Examination of witnesses (Questions 80
- 99)
TUESDAY 14 NOVEMBER 2000
MR DAVID
EDMONDS, MS
ANNE LAMBERT
and MR JIM
NIBLETT
80. That is one of your fundamental roles.
(Mr Edmonds) Indeed.
81. Do you never, outside of these carefully
considered consultative documents, give a private thought as to
how the system should go in order to ensure the competition is
there? Do you never feed into the thinking of the players how
things might develop?
(Mr Edmonds) Yes, I do. I think one of my major discussions
with BT in the last six months has been to do with the whole culture
of serving the consumer. It has been to do with the whole culture
of an organisation which has found it very difficult to respond
to the challenges of local loop unbundling and the way in which
its network may be used in the future and actually ramming home
to the top management of the companies I expect to see -and this
sounds very presumptuous—a change in the culture. I think
that change in the culture may well be better articulated in the
context of Netco because it will have a framework, it will be
much more clear, much more separate, much more transparent. Whether
those discussions about culture, about serving the competitors
in a different kind of way, have had any impact on that decision
BT can say to you.
Helen Southworth
82. Can I take you on to issues around leased
lines.
(Mr Edmonds) Yes.
83. In November 1999 you announced that you
were launching a review of the state of competition in the market
for national leased lines. In August you published a consultation
document presenting its conclusions. Why has the UK fallen behind
in the competitiveness of leased lines in the last few years?
How much higher are costs for leased lines in the UK compared
with other countries?
(Mr Edmonds) The UK has fallen behind in leased lines
because its prices have not dropped anything like as significantly
as those of other countries. Can I answer your last question with
one or two figures. If you take a 64 kilobyte 50 kilometre leased
line, the BT cost is 5,692 euros as against an average price in
the countries that we surveyed of 5,000 euros as against the third
cheapest of 3,100 euros. If you take a two megabyte 50 kilometre
leased line—these are figures from the consultation document
we produced but it does give you an order—you see that BT's
price was 23,000, the average was 28,000, but the third cheapest
was 15,000. The price for these leased lines has remained very
high. The Committee raised with me the issue before as to what
we were going to do. The statement that we produced in August
said that BT prices were significantly above the cheapest—as
I have just demonstrated with that answer—but although BT
prices were however broadly in line with the EC average that was
not good enough because they were still significantly below those
of the United States. We further concluded, therefore, and I think
this is the straight forward answer to your question, that the
market for retail leased lines was not competitive. I think that
is why prices have remained as high as they are. That is particularly
true for what is known in the trade as the wholesale terminating
segment—the bit between the consumer and the operator. We
argued in the course of that document that until there was competition
in that area we would not get down to the prices that we should.
What we are now taking final decisions on, I hope by around the
end of the year, and what Oftel is consulting on, is the proposition
that Oftel will specify the price for those wholesale terminating
sectors at all band widths, that we will consider a price control,
that we will set prices thereafter and that we will, therefore,
bring in by, if you like, traditional regulatory actions competition
to this market place that did not exist before. As I say, that
is a consultation we are out on at the moment so I cannot say
that we have finally decided to go down that route, but we gave
a clear indication in the August document that was the central
proposition on which we would be consulting. Sorry, it is a long
answer but it is a very major step forward since I last appeared
before this Committee.
84. The Communications Management Association
say that they have been providing evidence on the lack of competition
to Oftel on leased lines for three years. Is there any reason
why it has taken so long to initiate action two years after the
study had been completed?
(Mr Edmonds) The reason is that we found it difficult
initially to do the analysis. I could give you all sorts of reasons
about complex discount schemes in different parts of the world.
The truth is until about a year ago we had not driven forward
this exercise. If I could, I would take some credit for the fact
that a year ago we did. We have now driven it forward and we produced
a set of conclusions on which we are now consulting. We could
have done this a year before, yes.
85. I think we all appreciate the complexity
of the issues but, as I mentioned before in terms of mobile lines,
if issues are so complex that customers cannot work them out then
they have to depend on regulators to take that action on their
behalf.
(Mr Edmonds) The regulator is now taking that action
and I probably accept, Mr Hoyle said I did not accept criticism,
I do, in this case I probably accept, or I accept, that we should
probably have acted a year before.
86. When are we going to see a speedier conclusion
of this issue?
(Mr Edmonds) I hope by the turn of the year.
87. The CMA also say that ". . . for 74
per cent of user organisations there is no competition in the
last mile for leased lines".
(Mr Edmonds) Yes.
88. Why is there still no competition?
(Mr Edmonds) I read that submission. I think it is
a slightly odd conclusion to reach because there are 52 per cent
of homes and small businesses in the UK passed by cable. Most
UK consumers, and this applies to some extent to small business,
maybe not so much to large business, have got the choice of BT,
50 per cent have got the choice of cable, there is indirect access,
and it is much more related to the domestic market, I accept,
than the small business market.
89. Are you saying it is not accurate?
(Mr Edmonds) No. Sorry, the 74 per cent, I do not
understand the 74 per cent when 52 per cent of homes are passed.
90. You suggest they make direct representation
to you?
(Mr Edmonds) I read their submission and we will clearly
have a further discussion with the CMA, yes.
91. Can you give us some indication back from
the discussion as to what is happening?
(Mr Edmonds) Of course.
Mr Berry
92. Can we turn to access to mobile networks.
I understand that the European Commission has opened infringement
proceedings against the UK for an excessive time delay in allowing
new entrants to the existing infrastructure. Can you update the
Committee on that?
(Mr Edmonds) This particular case was—I think
I assume because the paper was not circulated and I understand
it was commercial in confidence—a complaint by a small service
provider that Vodafone and then Cellnet were not granting indirect
access to the networks. We actually found in favour of the small
service provider in 1999 and have mandated indirect access for
that company, indeed for others, into the BT Cellnet and the Vodafone
networks on a specific price basis. Infraction proceedings, I
do not recognise in this context but, again, perhaps my European
expert colleague will?
(Ms Lambert) If I can just add to that. We did get
a letter in May from the European Commission asking for our observations
on the length of time that it has taken to resolve this dispute.
We replied to the Commission in July this year and we have heard
nothing from them.
93. You have had no reply from the Commission?
(Mr Edmonds) No.
94. They did write to you in May?
(Ms Lambert) They wrote in May. We replied in July
and we have heard nothing further.
95. The substance of their complaint was that
Oftel was taking too long to make decisions about allowing new
entrants to have access.
(Mr Edmonds) By that stage we had already taken the
decision to allow indirect access. It is open to new entrants.
It had taken a year to reach the decision because we had, again,
gone through a rather elaborate market analysis. We felt we had
to do that market analysis. That was why I was rather surprised
when you said infraction proceedings were in place because I had
not heard anything since July when we wrote in. I had hoped perhaps
they had gone away.
96. That is the interesting question. Clearly,
like others, I saw the FT story in May. There was an infringement
case, hence the question. You are saying you replied and said—
(Mr Edmonds) Not guilty.
97. —"we have done this". You
must know whether there is still an infringement case pending
or not.
(Ms Lambert) We have heard nothing further and we
do not believe the Commission, at the moment, is taking further
progress on this.
98. Fair enough. Okay. Could I raise a question
about roaming and mobile call termination charges. The International
Telecommunications User Group believes these charges are excessive
and I think my colleague, Mr Butterfill, referred to the complexity
of understanding mobile call charges. Certainly with roaming I
still cannot understand how these prices are determined. Do you
believe that roaming and mobile call termination charges are too
high?
(Mr Edmonds) I will break that into two halves. Mobile
call termination charges are of course now controlled by Oftel.
We produced a reference to the MMC just after I arrived, which
we won. We have seen, since then, a 33 per cent decrease in the
price of calls from fixed to mobile. I think that is a very significant
decrease, partly through competition but primarily through the
introduction of price control. In so far as roaming charges are
concerned, there is currently an EU study into international roaming
and in Oftel—
(Ms Lambert) Roaming is an international issue, given
by definition it is international. The European Commission are
looking at it and Oftel is working very closely with the Commission,
sharing information, but until the Commission has concluded their
investigation we are working with them rather than taking independent
action. We will keep in close touch with them.
99. Are you pressing for speedy decisions on
this matter?
(Mr Edmonds) In the UK we do have a very good record
on mobile prices. I understand totally the point about confusion
but if you look at the UK's record we probably do have the lowest
prices of all countries in the EC if you take a basket of mobile
services. I think that is partly due to competition and I think
it is partly due to the price control that we introduced two and
a half years ago.
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