Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 60 - 79)



  60. What timescale would you put on that judgment date?
  (Mr Edmonds) I would look back on that probably at the end of next year. If at the end of next year this roll out process, this smooth process of implementation, is not delivering, we will then be able to take a judgment, yes.

  61. Then you possibly would not expect to say "Well, yes it has been a failure for the consumers"?
  (Mr Edmonds) I hope very much not to say that. With respect, I cannot produce consumer demand. I cannot produce orders from the other companies. I do not know whether you are seeing BT in the course of this particular discussion, asking BT what the rate of orders are for their own ADSL product, asking the other companies what orders they are putting in, what demand they foresee. There is a market place there. I do not think the regulator can actually say—I think it would be wrong for the regulator to say—how many lines would be unbundled, how many people would be taking these services. It is my job to get a process there which enables competition to come into the market place and that is what I am committed to doing.

  62. You will be responsible then if that does not happen?
  (Mr Edmonds) I will be responsible for the process. I take full responsibility for all of my actions.

Mr Laxton

  63. Sticking with competition, you said to us approximately a year ago that you would give some consideration to the unbundling of cable companies' local loop service.
  (Mr Edmonds) Yes.

  64. Where are you at with that? Have you made any progress at all?
  (Mr Edmonds) Yes, we have. We produced a consultation document in April. I used the words it was a "genuine" consultation, it was a genuine consultation. In that document we said we thought there were three tests you needed to apply against mandating access to cable. Was the Regulation proportionate to the problem that you were facing? Was there dominance in a market place? Were the benefits greater than the costs? In the consultation document that we published, and we are now taking comments on that consultation, we concluded that against those three tests the presumption was against the mandating of compulsory access into the cable networks.

  65. Would you like to try and flesh out for me why you came to those conclusions? Was it the weight of evidence received?
  (Mr Edmonds) It was the weight of evidence received. Again, I have to be slightly careful because we are in a consultation period and I will have to produce some conclusions which will have to stand up to meet challenge. The cable companies pass 52 per cent of homes in the UK. Their market share of end connectivity to consumers is less than 20 per cent. It is difficult to sustain the case that in this particular market place under the definitions that we have to operate within, like dominance in the market place or significant market power in a particular market place, they fall within those criteria. Therefore, the question about mandating access is a very different question from that applicable to BT who still have 83 per cent of those connections into the home. That was the conclusion we reached in the consultation document. I am looking at my colleague who was involved. Do you want to add anything to that, Jim?
  (Mr Niblett) Yes. I would just say that we considered various markets. We considered the television market. We considered the market for fast internet access. We considered higher bandwidth markets. In all those cases the weight of evidence, based on the cable companies' market share, was that imposition of an open access requirement on the cable operators would not, at this stage, add significantly to competition.

  66. Is it something that you may be tempted to revisit should we see a fairly sizeable increase in market share for cable companies? Say when they reach the point of saying they have passed 60 per cent of homes and their services have picked up by 30 or 35 per cent, is it something that you will look at?
  (Mr Edmonds) Yes. We have introduced into Oftel in the last 12 months a very rigorous system of market analysis and we have committed to reviewing each market place on a systematic and regular basis. The answer to your question is, yes, at a particular point in the future we would come back to it, we would look at what has happened in developing that particular market place and we would consider again whether or not mandatory or any other kind of access should be imposed.

Helen Southworth

  67. Have you given any thought to the creation of a separate company for the ownership and control of assets of local loop?
  (Mr Edmonds) As far as Oftel is concerned no, because I think that would be going well outwith the statutory and other responsibilities that we have. The decision by BT to produce its own asset holding network company I think is a very interesting decision. As I read it, and a lot of detail is still to be resolved, and I think when you talk about the assets and then you talk to BT about the assets, actually defining very particularly what is going into that company, what the relationship of that company would be—going back to one of the earlier questions—to BT retail, how much of the local loop would be involved in the central company, will be key to the regulatory framework that is then established. I have to say that the transparency that comes from Netco and the ease of defining the interfaces that should come from Netco are significant benefits as far as we are concerned. That is not to say there is not an awful lot of scrutiny still to be done, and an awful lot of consultation still to be had on what BT are proposing.

  68. Can you explore with us a little more about Oftel's position on BT's restructuring and setting up a separate company?
  (Mr Edmonds) Yes. I have said quite clearly that the implications of BT's proposal to create Netco in particular will be the subject of a major Oftel consultation. When, in Oftel, we understand the precise parameters of the assets which are going into that company, when we understand the relationship that BT are proposing between it and particularly the retail side of the organisation, we will produce a consultation document. There will be a full and thorough consultation with other operators, and indeed with the general public. There are some interesting issues to do with licensing which are for the Secretary of State, which parts of the new company will need a new licence. There are some very fundamental issues which will be exhaustively discussed with all the people who have a stake in the telecommunications sector.

  69. Could I draw out of your timescale perhaps the end date for this? BT have a superb track record for drawing things out as long as they conceivably want to and Oftel having to come back and give evidence saying you were not able to do something because you did not have the information given to you or you did not get the co-operation, or you had to hit BT with a stick six times before you got anything. I think we would be a lot more confident if we could know what your timescale is going to be and I think it is absolutely essential that BT is aware of the fact there is going to be a timescale and there is no point in waiting to hit them six times with a stick, they must come up with the information.
  (Mr Edmonds) BT are carrying through their reorganisation for commercial reasons. One can only assume, therefore, that putting into place the new organisation is something they will want to do on a realistic timescale. I have made it clear to them, and Anne has made it clear in her discussions with the Director of Regulatory Affairs in BT, that we need full comprehensive information about the nature of Netco. We need full information about the licence that they perceive they will need. We have said that we cannot be rushed in a timescale that means that we do not fully and properly consult with other stakeholders, the general public and consumers. I do not have a timescale because I do not yet have the information I need from BT to take a judgment on what they are proposing.

  70. What is the deadline you have given them for giving that information?
  (Mr Edmonds) BT have said that they want to have parts of this operation up and running by April of next year. If BT fail to provide Oftel with the information that we need to do the analysis of what they are proposing, to do the consultation that we need, that will clearly be difficult for them. I have not set a timetable at the moment. I am in a totally reactive mood on the one hand but I am in a totally proactive mood on the other hand because I have said you cannot do this without going through this particular process. It is a commitment I have given to some of the other operators who are worried that BT may try and produce something which is anti-competitive. It is a commitment I give to this Committee this morning. There is no question of BT driving something through or producing something which is not fully consulted on and is not given total regulatory scrutiny by Oftel. The timetable is in their hands.

  71. That seems a very relaxed way of looking at it.
  (Mr Edmonds) It is not relaxed. I have already said to them "Can you say what licence you want and where would you like that licence to be?" I have already said to them I want to see the full range of details about the various parts of the new company that will emerge. I have already said to them that having got all of those details we will analyse that in very considerable detail. I cannot do any more until—

  72. You have not said when you want it?
  (Mr Edmonds) The setting of a deadline, as far as I am concerned, would be arbitrary and, with respect, would not serve—

  73. Have you given them a helpful indication of how soon it would be useful to have it?
  (Mr Edmonds) I have said I would like to see this information as soon as they have it available. I think the issue is that they may not have all the information we want yet available. They made their announcement last week and I think there is a lot of detail still to be filled in around the edges.


  74. You were not consulted before the announcement was made?
  (Mr Edmonds) They talked to Oftel about the general structure that they were going to announce, yes.

  75. When?
  (Mr Edmonds) I have been talking to BT about the general structure probably for the last eight weeks, something like that.

  76. You did not ask them for the information within a prescribed timescale following the date of their announcement?
  (Mr Edmonds) I think, Sir, as I said in my answer to the last question, their business case, their commercial drive, surely dictates when they produce the material that I will want to see. The fundamental question for me is is this a structure that is going to be consistent with the Regulation that applies to the company? Once they have decided the structure they want and what is going to be within the various components we will then give them advice, but until they produce that material I cannot. I have told them in general terms. I have told them what the licence position is, where they may need a licence, where they may not need a licence. We have started to talk about Universal Service Obligation and where that will lie. We have not been holding back but, as I have said, we have been both proactive and reactive. Anne, do you want to say anything?
  (Ms Lambert) Can I just add one point which I hope might help the Committee. As you have read from BT's announcement, they have said they want to sell to up to 25 per cent of Netco. I think what is absolutely clear is they cannot do that until Oftel and DTI are totally happy with the regulatory arrangements. Whilst how soon they want to do that is a matter for BT, Oftel and DTI are in control of the actual overall timetable because BT cannot do that sale unless we are totally happy that we have the powers and the information to regulate.

  77. When you were speaking to them over this eight week period, did you suggest any routes that they might choose to go down or were you merely the recipients of information?
  (Mr Edmonds) It would be wrong for me to define the commercial future of the company or to say "You should structure yourself in one way or another". What we did do was to say "If you do this the following consequences will follow". I think Anne has just described one set of consequences.

  78. Let us face it, BT are chancers here. They are driven, quite correctly, by shareholder value and by the need to maximise profits for those shareholders. As long as they keep pulling small rabbits out of the hat you do not need to turn round to them and say "We are not really that happy about the way you are handling what is in effect almost a natural monopoly, the ownership of the wire." It is analogous to the Transco arrangements for British Gas. It is a former public utility behaving in an arrogant manner, trying to keep one step ahead of regulators and trying to do as little as possible to open up markets at any reasonable speed. That is the background to it. If the market was going to be opened up then there would be these questions of natural monopoly. Six months in advance of it they come up with this deal. Allowing for the fact that there were eight weeks of nods and winks and polite discussions, did you never think that this might be something that you would have to impose upon them at some stage, seek the powers to break them up because of the way they might behave?
  (Mr Edmonds) They were not nods and winks, they were discussions based on me saying to them "If you have organisational proposals that you want to get a view on from Oftel, we will give you a view. We will give you a hard edged view based on our view of what is right and what must be put in place to protect the consumer." It is what my job is all about. As to a wider decision on BT and its structure and its future, that is a decision that I think, Sir, in legislation rests with the Secretary of State for Trade and Industry and not with me.

  79. You have a responsibility to promote competition.
  (Mr Edmonds) Indeed.

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