Examination of Witnesses (Questions 238
- 239)
TUESDAY 5 FEBRUARY 2002
MR GRAHAM
WALLACE, MR
TOM PHILLIPS
AND MS
EMMA GILTHORPE
Chairman
238. Mr Wallace, I would like to welcome you
and your colleagues here this morning. I think you have been afflicted
in the latter part of the proceedings by this cough that is going
around! If you would care to make an opening statement, we would
be glad to hear it. Otherwise, we will move on to the questioning.
(Mr Wallace) Thank you very much, Chairman
for inviting us. I would like to make a brief opening statement,
but I will start by introducing my colleagues. On my left, Emma
Gilthorpe, Vice-President, Public Policy, Cable & Wireless,
and, on my right, Tom Phillips, Group Director of Public Policy.
By way of introduction—which of course BT does not need
but perhaps we do—Cable & Wireless is a major global
player in telecoms. We have operations in 70 countries around
the world. We are in fact the strongest and most experienced competitor
to BT in the telecoms' market in the UK. We also, unlike many
companies Sir Christopher mentioned, have the strongest balance
sheet in the sector, so we speak today from that position of strength.
We have recently acquired Exodus, a major web-hosting business
in the US, which actually makes us the No. 1 web-hoster in the
world currently, so we know a bit about that sector of the business.
As you know well, true telecoms' competition started in the UK
in 1991 and despite some successes we believe the industry currently
faces an unprecedented crisis which is significantly reducing
competition in the UK and Europe. On a weekly basis, we see failures
and bankruptcies in this sector, and if this trend continues unabated—and
I believe it will unless something is done—competition and
customer choice will be drastically reduced and that will not
be good for consumers in the UK. We believe, therefore, that the
maintenance of the status quo is not an option if we want a vibrant
competitive telecoms' market in the UK. We strongly believe that
the natural monopoly that exists in the local loop, BT's local
loop, vertically integrated with BT's retail activities, is the
structural source of the problem. After 11 years of competition,
BT still own and operate well over 80 per cent of the local lines.
We also believe that many of OFTEL's problems—and they do
have a lot of problems—result simply from that fact—and
of course OFCOM will face exactly the same difficulties. Having
identified this problem, we also believe the solution is pretty
clear; that is, to separate at arm's length the natural monopoly
in the local loop from the rest of BT's activities. We believe
that would radically change the business model of the local loop
and encourage investment to the benefit of all. Of course this
structure has proved very effective in the gas industry, for example.
With that brief summary of what we think (a) is the problem and
(b) is the solution, we are more than happy to take any questions
from you, Chairman.
Mr Bryant
239. I will ask you the same question that I
asked BT, to which I think you coughed: BT says that we have a
thoroughly effective broadband situation, that the unbundling
of the local loop has been more successful in this country than
any other markets in Europe. Give us some more facts about why
you disagree.
(Mr Wallace) Because the local loop is not unbundled
in the UK in practice. In theory it may be, in practice it is
not. We, together with Colt and Energis spent a lot of time and
money in an attempt to put DSL equipment into BT exchanges to
compete in the local loop. We, probably two months ago, jointly
withdrew that initiative for two key reasons (1) the enormous
practical barriers that BT put in the way, deliberately or otherwise—I
am not saying why they did it—and (2) an introduction, about
a week before we were to announce the joint venture, of a reduction
in wholesale prices which made our joint venture, by sheer coincidence,
unviable. I would ask the Committee to find any other major operator,
or minor operator actually, in the UK who is actively installing
DSL equipment in any of BT's exchanges. So the reality is that
the local loop is not unbundled.
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