year, we have now driven that forward. We have pulled months, I suggest, off that timetable. I think that is due to proactive intervention by Oftel. I think that the level of detail we are now getting into is probably some of the most intrusive Regulation that any British company has ever suffered.

  11. Do you think you would have been able to deal with this more effectively and more quickly if you had statutory powers at your elbow, rather than having to duck and dive to get to where you wanted to be?
  (Mr Edmonds) Yes.

  12. Did you ask for these powers? Did you go to the Minister and say, "Look, I have not got sufficient power"?
  (Mr Edmonds) No, because I set off down the other route. I set off down the route, which I suspect, probably given the state of the legislative calendar, was a much quicker route of forcing through into BT a licence amendment. By August of this year, I had got a licence amendment which gives the same impact or effect as the European Regulation, or primary Regulation in Germany. That gives me the same set of powers to control BT. I did that within 18 months from the first consultation paper. You asked about European comparisons. I suspect, if you look at any other European country and you go from the point of the first introduction of the concept to the actual delivery of those powers on the ground, the 18 months that we took in Oftel would compare well.

  13. The Queen's Speech is coming up. From what we can gather, there is not going to be much on the IT business in that. Were there to be a Telecoms Bill, what would powers would you want to put in that to make life that much easier, or is the European Regulation effectively giving you what you want?
  (Mr Edmonds) The European Regulation and the licence: the two will run in parallel. I must come back to the point that the licence amendment that we drove through in August gives us the power that we need. If BT fail to comply with the licence, we have the ramp of powers that currently exist. I think that the process that we have at the moment is that if we find a breach of a licence, we consult on what that means and we then make that a provision or an order. If BT breaches the order, companies have the right to redress in law. That is a cumbersome process. I suspect if I was looking at powers, it would be looking for a more effective and more immediate way of bringing home the consequences of some actions—fines, to be crude.

  14. We are where we are now. We have now identified the exchanges and postal codes and telephone numbers; we are in business. There are 361 out of the 5,500 which are to be opened first. How did you decide on this figure of 361? What were the criteria you applied to that?
  (Mr Edmonds) The critera that were applied was to ask the operators, and there are some 30 operators. We have, as you know, Chairman, and you have looked at this certainly for a long time, in the UK a very successful and disparate telecommunications sector. We have some 30 operators wanting space in the BT exchanges to unbundle. That is a tribute to the liberalisation of the industry we have. We said to the 30 operators: "Actually list your top 1500 sites". We then said, "Of those 1500 sites once ranked, we will take what is a workable number in terms of BT's ability to respond". Do not forget, I did actually say to the Committee last time that unbundling would start in July. We now have unbundling starting probably rather sooner than that. We have orders going in now. We said, "On the basis of the operators' ranking, we will select 360 sites". What is very important is that there was a lack of agreement in the summer between the operators. On this occasion it was not BT being awkward but the operators saying, "We cannot actually agree on a basis of allocating space". In very simple language, some operators wanted twice as much space as other operators—six racks as against three racks. Because no agreement came from that particular working group, we said that we will exclude sites where there is a huge surplus of demand over supply. We then said that we would take out any site where more than nine operators were bidding for space. What we have come up with is, if you like, a transitional list; it is not a very satisfactory list for many operators because it is not their top 360 because the top 360, almost by definition, were those that most operators wanted. So we have 360 sites. They are all within the top 25 per cent of operators' choices. That is the process that is now in hand.

  15. How many exchanges are there where demand exceeds supply? How many have you identified of the 30 plus BT, where there really is not enough space for them?
  (Mr Edmonds) We have not because this was a mechanistic process. We will only find out where demand exceeds supply when we get into the actual ordering process. We are now in the ordering process. We are looking at the first tranche of numbers. Can I ask Anne to take this because she was chairing the group on this in the last week.
  (Ms Lambert) I think it is important to make clear that there are actually 381 because Oftel selected 361 in Great Britain and there are another 20 from Northern Ireland. We should be clear that we are talking about 381. That is just the initial phase. It was the thing that Oftel did to get the whole process started and unblocked. As David has said, later this week we hope to decide the methodology that will determine the space allocation and the most popular sites. Once we have selected the sites, we will ask BT to do a survey to see the sort of space that is available. Until a survey is done, we do not know whether all operators' demands can be met. Once the initial survey is back, then operators can decide whether they want to ask BT to do a full survey, design and costing. If we take the first 381 sites, orders for initial surveys have been made in 364 sites. The initial survey has found that in 83 per cent of those 364, there is enough space to accommodate all those who want to go in. That I think is quite positive. So we have 187. In some of those we may have to do a bit of adaptation for space and use other rooms and back-up rooms to accommodate. With goodwill and a bit of flexibility on all sides, that can be done. In 83 per cent of these 381 there is enough space. Now what is happening is that operators then have to decide whether they want to go to a full survey with design and costing, and orders for that have been submitted in 166 sites. I can go on with lots of statistics. I want to show that the process is now happening. It is clear and there is transparency in what is happening and we in Oftel are going to monitor it very closely.

  16. You have given us the numbers. That is the quantities. What about the quality? For example, 44 of the 100 most desired exchanges were in London; 92 of the 361 were in London. Yet, as I understand it, in this first wave, the bow wave, there is only going to be one from London. That means a lot of unhappy people.
  (Mr Edmonds) It is a lot of unhappy people and it is an unsatisfactory outcome to the debate that went on between the operators in terms of an allocation methodology. Had the operators agreed on an allocation methodology at the beginning of September, those sites would have been brought into the process. I had a decision. I had a choice to make in September when the working group in effect came along and said, "We cannot decide how to `divi' up the space". I could stop the process or I could go to what I described to you in my last answer as a transitional process whereby we skipped the most popular sites. We would make no secret of the fact that these were not the sites with which operators would have preferred to start. What we will now do, having consulted very hard over the last four weeks, is produce an allocation methodology, I hope later this week, which will actually mean that these more popular sites can be pulled into the process.

  17. As I understand it, of the 361 GB sites, only 190 are going to be available for co-location by 1 July. Is that correct? Co-location is the word you use for having several people using them.
  (Mr Edmonds) Indeed, that moves us on to the announcement that BT made on Friday. It was an important announcement because it came after another month of very tough Oftel pressure. It was an important announcement because it made clear that BT would commit to the delivery of 600 sites, of which about 190 will be full co-location and perhaps 400 will be some form of distant location by July of next year. That is a major step forward in terms of BT committing themselves to the process because, as I say, if I go back to the original agreement with BT, which was July, that brings it forward really quite significantly.

  18. Just a small point before my colleagues come in: on this question of which sites, it seems that the other operators want to keep this a secret. Is there any reason for this?
  (Mr Edmonds) There is a degree of commercial confidentiality which the operators asked to be attributed to the sites that have been chosen so far, on the grounds that there were bilateral agreements between them and BT and the publication and announcement of those sites might give away their own, if you like, business plan, their own competitive programme. I think it is strange and I take the point that you make. I will look at that again.

  19. Just to compete this point, my understanding is that the agreement was that Oftel would select only those sites where a maximum number of operators want to co-locate.
  (Mr Edmonds) For initial surveys, yes.

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