Examination of witnesses (Questions 400
TUESDAY 19 DECEMBER (AFTERNOON) 2001
and MR IAN
400. In your capacity as the recognised "supplier
of last resort", does the Regulator, for example, raise with
you issues relating to that certificate you produce every year
saying you are able to fulfil all your obligations? Does he and
his lawyers and technologists and bureaucrats and others cause
you much grief?
(Mr Green) On that particular certificate not much
grief but in relation to the regulatory accounts that we have
to produce each year, which are voluminous and have to be separately
audited and in fact cost us more to audit than our own Companies
Act accounts, they go through them with a toothcomb.
401. BT reorganisation; could you talk us through
one particular aspect of it and that is your proposed network
company NetCo and tell us what is going to be enshrined in the
regulatory sense within that new organisation and what the rationale
for the creation of that particular division is.
(Sir Peter Bonfield) Maybe it will be worthwhile just
to explain the rationale that I had for the whole change. As we
move BT into the faster growing areas, the more international
areas, the greater geographical organisation we had was not applicable
going forward, so we tried to organise it into lines of business
and the lines of business focused on particular customer areas,
and one of the customer areas we are looking at is other operators
within the United Kingdom. Of our network traffic now more than
half is not B to B totally controlled traffic; it is other people's
traffic, so going forward we wanted to have a business which could
concentrate on customers who were also competitors and I wanted
to have that split so that people in wholesale could get up every
morning and say who their customers were, not they are sometimes
customers and sometimes competitors. The idea is it would cover
most of the assets of the network of BT, it would clearly have
all the inter-connector regulations posted on it, and it would
deal with the obligation to the other licensed operators as customers.
That is a pretty bold step forward. Nobody else has done that
in the world as far as we know. We are going to have extensive
discussions with the Regulator and Government in terms of how
this would work and how it would discharge the universal service
obligation. The idea is to make sure the network is responsive
as the industry changes and as BT itself is changed as a result
402. Do you have a timetable by which you want
to have cleared by the Department of Trade and Industry and Oftel
your new organisational arrangements?
(Sir Peter Bonfield) We have said that we would like
to have the first part done in a fair amount of detail by the
end of the first quarter. I think that is a pretty optimistic
timescale. In the back of my head, and what I have said publicly
is if we can get all this agreed with essentially the businesses
operating in a pretty independent autonomous state by the end
of next year, I would be pretty happy.
403. Do you feel a bit frustrated at the delay
in that because there has been some media comment and heavy-weight
financial comment that BT should perhaps have gone down this road
a year ago. You are going down it now and yet you are still saying
it could be the end of next year before you have cleared all the
(Sir Peter Bonfield) I am not frustrated at all, this
is a very complex process. It clearly needs discussions with the
DTI and Oftel and for the DTI to give us new licence conditions.
The way that the network will run is clearly going to be a major
change in the industry. This is the first one of its type. Could
we have thought about it a year ago? Possibly. You move as the
industry moves. I think it is a pretty bold revolutionary step.
We did it for business reasons not regulatory reasons, so this
is a BT-led initiative, but clearly it does need extreme scrutiny
from both the DTI and Oftel. I am assuming that will take some
considerable amount of time. I am not frustrated. I am challenged
and excited in terms of what this can do to unleash more in the
market place and in BT across all of the operations. It will need
extensive discussions with our colleagues in the unions because
there are a lot of people involved with BT in this central split
404. Can I ask a specific thing about your relationship
with Kingston Communications because we were a bit surprised to
hear this morning that they do not seem to have had any demand
at all for local loop unbundling. You are running Open World.
Have you got access to run that service in Hull? Can you understand
why in this very competitive market there does not seem to be
any demand at all to provide competitive services with Kingston
(Sir Peter Bonfield) At this point in time we have
to understand it is a relatively small market and we have only
got 110,000 customers. Is that the first port of call into which
we put all our effort? The answer is no. Is it something we would
look at down road? I think the answer is probably yes. At some
stage, as we have mentioned for many years, there could be a call
for opening up some of the network for cable companies that might
be interested. As the market place changes we will look at it
on a case-by-case basis.
405. You are not pressing at the moment for
(Mr Morfett) Kingston will need to make a reference
offer for the three products which EU Regulations require by the
end of this year, which is ten days away, and when they do we
will have a look at it and see if the terms are such that it would
be of interest to us. We would certainly like to compete in that
market in time.
406. The White Paper contemplates the possibility
there might be the need for other telecoms operators to contribute
to the universal service obligation. Where do you stand on that?
We heard this morning that the obligation does not cost you anything
and therefore there is no need for other people to contribute
to the social fund. Is that your perspective and will you be arguing
that others should contribute or not?
(Sir Peter Bonfield) We have always said that it does
cost us something but we have been argued against by the Regulator
that the cost is outweighed by the benefits. We never agreed with
that particularly but that is what they have set on us. I think
my feeling going forward is rather than aiming this at the backward
looking universal service obligation, which is well understood,
it is what happens going forward that is important, particularly
in a world where there is going to be more access to band width.
As I say, I think that is why we are supporting Patricia Hewitt
in her work of going forward to make sure there is no disadvantage
between the haves and the have-nots in the world ten or 15 years
down the track, which will be mostly broader band, mostly internet
related, computer related, to make sure that the USO comprehends
that type of environment rather than yesterday's PSTN environment.
That is an active debate and it needs to be addressed pretty quickly.
407. As part of that you will make ADSL available
at all your exchanges?
(Sir Peter Bonfield) No. I do not think that we want
to look at it in terms of just an obligation on BT that says "provide
ADSL". We need to stand back and ask what can the whole industry
do to make sure that you do not have disadvantaged pockets. There
is what you can do in terms of digital television, what you can
do on wide band, mobile, what you can do with fixed networks and
what other people competing in fixed networks can do, what cable
companies can do. We need to look at that in the round to make
sure we are looking at that as an overall industry going forward
to make sure that we provide the best services to as wide a group
as we possibly can. This is something that BT should not and cannot
discharge under its own capabilities.
408. One point that did arise in our discussions
with Mr Edmonds was the question of leased lines. It was suggested
that your prices were broadly in line with EU averages but when
we looked at it a bit more closely we found that, in fact, your
prices were significantly above the cheapest countries in the
EU. Why is that the case given the size of your operation? Is
it what you can get away with?
(Sir Peter Bonfield) I suppose in all these things,
Chairman, we have looked at pricing overall and the Oftel and
the Government figures show that in terms of an overall basket
the United Kingdom in terms of pricing is still way, way at the
bottom of the pack. If you take out particular areas of pricing,
broadband or higher band width leased circuits, we are not the
cheapest but we are not the most expensive either, we are sort
of middle pegging. I think Oftel is now looking at this again.
We have looked at it in terms of where we are in market share.
In some of the very high band width circuits we have got probably
less than 15 per cent market share. This is a competitive marketplace
and we are not the cheapest but we are not the most expensive.
In broad terms, the overall telephony basket in the UK is still
the lowest of the pack and I think that is a very good achievement.
409. I am just going to make a plea that I did
with Oftel. Could you try to make your mobile phone bills intelligible
to the people who can count with both their fingers and their
toes? It is rather difficult to know how much we are paying when
we see all of the other add-ons that we get when we buy the phone
in the first place. I think there is a case for simpler presentation
of these bills. We are told that prices keep coming down but we
never seem to understand why or how. I realise that people like
yourselves do not actually receive phone bills for things like
that so you are not aware of them, but the rest of us do. Can
I make that small plea just before Christmas.
(Sir Peter Bonfield) I think that is a very valid
point, Chairman. It is both actually in fixed and in mobile. As
the choice has permeated through the industry we have now got
choice for every conceivable combination, whether you want cheap
minutes on a Friday afternoon, cheap minutes on a Saturday, free
minutes here and that sort of thing. So we have responded as an
industry to what we think is customer demand and it looks incredibly
complicated and we have backed off from that. We are not perfect,
do not get me wrong on this, I am not pleading a special case
but we are coming back and saying "Can we make it simpler
but still provide some choice?" BT Cellnet at the moment
say, "You have got all these packages, you choose the package
but every month on your calling pattern if you are significantly
out on the package you have chosen we will point you to a better
package. We are also working with Oftel in terms of making sure
that the league table in terms of pricing is set up. On the fixed
line stuff when we introduced per second pricing in 1995it
seems a long time agowe got endless bills of extreme density.
We are now going to start in the early part of next year introducing
simplified bills that do summations so you can opt for a summation
bill. The other thing is trying to put packages together like
the BT Together package that says if you make a lot of local calls,
you just pay an up-front monthly fee on the rental, and the calls
then are not charged off peak, to try and make it simpler from
that point of view. Going into next year we are trying to make
it simpler but we have to understand that in the end we are responding
to customer choice. I think, if anything, as an industry we have
erred more towards a massive amount of choice and we now need
to swing back a bit. So I think you are right.
410. There is just a suspicion that some of
the specialised services like Call Waiting and the redialling
service and things like that are priced at a fairly premium level
in this digital age. Would that be a fair accusation or not?
(Sir Peter Bonfield) I do not think so when you look
at it in terms of the round compared with competitive markets
elsewhere. I do not think that would be the case.
411. You do not think things like Ring Back
and Call Waiting are excessively profitable?
(Sir Peter Bonfield) When we introduced Call Minder
we were obliged by Oftel to introduce a wholesale product for
it. It cost us £4 or £5 million to put in and there
was a huge amount of competition and there was very little demand,
so it is difficult to say.
412. While we are touching on mobile phones
and bills, have you got a policy at the moment where you have
got exchanges in the middle of residential areas where in the
case of one in my constituency, in the village of Adlington, there
was a telephone exchange with no mast for mobile phones, but suddenly
there is an application in on your site for One2One? Are you cashing
in on your assets and ignoring local opposition and feeling?
(Sir Peter Bonfield) The whole issue in terms of masts
is a pretty vexed one and I do not want to shorten it, but what
we are trying to do is respond to concern both in society and
the environment about the proliferation masts, so we are encouraging
mast site sharing.
413. Can I get it clear, there is no other mast
on this site. This is for a One2One mast with nobody else on the
(Sir Peter Bonfield) What we are doing is trying to
encourage the industry to site share. We have just done a deal
with a company which sells to other operators so that they can
lease space on the top of the roofs of some of our buildings to
co-locate masts. It is the sort of thing you just brought up.
We would like to co-locate as many as we can, particularly when
we go into 3G roll out, when the number of sites required is going
to go up by a factor of three. If we cannot as an industry agree
more site sharing, then it is going to create more and more issues
in terms of local planning?
414. I understand all that. The problem is we
are surrounded by masts which are not in residential areas and
you have decided to allow One2One, which is not yours, suddenly
in the middle of a village, eight feet from people's properties,
to establish a huge mast. My worry is you are busy cashing in
the chips and not realising the consequences of what you are doing
or that you do not care what you are doing.
(Sir Peter Bonfield) We certainly do care what we
are doing. This is a particular issue we are trying to resolve.
I am not familiar with that particular site, but in overall terms
we are trying to do maximum mast sharing through this deal that
we have got on our sites.
Mr Hoyle: I accept that but there are no other
masts on this site; it is a one-off. I will leave it at that,
415. We have ridden our hobby horses. You have
also helped us a great deal on the issue. We are coming back to
this. We suggested to Patricia Hewitt, the Minister, that she
might like to put a monthly unbundling report on the Departmental
web site. She blanched at that so the matter is still under consideration,
but suffice to say later in the year, elections notwithstanding,
I am sure this Committee will return to the issue and we look
forward to hearing from you again. There will be some points of
detail that we will want to come back to you on but thank you
very much for your help today and we look forward to seeing you
in the future.
(Sir Peter Bonfield) Thank you very much, Chairman.
We do appreciate that this is a pretty important topic you are
investigating and we are pleased to respond to it.