Memorandum submitted by BT
INTRODUCTION
In our Memorandum to this Committee a year ago,
we concluded that the Communications White Paper had adopted a
sensible policy overall towards the internet but we made recommendations
designed to provide consumer choice, foster innovation and stimulate
creativity in content production. Nothing that has happened since
then has altered our view that the UK can succeed in the internet-era
for the benefit of all its citizens, provided that innovation
and investment are not inhibited by unnecessary regulation.
However, the economic environment has deteriorated
further over the last 12 months, which has had a dampening effect
on the communications sector and particularly on the rate of take-up
of broadband services. We should also recognise that the regulatory
environment in the UK is not the same as in some of our leading
competitor nations where national regulatory policies have been
geared towards broadband growth in the short-term, even if this
is at the expense of developing a long-term competitive market.
The UK's approach is the opposite and nobody should be surprised
that an environment designed for a marathon is not producing results
in the short-term that match other places where they are staging
a sprint.
ISSUES
RAISED BY
THE COMMITTEE
In this submission we deal with the following
issues raised by the Committee in its terms of reference for this
inquiry[1]:
1. Implications of the delay to the expected
legislation establishing OFCOM;
2. Progress towards universal internet access
in the UK;
3. Progress towards effective broadband
and higher bandwidth networks; and
4. The impact of technological developments
on the protection of privacy.
1. Implications of the delay to the expected
legislation establishing OFCOM
The Communications Bill will be a large and
complex measure. It is, perhaps, not surprising that the Government
felt it necessary to take more time than anticipated to produce
a draft. A repetition of the problems which occurred in the parliamentary
passage of the Utilities Act would not be in the interests of
anyone. The question is whether the extra time is being used well.
Extensive consultation involving constructive
dialogue with stakeholders is the best way to ensure a Communications
Bill that provides a suitable basis for legislation. The Communications
White Paper discussed the issues at a high level of generality.
Workable legislation must be based on clear understanding of workaday
detail.
It is, therefore, important for the Government
to enter into dialogue with broadcasters, telecommunications operators
and consumer groups to obtain their expert opinion on the proposals.
Whilst there were initial and welcome discussions of this nature,
these opportunities have not been available more recently.
The delay could be better used to develop understanding
of the issues and to promote constructive discussion with those
who have practical knowledge of the issues. Whilst there will
be a consultation process and the promise of formal pre-legislative
scrutiny after the draft Bill appears, which we strongly endorse,
there is a danger that there will be insufficient time for proper
examination and debate before the summer recess and the final
Bill's presumed inclusion in the 2002 Queen's Speech.
It could, therefore, be a Communications Bill
prepared almost entirely within Governmental institutions and
may reflect approaches that seem reasonable on paper but give
rise to practical difficulties in operation. It is also possible
that a "closed" drafting process may overlook the strength
of feeling on certain issues, leading to difficulties in the Parliamentary
process. Perhaps worst of all, there is an obvious danger that
this "closed" approach may lead to proposals that fail
to come up with fresh, imaginative approaches to communications
issues, including regulation, and thus perpetuate some of the
problems of the current regimes.
2. Progress towards universal internet access
in the UK
Oftel's latest analysis[2]
says that;—
"around 40 per cent of households and
60 per cent of small businesses are now connected to the internet"
and that "during 2000-01 the total volume of internet
traffic originating on the PSTN grew by over 200 per cent to over
92 billion minutes."
This level of internet penetration is higher
than in any of our key European competitor nations.
The same publication also says that:
"Increased competition has ensured that
the UK has among the lowest prices in the world for dial-up internet
access, particularly for unmetered tariffs. The results from Oftel's
latest benchmarking study show that UK is cheaper than other major
European economies for residential access for all but the very
lowest usage levels."
This leading position on internet pricing has
been achieved in an environment where consumer prices on a wide
range of goods and services are generally higher in the UK than
elsewhere, and it is also worth noting that comparisons are normally
of VAT-inclusive prices, which disadvantages the UK since our
VAT rate is amongst the highest in the OECD and G7. Given all
these factors, the good story on UK internet pricing is a remarkable
story and a tribute to everyone working in the UK telecommunications
and internet industries.
Access to the internet is available to anyone
with a telephone line who has a computer and modem. Given that
fixed line telephony penetration in the UK is now at approximately
93 per cent of UK households and that of the remaining seven per
cent, some six per cent have chosen to use mobile services as
a substitute, leaving only one per cent "untelephoned",[3]
the first of those requirements, and the only one that BT can
deliver, has been met, and as stated above at world-class levels
of affordability. The biggest barrier to take up of the internet
continues to be the initial cost of buying a computer.
Of course, there are other ways to access the
internet such as at work, in libraries, at school, through mobile
handsets and so on, many of which address the needs of people
who cannot afford the cost of the equipment needed to access the
internet.
New initiatives continue to emerge. For example,
BT Payphones, part of the Consumer Division of BT Retail, announced
just before Christmas 2001 that it will install 28,000 new terminals
to be built by Marconi and which will offer full internet access,
e-mail and text messaging. Rollout will begin in April 2002 with
3,000 terminals expected to be in place within a year. We believe
this to be the most extensive planned network of privately funded
public access terminals in the world.
3. Progress towards effective broadband and
higher bandwidth, networks
Considerable progress has been made in the provision
of broadband since the Committee last examined this issue. Although
some commentators continue to talk as if broadband was unavailable,
the fact is that BT has now equipped 1010 exchanges to offer ADSL
connectivity, covering over 60 per cent of the population and
70 per cent of current internet users. Growth in broadband customer
numbers has been lower than we and others would have wished, and
we know that we and other providers have to do better. But it
is still a fact that although the UK's relative international
position is low, the rate of take-up since launch of consumer
ADSL services has been higher than it was in other countries at
the same stage in the history of their broadband offerings. The
UK now has over 250,000 broadband (i.e. ADSL and cable modem)
customers connected (about equally split between BT Wholesale
and others including NTL, Telewest and Kingston Communications.)
ADSL connections have seen a steady increase,
prompted in part by national and local advertising by BT of the
opportunities to connect with the 100 or so Service Providers
who take BT Wholesale services, including BTopenworld which buys
wholesale broadband from BT Wholesale on the same terms as any
other service provider. (BT Wholesale has 195 customers for
its ADSL products, about half of whom are corporate customers
and the other half service providers retailing services to the
mass market.)
There will be further developments in the coming
months, with BT Wholesale launching its mass-market self-install
broadband ADSL service on January 15, 2002. The new product will
see BT Wholesale setting up customers' lines to support a range
of high-speed services without needing to visit the end user.
Independent Service Providers (SPs) will, as now, sell their products
direct to customers, but also supply the necessary equipment.
This can simply be plugged in by the end customer, saving the
need for an engineer's visit.
As a result of the saving in engineering time,
the wholesale price of the residential product to Service Providers
will be reduced to £25 a month rental with a £50 connection
fee—substantially down from the previous prices. BT Wholesale
will also be increasing flexibility for self-install customers
by cutting minimum term contracts from 12 months to one month—meaning
that, if Service Providers pass this on to end users, customers
will be able to test drive broadband without fearing a long-term
commitment. BT continues to look for improvements in quality of
service while reducing costs and passing these savings onto customers
through price reductions.
BT is also exploring other means of providing
broadband using satellite technologies and working in partnership
with others to bring broadband to rural areas with the assistance
of EU funding. For example, on 11th December 2001, a pioneering
multi-million pound project was announced by BT in Cornwall which
could provide a blueprint for the development of broadband services
in rural Britain. ACT NOW, a partnership between BT and key public
sector organisations including the South West of England Regional
Development Agency, is a £12.5 million project to assist
small and medium-sized businesses in Cornwall. It is expected
to lead to the creation of up to 1,000 jobs in the county. The
new jobs will be created primarily through the growth of participating
businesses, web design work, software development and SME support.
The project will involve the provision of intensive support and
advice packages for 3,300 Cornish businesses and the rapid roll
out of ADSL broadband technology to a further 12 Cornish telephone
exchanges. This roll out will mean that 93,000 households and
14,000 businesses will be within ADSL enabled exchange areas in
Cornwall.
It is important not to see broadband penetration
as the sole metric of e-commerce success. Otherwise there is a
risk of replicating in e-commerce the misjudged focus in the health
sector on the single metric of hospital waiting lists. A balanced
score card looking at numbers of PCs, number of schools online,
value of e-commerce transactions, digital tv adoption, business
internet connectivity, shows the UK in a very strong comparative
position—see Annex 1 for examples of how e-UK is better
placed than e-Germany, which is the most advanced internet economy
among our European G7 competitors.
The benefits of broadband are often said to
be higher bandwidth, the fact that it is flat rate, and that it
is always on. These are indeed characteristics of broadband, but
unlike in the rest of Europe or indeed in the whole of the USA,
UK customers can get low-cost flat rate internet over narrowband.
As a result there are more customers with flat rate internet access
in the UK than in the rest of Europe in total. This means that
we have many more people who are relaxed about surfing for long
periods, becoming used to and driving e-commerce applications
and being prime candidates for broadband if we can get the transition
right. Having this low-cost flat-rate access to the internet available
to everyone from the Shetlands to the Scillies means that the
UK has a much more socially inclusive approach to internet access
than, say, Germany or the USA. But the downside of this achievement
is that the incentive to switch to broadband is reduced in the
UK, so content and applications become more important.
The fact is that encouraging more people to
move to broadband is proving to be difficult in the absence of
compelling content and applications. Even in the USA, often held-up
as a model for the UK, DSL growth is slowing, prices are rising
(by an average of 25 per cent recently), roll out plans of some
operators are being shelved, and customers are showing signs of
returning to narrowband. It is essential that there is growth
in new content to ensure that customers find their broadband experience
satisfying and worthwhile. At the same time, we must continue
to encourage greater numbers of people to take the service since
there is evidence that real growth will come from peer to peer
applications. The challenge we face is to create a virtuous circle
by increasing the number of connections which in turn will encourage
the development of more content and so further stimulate demand.
It should also be noted that the UK is unusual
in Europe in having a truly competitive broadband market-place.
Because BT Wholesale is required to sell wholesale ADSL products
to any service provider on equal terms and because the UK has
encouraged infrastructure competition through a variety of regulatory
constraints on BT, Oftel's most recent analysis[4]
shows that BT's own internet service provider, BTopenworld, has
only 18 per cent of the broadband retail market. The contrast
with Germany is stark, where Deutsche Telekom has 98 per cent
of broadband customers. Indeed the EU has initiated a competition
investigation into the German situation, which has led Deutsche
Telekom to raise its monthly broadband rentals by a reported 27
per cent, but only after having been allowed to build a dominant
market position.
The role of regulation in broadband—We
have been critical of the way that regulation is inhibiting the
achievement of some of the Government's aims in the short-term,
even if the pursuit of a fully competitive market is likely to
be beneficial in the longer term. It is not so much the regulatory
framework itself, although there are certainly improvements that
could be made, but the way in which the rules are being applied
that seems unlikely to achieve accelerated deployment of broadband.
Differences in interpretation and application of the rules between
countries will inevitably flow through to different end results.
Of course, we accept completely that we must work within the rules,
including the Competition Act. However, a more flexible interpretation
is perfectly possible that would remove most of the adverse impact
of regulation on broadband achievement.
Government investment—different countries
have different priorities for expenditure and in some places the
stimulation of broadband penetration has been fuelled by Government
funding. Generally, it is those countries that are ahead of the
rest in terms of numbers of customers. The leading country in
international comparison tables is Korea, with Government funding
of approximately £600 million in support of private sector
spending. Patricia Hewitt, Secretary of State for Trade and Industry,
whilst on a visit to Korea, is reported to have said;—
"The South Korean government has invested
very substantial amounts in broadband infrastructure and that's
something we're aware of in the UK but broadband has to take its
place in a list of competing priorities alongside things like
health and transport."[5]
Prioritising between competing investment choices
is an essential part of Government. BT is not challenging the
Government's spending priorities nor seeking Government funding,
but again, nobody should be surprised that countries that choose
to spend large amounts of money have better customer numbers as
a result.
4. The impact of technological developments
on the protection of privacy
In a modern society there is ever-increasing
use of computing technology in all aspects of life. This entails
increased potential for intrusion on personal privacy. However,
not all intrusions are seen by users as unwarranted and notions
of what constitutes a violation of privacy may change over time,
as may expectations of what use may be made of personal data.
The underlying computing technology (both hardware
and operating systems and applications software) present in all
modern computing facilities is commonly developed by manufacturers
and software developers to include "standard" features
that may be used in ways that may intrude on privacy. For example,
copyright owners, e.g. in movie and audio content, are anxious
to introduce improved technical means to identify users/ licensees
of their works in order to facilitate copyright enforcement which
will impact on privacy.
Other measures, also outside the control of
communications providers, may compromise the privacy of individuals
such as, for example, the Anti-Terrorism, Crime and Security Act.
Measures to curtail and detect "cybercrime" in development
under the Council of Europe Convention on Cybercrime and being
considered by the EU Commission will impinge on users' privacy.
Activities which are not specific to communications providers
also raise significant privacy concerns. For example, monitoring
of employees' e-mails and phone calls affect all businesses, not
just communications businesses. These raise significant human
rights issues for citizens. There is, of course, a balance to
be weighed between citizens' rights to privacy and the detection
of crime.
The interpretation and enforcement of privacy
laws should be consistent across all industries and between companies
within an industry. This requires a point for resolution of privacy
issues through a single arbiter charged with making technology
and "market" neutral judgements. This will provide for
consistent treatment for all citizens and a level "privacy
playing field" for the application of privacy rules to all
industry and government. The Information Commissioner is ideally
placed to fulfil such a role.
A sector-specific regulator, such as OFCOM,
will not be able to develop and maintain the expertise necessary
to deal with privacy issues in this neutral and broadly-based
way (including the critical and complex law enforcement-related
issues.) Sector-specific regulation in the privacy field would
be likely to distort the application of privacy laws in the UK,
with different applications in different industries, even thought
the personal data concerned might be used for identical or near-identical
purposes. This, in turn, will create unwarranted competitive distortions,
between communications providers and other industries and also
between communications providers.
The resolution of potential conflicts between
copyright protection and enforcement and invasion of privacy will
be best resolved in a technology and "market" neutral
way, again, through the single Information Commissioner, working
in conjunction with the Courts.
1 Press Notice No. 7 of Session 2001-02, dated 19
November 2001. Back
2
Oftel - Annual Market Information 1996/97 - 2000/01 published
December 2001. Back
3
Universal Service-Oftel Statement 30 August 2001. Back
4
Oftel-Annual Market Information 1996/97 - 2000/01 published December
2001. Back
5
Source: Financial Times report 9 January 2002. Back
| 
