Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 220 - 239)



  220. We have all seen areas where there have been problems in enhancing the supply. How will you deal with the question of allocating the increased costs? If BT say, "We are quite happy with our existing cooling. It is all right for us. If you want to put your stuff in there you are going to have to bear all the costs of improving the cooling", and who maintains it thereafter? Is that all sorted out?
  (Mr Saunders) That is in the process of being sorted out. Clearly if there is an incremental estimate required there is an issue of how is it allocated to the requesting operators.

  221. It is not entirely straightforward, is it? There are a lot of things to be negotiated.
  (Mr Saunders) There is a lot of detail.
  (Mr Allan) It falls into this whole basket of transparency. This is one of the things we are asking for, to have much more transparency on costs. We are prepared to pay our fair share. There is not any dispute between BT and the industry on how to make this work. On the amount of detail, how you actually implement it, there is disagreement. The sharing of costs is not a problem but the transparency on costs is not yet clear.


  222. We were told by the Minister that certain model estimates have been established. Do you think they are reasonably helpful and valid or are they misleading?
  (Mr Allan) I am not sure, Chairman, is the answer because I have not studied them personally.
  (Mr Saunders) Certainly from the initial estimates from the trial sites, which were the ones that have most visibility at this stage, I think I am right in saying that there are significant concerns about the levels of costs in certain instances and indeed the derivation of some of those costs. These are things that we will continue to work with BT and Oftel over. At the moment there is a feeling that there is probably some degree of inflation over what we would consider to be the appropriate levels of charges.
  (Mr Allan) If such a regime were implemented whereby BT's retail divisions offered the same costs as any other carrier then there would be no dispute about what that cost level should be, but there has not been any independent verification of the costs as we speak and the costs have been provided by BT. Given the history of the share in costs we have had from BT so far, they are economically unviable to build a sustainable business on.

Mr Hoyle

  223. Cable and Wireless and Energis both state clearly that BT have installed their own equipment in some sites and that they have blacklisted yourselves from using those sites. I wonder if you can give us some concrete examples of where BT has installed its own equipment explicitly and then banned other OLOs from using those sites. I do not know whether you have any evidence of this.
  (Ms Machin) We certainly had at the time that that was written. I think now with the new sites that have recently come out of the Bow-wave 2 process we would like to check again and perhaps come back to you and confirm whether it is still the case or not[1].

  224. What about Cable and Wireless?
  (Ms Gilthorpe) I could not say I am entirely sure that we are still confident about that statement over the last few weeks, but certainly the evidence we submitted at the time was entirely accurate. The sorts of things that we have faced are that where BT has said a site is full there has certainly been one instance that one of our field engineers verified whereby he happened upon a site which was marked as full and there appeared to be two free rooms at that site. We cannot be sure what BT's plans were with that particular exchange but certainly on the face of it that looked rather strange to us.


  225. Which exchange was this?
  (Ms Gilthorpe) I do not know the exact geography of it but we have got first-hand information.

  226. The name, not the geography.
  (Ms Gilthorpe) I do not know the name of the exchange but we can certainly get that for you if it would help. As I say, I am not making any direct allegations but certainly it comes back to the point that Mr Allan made about the level of transparency of information. We are wholly reliant on BT disclosing fully accurate information to us and whether or not it is the systems, their own systems, that do not allow them to do that, or whether it is other forces at play we do not know, but there certainly have been inconsistencies and there has been a serious lack of information that we require in order to make these investments.

Mr Hoyle

  227. That is my next question. BT have definitely confirmed that there is no space available in 23 sites. Have you got a list of which sites they are and what scope is there to challenge that assessment because obviously you have found one where it has been wrong? What about the other 22?
  (Ms Gilthorpe) Certainly it is open to us to approach Oftel and ask for independent verification of the space that is there or not there and there is a process that is being undertaken to independently verify some of BT's statements. However, that process is coming quite late on and again it is taking some time, all of which is pushing out the process.

  228. Do you think it is deliberate feet-dragging?
  (Ms Gilthorpe) It is actually a very difficult question to ask because what that suggests is that there is a deliberate intent at all levels within BT to tactically obfuscate, and I think for all of us sitting here it would be incredibly hard for us to make that sort of statement based on the evidence we have had. Certainly what we do know is that they are doing very little to facilitate this process.

  229. So in actual fact when they are playing the game they are very late at turning up to play?
  (Ms Gilthorpe) Absolutely; very well put.


  230. This arbitration, for want of a better expression, although it might not be as formal as that, obviously is going to cost not only time but money. Who is paying for it?
  (Ms Gilthorpe) That is another good question.

  231. Or will it be reflected in the ultimate price to the consumer?
  (Ms Gilthorpe) Some people would argue that every cost by a commercial operation is ultimately borne in the end price to the consumer. What is important is perhaps how those costs are apportioned as between BT and operators and what is a fair apportionment of those costs. It comes back to transparency, I am afraid. Until we know how that cost build-up has been created it is very difficult for us to judge whether that is fair.
  (Mr Saunders) We are not confident that the methodology adopted by BT in surveying the available space is something we have confidence in and we have got visibility of. The need for verification hopefully should recede as BT adopts a methodology which is more appropriate, more flexible and is more suited to the space requirements that we have as an industry. That is something that Oftel has certainly been addressing and hopefully within the next few days we will get some more visibility of what they believe an appropriate methodology in that context will be.

Mr Baldry

  232. The exchange system is not going to be static for ever. I represent one of the fastest growing areas in the country along the M40 corridor. Who is going to have responsibility for building new exchanges and new exchange capacity?
  (Mr Allan) It is a function of demand. If I had a customer who demanded an area and I could put together a viable business plan I would be very pleased to do it.

  233. So there is actually nothing to stop you if you want to come along and build your own exchanges?
  (Mr Allan) There is nothing to stop you doing it but it comes back to economics. There is existing infrastructure in place and it is an economic asset which you can use to apply other types of new services. What we are talking about here is service enhancement. It comes back to the cost and the benefit and there is an economic cost and an economic good depending on whether you would want us to do that. It is a question that was made by the cable companies. Would you want us to go round and dig up all the hills and the roads of the country again to do this? I do not think it would be sensible.

Mr Butterfill

  234. How important is collocation compared with distant location? What particular emphasis do you place on them and what are the problems with distant location?
  (Mr Saunders) The key concern with distant location is two-fold. One is that it reduces the addressable market place. Because of the way that DSL technology works the longer the loop and the longer the physical connection between the customer and the DSL equipment in the distant location or collocation facility the lower the data rate that you can offer. For a given service that means distant location as against physical collocation within a BT building and there is a trade-off between those as to how many customers you can address.

  235. We are told that it can go up to half a kilometre without loss of signal.
  (Mr Saunders) I would not be that dogmatic about it. I think it varies between services. I think it will vary with the state of the actual network itself and, to be blunt, I have no experience to date within the United Kingdom of what the experience will be like. Until we have got that through the trials process I would rather concentrate on the advantages of physical collocation in terms of the fact that it is a much safer environment and it is an easier environment in terms of the physical connection between the BT main distribution frame facility and the operator's equipment.

  236. When you say it is a safer environment, how is it safer?
  (Mr Saunders) Physical collocation is within a BT building which is an environment which is managed to protect the equipment that is within it both physically in terms of having security facilities there, but also in terms of things like a secure power supply, and indeed air cooling. Distant location can happen in two modes: one, in your own building, which replicates those facilities, or, secondly, in a street cabinet. Street cabinets I consider to be slightly less secure for right and obvious reasons, and probably in terms of economic efficiency duplicating the physical location facilities in another building is not optimimum either.

  237. We have heard stories that people who own properties next door to BT exchanges have had approaches and maybe you can get secure facilities in an adjoining building at a reasonable cost. Would that not be as simple? Why do you not just get on and do that if you have a problem with BT?
  (Mr Saunders) I think most operators will eventually adopt a mix and match approach. Ultimately, if I can go back to that, the simple position says that collocation optimises the number of customers you can address. From a straightforward commercial marketing point of view that seems to make more sense.

  238. But there are going to be certain important exchanges where there is physically no space at the moment where you are very anxious to locate. Are you getting together and saying, "Why do three of us not go into this building next door and run the cable across?"?
  (Ms Gilthorpe) Certainly Cable and Wireless is itself analysing the availability of properties in certain areas and working out the costs associated with that, but it is a mix and match approach, as Mr Saunders said. In some cases that is economically justified. There are obviously two issues, one of which is that finding facilities of that type proximate to BT exchanges is quite difficult, especially in very popular areas which tend to be metropolitan areas.

  239. You do not need a large amount of space for all this equipment, do you?
  (Ms Gilthorpe) No, you do not need much space but whether or not you want to pursue a street side cabinet approach rather than your own facility will depend—

1   BT has now produced a `Restricted Availability' list (previously the `Black List') showing sites that are full or due for closure. The latest version of this list contains 27 sites selected by Energis under Bow Wave 1 and 2 from which BT ADSL service is available. Examples of exchanges with restricted availability to Operators but from which BT are able to offer sevice include Cambridge Science Park, Soho WC2, Marylebone W1, Shoe Lane EC4, Manchester Central, Western Glasgow and Rose Street Edinburgh. Back

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