Examination of witnesses (Questions 280
- 306)
TUESDAY 19 DECEMBER (MORNING) 2000
MR PAUL
MARKHAM, MR
MARK DAECHE,
MS NATASHA
HOBDAY and MR
PAUL WORMS
280. How many kilowatts of power do you need?
(Mr Daeche) I can submit that to you and I will give
you the wattage[2].
281. It would be helpful to know what the scale
is.
(Mr Daeche) Absolutely. And it does vary, of course,
depending on the technology supply that the operator chooses.
282. And the size of the operation you are seeking
to cover. I am just trying to get some feel of what is a typical
situation.
(Mr Daeche) We can certainly submit those figures
on the basis of the technology that we utilise.
Ms Perham
283. I just want to go back to what you said
about comparisons with other countries, Mr Daeche, particularly
with the timescale within Germany. Is this something that you
think Oftel should have been more proactive on with the shorter
timescales? It is really batting everything back between Oftel
and BT and BT seem to be putting things in your way all along.
Is it something that you feel Oftel should have done something
on under the Competition Act?
(Mr Daeche) It certainly would have helped to have
a framework in place against which the operators could have worked.
That is certainly the case in Germany and it is certainly the
case in Holland where we have now started our investment, so yes,
that would have helped. To look at this some time ago when we
knew it was going to happen would have been most helpful.
284. Is there anything that can be done now?
(Mr Markham) We do have revised guidelines in place
now which have emerged recently, let us say, to shorten that period
of time from placing an order on BT to when that site will be
handed over as 80 working days. We have apparently moved that
forward and clearly we are in the position of trying to do that
for the very first Bow-wave sites, the first 25 of those where
BT now are reporting back about how they can shave the extended
process they currently have down to something more realistic and
certainty to when the operator, from getting provision, "Yes,
I am going to get into that exchange" can actually have an
offer of how much it is going to cost to get that, and the target
for that is 80 days.
(Ms Hobday) One of the difficulties has been that
the process in the United Kingdom has worked in parallel, so you
have had industry groups sitting with small groups to discuss
processes with BT and BT has said, "Our processes are legacy
processes. We have ancient databases that need to be queried for
everything and to change this it is going to take at least"—to
pluck a figure out of the air—"two months", and
by the time the Oftel draft guidelines were coming on in, say,
four months, from order to room handover, built into the process
is already 60 working days to full survey and 80 working days
to hand over the room, which is substantially longer than the
four months that Oftel has come up with flowing on from the EU
regulation. I think that has been the difficulty in the United
Kingdom, that it is this parallel working. We have had the same
issue in France where there has been to a certain extent development
of the regulatory regime alongside the industry discussions, but
I have got the impression that the French have drawn much more
strongly on what has happened in other countries and taken advantage
of all that knowledge to put in place a much more compacted industry
process to get to the real point, which is getting people in the
buildings a lot quicker.
(Mr Markham) As I say, that is from the time an order
is placed to when you can actually get into that site, 80 days.
So it is a significant shortening from the 60 and 80 we have just
talked about, to try to make that happen, but it is somewhat after
the event because these are things that should have been planned
and sorted in early 2000 in our view.
Mr Baldry
285. What, if anything, has been agreed within
your industry and amongst OLOs and new entrants, and so forth,
if demand exceeds supply and there is only room for a small number
of operators in a particular exchange? How are you going to deal
with that? Are you going to have a lottery, are you going to trade
places, are you going to have a ballot?
(Mr Markham) Thankfully it has taken a bit of time
to get the orderly mechanism that is described within the bow-wave
process whereby each operator specifies its priority for sites
listed on what it is ordering, one through the sequential last
site, and, in negotiation with BT, BT will use that relative to
apportion the first space, the second space, the third space.
When we reach a situation where it is full we have a reserve environment
that is created, so if somebody drops out the reserve goes into
it. That effectively has been agreed through good negotiation
between the operators and BT. Initially we had a lot of problems
with BT who refused to actually accept and take that on board
and wanted a third party to do the allocation, which was not practical
because you do run into the practicalities of this is a clean
environment and if it is a square room it is very easy to allocate
that space but if you go into another environment that is a square
room with a nook and cranny off the side then which two can you
squeeze into there? It is only practicable if BT can do that and
they have now agreed.
286. So do you feel that you now have at least
the potential of access to the exchanges that you want?
(Mr Markham) From bow-wave two, yes, in terms of actually
being able to say "these are the next set of exchanges that
are in our sights", for BT to begin the surveys, and indeed
they have probably activated and done some of those as a result
of the initial pressure that has been put on them in the last
two months. It is still very unclear, and I think this point was
covered earlier so we may not need to go over it again, when those
sites will come on stream. We are currently offered 190 sites
by June, physical sites, and the current state of demand is in
excess of 500 from bow-wave one and bow-wave two, in fact 600,
that are sitting there ready to be ordered, so to speak, when
we have the information back to do that.
Mr Chope
287. You are clustering around the sites where
there seem to be a lot of business activity, particularly small
business activity, and you are ignoring the exchanges which have
a high proportion of residential customers. At an exchange like,
for example, Christchurch—we have been there—there
is space for at least six operators to come in now but nobody
is interested in doing anything about it. Some companies have
expressed an interest. Why is it that you are not going for the
niche market, perhaps with less competition, at some of the exchanges
which are not so popular with businesses?
(Mr Markham) I think with different exchanges you
will get different answers, so I will ask my colleagues. It is
dependent on an individual marketing plan, so they might like
to comment.
(Mr Worms) From IOMart's point of view probably we
had a very different bidding process I think, as it turns out,
from colleagues probably in the industry in that we focused on
a particular area, in this case the country of Scotland, when
we went into bow-wave one and we followed up with bow-wave two.
As it has turned out, we were quite fortunate in bow-wave one
in that because we specialised on a geographic area, we have not
got the bit of a nightmare situation where we have one exchange
here, one exchange here and one exchange here, which was quite
commonplace after bow-wave one. We have pockets of exchanges within
four major Scottish cities. In bow-wave two we attempted to infill
and reach, as you alluded to earlier, the rural type areas. We
are looking at the towns of Inverness—the City of Inverness
as it were—Stirling, Falkirk, Ayr, we are looking at Highlands
and Islands. We are looking at the rural communities, particularly
in Scotland. The issue we have with the way that the process currently
works is that I may well want Inverness as my number one exchange,
for whatever reasons, but if the rest of the industry thinks Inverness
is not important to us at this stage of our process, bow-wave
one, bow-wave two, nobody is going to convert that exchange for
me, ie BT, purely because IOMart wants that exchange. Obviously
the biggest problem that all of us face is out of the information
we are getting, either from Oftel or BT, how do we construct logical,
sensible and sustainable business cases. Obviously for the amount
of capital and time and expenditure going into a small rural exchange
to start with, where perhaps you have a penetration of 2,000 or
3,000 people that might want your product, that will never, ever
pay until two or three years after. So obviously the more popular
exchanges by default have been the metropolitan city centre exchanges.
(Ms Hobday) I would just like to make the point that
the process, by definition, is going to be a fairly long one.
What we are looking at now is the allocation of scarce resource,
although we cannot scale that up precisely. In terms of the resource
available, what gets built first, we have basically run just over
three months of the process and that is based on a 12 month forward
looking binding forecast that the operators put in. There are
a large number of exchanges that you may not have allocated highly
but that does not mean you do not want them. At the moment what
you want to do is concentrate on those exchanges where you can
get in and are likely to get revenue in the first instance to
flesh out your business case, but going forward you are likely
to see a lot more of the exchanges going out from the urban areas
being built.
288. The business case will depend upon how
many competitors you have got in any particular exchange. The
point I am making is if there is an exchange where you want to
go in as a niche player and you are the only person there then
you may be competing with BT, but that is all. If you put all
your eggs in one basket and say "we wish to go to an exchange
where there are going to be six or eight other competitors"
then you have got to decide between six or eight the potential
market that you could win in developing your business case. Are
you not going about this the wrong way?
(Ms Hobday) It also depends on the type of equipment
you are going to use, the type of market segment that you will
address, whatever area of the country it is, first or last. Number
of competitors is obviously relevant in terms of building your
business plan, looking at the likely assumptions of how much revenue
and what chunk of that addressable market are you going to get
over what period of time. Perhaps it is the triumph of hope over
experience but most of us who are going into the market process
always think that our service proposition is better than anybody
else's, our technology is much more robust, much more sexy, much
more attractive to customers, and we will be staying in that exchange
over the long-term. Although we are co-operating for the moment
in a non-collusive way through the industry process, that is the
assumption on which a lot of us are going forward I think.
Mr Morgan
289. In the last paragraph of your submission
you talk about "interesting examples of what BT considers
to be reasonable space preparation, eg repainting, floor covering,..."
etc. Is the implication there that BT is trying to get new or
totally refurbished exchanges at somebody else's expense?
(Ms Hobday) The caveat I would add there is that this
was actually drafted before we had seen any of the full survey
results that came in on Friday. This was based on our trialled
build offer from Battersea and in Battersea we certainly get the
impression that BT is taking the opportunity to have its security
system upgraded to a fully card accessed based system for which
we are paying over £7,000. We are looking at that cost in
a fairly curious way to see whether that is actually as a direct
result of us going in there, but that is an example.
Chairman
290. £7,000 each or £7,000 in total?
(Ms Hobday) That is a very good question. It is rather
confusing. I think it is actually in total, so it is between four
of us, which is not quite so shocking as it would have been for
each of us.
(Mr Markham) The general point being that there are
certain guidelines that are set down in terms of what is appropriate
to recover from the operators and what is not set down in terms
of the engineering specifications in a great level of detail to
understand, say, how one would re-cover a floor: do you re-cover
it, do you take the old covering off, what quality of product
do you put down to suffice? There is certainly an element in this
where the operators feel there is a long way to go to understand
what is the optimum and right balance which at the moment, because
of the lack of transparency, we are only just beginning to get
information back on with regard to the very first site for which
that is being proposed and the prices associated with that.
(Mr Daeche) And, of course, all of those things take
time.
Mr Morgan
291. If BT comes back and says there is not
enough space in a particular exchange, are you happy now with
the mechanisms whereby you can challenge that?
(Ms Hobday) I think Oftel's draft determination on
the contract, assuming that BT puts that in place in the contract
in accordance with the spirit with which Oftel included it, will
allow us to seek third party verification of any assertion by
BT that there is no space. If we and BT cannot agree on the appointment
of an arbitrator then Oftel will appoint an arbitrator. If we
are right, and there is some space, BT will pay the costs of that
arbitration. If we are wrong, and there is not any space, then
we will. That seems to us to be a fair mechanism. This is fairly
fundamental. If a number of operators really want to get into
an exchange, one operator will go and seek verification of that.
(Mr Markham) It does raise the question of how co-location
should take place in terms of the definition of that product.
To date it has moved down a route to accommodate the number of
operators through what was described as a hostel. We have made
requests upon BT to seek what in the industry is known as co-mingling.
That basically means if there is a place where I can place one
rack of equipment inside a BT room, is that appropriate to use
for an alternate operator to locate in BT's exchanges? That does
happen in other countries, in the USA, to facilitate exactly the
sorts of things you are discussing of a single operator getting
in very efficiently and economically. Currently we are not really
sure in terms of how and when such product a would be made available
to us. The other aspect, to try to be creative about that, is
to seek opportunity to place equipment outside of BT's building
but within the domain of the BT site. We discussed earlier the
context of cabinets and street sites and clearly in some suburban
sites where opportunity exists to do that we are seeking to get
that available to us as a product option. So when the site physically
is full could you place equipment conveniently very close, within
50 or 100 metres of the exchange that is in that domain? Those
are the kinds of details we will get into because those things
are only now becoming apparent to force that through.
292. That is not distant location?
(Mr Markham) It is distant but it is in BT's sight.
293. In technical terms, what is it? Is it co-location
technically?
(Mr Markham) It is all semantics frankly. It is distant
to place equipment outside of BT's building but, say, in their
car park and connected via a cable to the BT telephone exchange.
It is distant for all other purposes.
294. So it is a lot cheaper than seeking another
location elsewhere?
(Mr Markham) It is more immediate and cheaper potentially
than, say, going through the whole process of acquiring a building,
fitting a building, refurbishing it, lease agreements, etc.
Ms Perham
295. I just want to pick up on what you were
saying and something you say in your submission that "currently
BT is not offering space other than in separate and potentially
costlier rooms". Is that still the case?
(Ms Hobday) There has been a difficulty in the negotiations,
say, for five to six months where BT has said that operator equipment
should be separated for security reasons from BT's equipment and
that has, in effect, meant stud walling in the buildings. The
operators have argued against that with BT and with Oftel. Oftel's
recent statements have indicated that they are not fully persuaded
that in all cases separate walls will be necessary to protect
BT's equipment. It will be done on a case by case basis. If BT
come back with an engineering solution which has two inch thick
walls and the operators think that is over-engineered and unnecessary
they can then challenge that and it will be up to BT to prove
that those walls are necessary. Where we have got to at the moment
is the standard hostel product is based on walls separating operator
equipment from BT equipment.
Mr Hoyle
296. You mentioned about having the cabinets
and I think there is a great danger to a lot of us as politicians
because these cabinets seem to litter everybody and are never
appropriately placed. Obviously I understand that you have got
to run a business, but what negotiations will take place if you
have got to be 50 metres or 100 metres away from the exchange
littering the footpath with cabinets? Will you actually negotiate
with the local authorities or with the neighbourhoods or will
you just have the right to plant them where you think fit?
(Mr Markham) Done in the appropriate way is to have
pre-discussions with the local authority about the locations of
such cabinets, absolutely. It will be correctly done through pre-negotiation
before they are sited. There are all sorts of aspects that need
to be done both from the aesthetic and environmental points of
view as well as the traffic regulation as well as the disturbance
created in connecting that cabinet. That is exactly the correct
process that we will be going through.
Helen Southworth
297. Can you give us some ideas about some of
the practical considerations about distant siting for your cabinets
or whatever? What are some of the practical things in terms of
service delivery? Do you have technical issues that you need to
address?
(Mr Markham) I think to some extent they were touched
upon earlier. It is really solely down to the distance of such
a distant location facility from the BT telephone main distribution
frame, which is where the connection of the cable coming from
the consumer or the business connects to our cable. That is an
additional length that is placed upon the length of the cable
that, because of the technical nature of sending signals up and
down a copper wire, can degrade, reduce, the amount of footprint
you would have if you drew a circle around where that is from.
We are seeking ways with BT to mitigate that problem by designing
a cable in a manner which limits in a sense the loss of signal
capability. That is the first practical consideration. The second
one clearly has been mentioned with regard to the fact that there
is a process to go through of agreeing with the local authority
and understanding physically how and where this should be done
in the best interests of the community as well. The third aspect,
if you are looking at a property strategy, is associated with
finding and seeking properties which may not exist or be furbished
in a manner which currently BT exchanges are available to site
equipment in as opposed to there is not necessarily always going
to be two, three or four computer rooms knocking around within
a couple of hundred metres of a BT exchange to site two or three
operators in. There are some activities going on in the industry
by third parties to facilitate such a process as a result of the
difficulties we have had in getting access to what is space that
today is defined under the provision of the planning rules as
a telephone exchange. All of those are comparable problems which
the industry has to face if we cannot get space, which I think
several of us understand and will move into as an adjunct to physical
co-location, but not necessarily as a straight alternative because
of other issues that probably we should resolve through a more
proactive stance from the industry and BT and Oftel.
298. Have you given any consideration to, or
have you calculated, the kind of impact that is having on your
competitiveness to have to make these other arrangements to solve
these technical difficulties?
(Mr Markham) In both time and cost there are aspects
to that, yes. Some of us who are pursuing that kind of strategy
are looking at those in detail. Also there is a sense clearly
that the whole issue is about the rate at which you can provision
exchanges to be available so that one can begin to offer a clustered
service in an appropriate town, or rural area, or geography from
which you can begin to market the service. Currently the offer
on the table is 190 sites by next June and we have made a submission
in our paper that is compared to BT's public stance of 839 exchanges
they will have available and enabled by March next year. Remember
the 190 are shared, therefore, between operators who can get into
that and there are straight mathematics in competitiveness between
ourselves and BT at that point in time.
299. In terms of distant located boxes or whatever,
are you going to be sharing those with other operators?
(Mr Markham) The potential exists to do that at various
different levels, yes. Not necessarily for the siting of equipment
but the ability to wholesale service between operators. One operator
takes the lead on building that and some other operator can buy
a service from that operator in a competitive way for BT to get
access to that exchange.
300. Is that co-operation beginning to evolve?
(Mr Markham) It is fair to say there is a lot of frustration
at this point in time diverting down the distant route because
we have got major problems to do with getting access to co-location
which is not necessarily at the top of everybody's agenda. There
is a difference of opinion, rightly so, between the industry on
the very issues we have just talked about—price, time frame,
ability to get there—whereas the focus of what we are trying
to do is to organise in a manner that gets fair and open and reasonable
access to BT's exchanges as quickly as possible, not just to say
"that is all too difficult, let us back off for a moment".
Mr Laxton
301. Those of your companies that are solely
internet service providers, apart from those, what other range
of services are you looking to provide, if any?
(Mr Daeche) We are certainly looking at and are in
trials at the moment on voice over DSL. It becomes a lot cheaper
to provide services to our customers if we can provide a digital
service over DSL rather than having to take multiple lines from
the incumbent, or in fact installing our own multiple lines. To
give you an example, you can take one copper pair right now over
which one telephone line is running and it is theoretically possible
to provide 30 digital lines over that one copper pair and, of
course, we only have to pay for the unbundling of one loop and
one monthly rental. Obviously there is a knock-on effect there
in terms of the services that we offer and the costs of those
services to the customer. That is one of the main services that
we are looking to provide and, as I say, we are actually in trials
on that right now.
302. Telephony over and above broadband high
speed internet?
(Mr Daeche) Absolutely.
(Mr Worms) IOMart is primarily famous for being an
ISP, that is how we started life. We are looking very much at
DSL as just being the delivery mechanism, it is just a pipe to
be honest. The services we are actively looking to put down that
pipe are the video stream, video on demand type services but,
more important, things along the lines of distance learning—we
see a great future for distance learning—and telemedicine
is another application. We are also delivering in the new year
very early on managing mail services and VPN type private networks.
We are literally using DSL as the delivery mechanism for these
services.
(Mr Markham) There is a large amount of business clearly
integrated in a way which might be disparate sites or locations
they have around the country, and that does include homes of workers.
If you can replicate the facilities that you have in the office
in terms of security, speed and access to data and manage time—that
is known as virtual private networking in the industry, it is
a huge demand in the industry—you can now be liberated and
that clearly pushes us towards a significant increase in productivity
and e-commerce between businesses, their partners and suppliers
in trading communities.
(Mr Worms) I was going to add, I do not think we should
overlook the importance of getting something like DSL rolled-out
properly so that everyone can benefit. You were saying earlier
that the excluded, as it were, teleworking is an absolute prime
candidate for DSL. Things like the call centre industry were seen
to have problems, but the beauty of DSL and using pulse analogy
and using virtual private networking as verification is you really
truly can get to the private driven future that we are talking
about, people actually physically working from home, logged on
for two hours, then doing the shopping and then coming back. You
can start controlling people's working lives in a way which benefits
the community as a whole. That is the one of the saddest things.
I am surprised the question has not been asked, how do five competing
operators get to the stage where we are sitting at this table?
The one word I would use is "frustration".
Mr Butterfill
303. On page 4 of your submission you make a
lot of very unfavourable comparisons between the situation here
and in France, Germany and the Netherlands. You say that for the
present mode of progress with allocation it would take the operators
30 years with BT's roll-outs. You say, "We do not have transparency
and non-discriminatory access. We do not yet have reasonable provision".
Can you tell us what the main problems are with transparency?
(Ms Hobday) We are still trying to nail down these
resource constraints that BT has. We have written to OFTEL on
this. We have asked BT numerous times. It came up originally in
the bow-wave. We have not been able to scope the co-location bow-wave
properly because we do not really understand what the BT constraints
are. We do not understand what their existing internal and external
resources are. We have said to BT, "We want you to increase
from 190 co-locations mid next year to 250. How much resource
would that involve and why is it such a problem for BT to do that
when it is basically, `let us hire a few more surveyors and the
external building contractors'?" Projecting out from that
in terms of the resource issue were the resource constraints and
other complaints around loop provisioning. We had a huge battle
with the co-location and whether or not we have won the war remains
to be seen. There are certainly battles to come with loop provisioning,
with the manual automated procedure, with the automated ordering
procedure and precisely how outmoded is BT's current ordering
process and what is the adjustment and what are the actual physical
problems. The transparency issue, in particular, comes up in resource,
but it also comes up in other areas when you are negotiating or
discussing key matters with BT. There is a huge information asymmetry.
We know nothing and BT knows everything. BT assert they cannot
do X because of Y, and we have no visibility of Y, so we dance
around it for two months and then go to OFTEL. It is a very inefficient
way of working for all of us. We have much greater transparency.
We can hopefully stop an issue becoming a major issue and deal
with it in a mutually beneficial way before it gets to the Regulator.
That is our fundamental concern about transparency in relation
to those models.
304. OFTEL said that BT's terms were not reasonable
in a number of cases, are you satisfied that the latest OFTEL
proposals address those problems?
(Ms Hobday) I have to confess that I am a lawyer and
I am a particularly pedantic lawyer. There are aspects of the
draft determination that cause me concern as a pedantic lawyer,
one of which is there is insufficient detail in some of the really
crucial areas. There is a slight, perhaps, lack of communication
between the operator's concerns and the potential impact with
what OFTEL have done and their desire to come to a reasonable
compromise and to take into account our concerns and BT's concern.
As all the lawyers will say, and I have seen it said in many different
fora, the devil is in the detail. We have a high level draft determination
which requires BT to amend its terms in very complex areas, just
two or three lines, or maybe a paragraph or two. That is a substantial
amount of drafting. The real concern is, have they been sufficiently
clear for BT to go off, draft and come back. Unfortunately BT
will be coming back with a draft to the industry on 2nd January[3]3,
which is the date by which they have to implement the determination,
if there is a problem it is highly likely we will be back to OFTEL
on 3rd or 4th. I cannot bind my own company to that, we would
like to see the offer BT comes up with. We have some concerns
as to how it will be implemented.
(Mr Markham) From our viewpoint it is the very headlines
thing, the agreement on the types of service BT will provide and
the obligations on them, which are very weak, and are still to
be sorted through and made meaningful. How can we enter into an
agreement with a customer if we do not have back-up from BT for
that? The experience coming through currently from the resold
DSL product is, despite several operators pumping in a market
level to build up their market base, this year from January 2nd
we face the rationing of lines because only 7 months into that
process, from building it up, we now run into issues with BT and
we have all been re-rationed. From increasing activity in the
market place, to building-up customers, to try to connect-up customers,
we now have to go back and disappoint. We face the same issue
potentially, so we are trying to be proactive with regard to them
on unbundled loops as opposed to wholesale loops. We are very
concerned with the degree to which confidential information is
supplied to BT wholesale. Information that may provide provisions
under the contract to keep that confidential from BT's own customers
is rather vague. Thirdly, in a sense it relates back to the service
level agreements and the type of penalties between two parties,
and the significant penalties placed upon the operators for not
progressing and going ahead with their site roll-out programmes,
even when we do not know we can get them with any certainty, yet
the degree to which there are penalties on BT for not connecting
the customer in that time period is "reasonable endeavours".
That is the kind of imbalance that sits on some of those issues.
305. Lets hope it all works.
(Mr Markham) As businessmen what we have to do is
take a responsible attitude, you actually go ahead and step your
toe into the water. That is the unfortunate consequence we have
of being late to this in terms of getting the sets of things sorted
out, which goes back to the comparison we made earlier on with
Germany, which is a position that was represented last time.
Chairman
306. There is nothing else to ask you at this
stage. Thank you very much for your evidence this morning. We
wish you a Merry Christmas.
(Mr Markham) Thank you.
2 Atlantic Telecom use a single "rack" of
equipment, which is installed at chosen Deutsche Telekom AG local
exchanges. The rack includes DSL equipment, which is used to provide
services using SDSL technology. The maximum power required is
292 Watts, which is used where the rack is fully configured. Back
3
BT placed on its website on 29 December 2000 an Access Network
Facilities Reference Offer. With regard to the final OFTEL determination
on the existing Access Network Facilities Agreement, both the
operators and BT have submitted comments on the draft determination
to OFTEL. The operator's legal representatives attended a meeting
at OFTEL on 5 January 2001 to discuss their views on the draft
determination. OFTEL will be issuing a final determination in
due course. Back
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