Memorandum submitted by NTL
1. NTL welcomes the continued interest of
the Committee in the communications sector and that the list of
issues being considered is truly "converged", taking
broadband and internet together with traditional broadcasting
concerns.
2. In this response we will focus particularly
on broadband, as this is where in our view, the greatest challenges
lie as well as the greatest rewards. It is also where the public
debate is most at odds with the reality of what is happening in
the real world. However, we have also sought to respond to the
committee's other issues of interest.
A DIFFICULT YEAR
FOR THE
COMMUNICATIONS SECTOR
3. This has been a very hard year for any
company involved in telecoms, new media, or broadcasting, largely
as a result of factors outside of the control of the Government
or any individual company. The markets have corrected their own
irrational exuberance of the "tech boom" by taking a
now in many ways unduly negative view of the sector. It will take
some further time for equilibrium to be restored.
4. On the demand side, the rate of take-up
of new services can also be expected to slow. The reason for this
is simple. Two years ago, all companies, driven by the external
investment climate were focused on customer acquisition and subscriber
growth. Therefore, new customers were being subsidised heavily—whether
they were internet, telecoms or pay TV. However, the markets are
now driven by quite different priorities and companies must prove
that they can generate revenues from the customers they already
have. This period of consolidation may help market growth in the
longer term, as it requires companies to place greater focus on
actually delivering the services that customers require.
5. At this difficult time there are calls
for the Government to take steps to bale out particular companies
or even to fundamentally re-examine policy aims and objectives.
In our view, this is a time when the Government should remain
above the competitive fray. Many of the short-term "fixes"
or interventions being proposed will not actually be of any practical
assistance, and if adopted will harm the chances of a successful
recovery for UK-based companies when global market conditions
change. Similarly, Government policy for the sector remains basically
sound, notwithstanding some of the criticisms we offer below.
At any rate, it would be much worse to suddenly implement ill-judged
changes of direction, which will scare off potential future investors.
6. The specific tasks and challenges for
the Government, in our view, remain much as they were this time
last year:
7. To ensure that the UK is at or near the
top of the ranking of countries for investment in new technologies
and infrastructures.
— To recognise the key strategic importance
of broadband, and orientate Government and regulatory policies
to achieve the rapid growth and deployment of broadband technologies.
— To address anti-competitive abuses
by incumbent companies, recognising that right across the communications
sector, effective competition will be the most effective mechanism
for delivering benefits to consumers.
— To reconcile the traditional approach
in the UK to the regulation of broadcasting with the new dynamics
created by competition and convergence, in particular by carefully
defining public service broadcasting.
A PRO-INVESTMENT
REGIME?
8. On balance, the UK remains a good place
in which to invest in communications markets. But the global downturn
unfortunately shines a bright light on any outstanding deficiencies
in public policy. Looking at Government policy since the Committee
last examined the sector, there are some significant disappointments:
— The delay in bringing forward new
legislation sends a poor signal as to the importance of the sector
in Government thinking.
— DTI and DCMS have not exercised sufficient
control over the rest of Whitehall in relation to additional regulatory
burdens on the communications sector—notably pilot lane
rental schemes which will make it much more expensive to deploy
telecommunications infrastructure, and the Home Office's proposals
on cybercrime in the Emergency Powers legislation, which in our
view potentially expose service providers to significant legal
risks.
9. Statements of intent to make the UK an
attractive place for communications investment, whilst welcome,
need to be matched by concrete actions. One interpretation of
the issues highlighted above is that the continued departmental
split of responsibilities for the sector between the DTI and DCMS
is leading to the sector being under-valued within the governmental
machinery as a whole.
BROADBAND
10. In the relatively short time it has
been available in the UK, broadband has generated very high expectations
amongst potential customers and policy-makers alike. Some argue
that there has been over-hype and under delivery from the industry.
We think it is fairer to say that broadband has suffered from
the "new best thing" syndrome that affects all technological
developments. However, allied to high expectations is the danger
that many form the opinion that broadband is some kind of failure.
It would be a considerable pity if this view took hold, particularly
at a time when Britain's take-up of broadband is doing relatively
well.
11. It is certainly true to say that the
take up of broadband in the UK has been slower than Government
and others, we included, would have liked. Right now what we need
to inject is some perspective into the situation. Broadband is
not getting a good press in general at the moment and what is
printed is usually a rather bleak picture that is not entirely
accurate. However, if you compare figures for mobile phone and
internet take up at a similar stage of its development as a tool
of mass communication, then broadband is certainly holding its
head above water very comfortably. NTL hit and exceeded its target
for 2001 of over 100,000 customers and we anticipate the pace
quickening considerably in 2002.
12. Government, industry and others have
a duty to tell it like it is. Britain may have come late to broadband
in 2001 but since broadband has been offered to consumers at a
very competitive price, the numbers have increased significantly.
Most recent figures suggest that there are now at least 300,000
customers, which is impressive for a first year. That said, we
recognise that there is a great deal yet to be done to attract
a critical mass of people. The communications industry, with notable
exceptions, is playing its part. We fully expect the Government
to maintain its high level of commitment to broadband in 2002.
13. The Government's broadband statement
in December was very welcome but it failed to consider, crucially
in the current investment climate, what role tax incentives for
consumers can play in aiding take up. A compelling case can be
made to the Treasury and we contend that the cost of tax incentives
to encourage early take up would be repaid by the increase in
economic activity from moving the UK faster up the broadband adoption
curve.
ADDRESSING ANTI-COMPETITIVE
BEHAVIOUR
14. Much of this year, we have seen powerful
players in the sector describing each other's behaviour as "anti-competitive".
Separating the rough and tumble of normal commercial behaviour
from genuine abuses of market power is very difficult, but it
has to be done and the genuine abuses promptly curtailed.
15. The performance of all the regulators
in this regard has been disappointing. The saga of BT's unbundling
of its local loop seems to have ended with most competitors driven
from the battlefield. BT has been given a much-needed breathing
space to sort out its financial priorities and decide that, after
all, it does want to deploy higher bandwidth services. NTL recognises
that complex factors have affected the regulation of this process,
which was never going to be either easy or quick. But it does
highlight the need for OFTEL to have the powers, resources and
the political will to take rapid and resolute action against those
abusing market power. Unfortunately, OFTEL continues to devote
a disproportionate amount of its time and resources to consumer
and social policy matters which ought to be handled either by
the OFT or by the Government itself.
16. The ITC has largely stepped back from
regulating competition matters in the broadcast sector and produced
a consultation on cross-promotion of digital TV offerings which
failed to properly consider the competition implications of relaxing
the existing rules. A further consultation was then issued which
still did not properly consider what is, after all, one of the
most important "payments in kind" that a digital broadcaster
can obtain. The ITC seems very narrowly focused on traditional
broadcast policy issues and effectively there is no "sector
specific" broadcast competition regulator.
17. Finally, the fact that the Office of
Fair Trading has now issued a reasoned opinion against BSkyB for
alleged abuses of market power under the Competition Act should
not blind us to the fact that it has taken us eighteen months
to get this far and will probably take a further twelve months
at least to arrive at an eventual outcome. In the meantime, the
entire industry is in limbo, uncertain as to whether it can safely
negotiate improved terms with Sky. If by the time the OFT eventually
rules on this case BSkyB is in an unassailably dominant position,
it will be cold comfort for competitors even if the ruling goes
against Sky.
18. What all of these cases reveal is the
urgent need for reform of the way that competition rules are applied
to the sector as a whole. Whether this requires the proposed communications
legislation depends on the extent to which it is considered that
the problems identified flow from failures of management in the
regulatory bodies. NTL considers that the regulators can fairly
claim to be working with inadequate regulatory tools for a fast-moving
sector, and that legislation is therefore required. Equally, a
stronger and more focused set of objectives set out in new legislation
would help. On the other hand, the Government could already make
clear its strategic priorities to the sector regulators if it
chose, and this might indeed be a helpful step. Sector regulators
should be firmly guided by the Government to employ the tools
they already have more effectively and single-mindedly to the
task of delivering effective competition—if need be at the
expense of other areas of activity.
PUBLIC SERVICE
BROADCASTING
19. In our view, the Government has yet
to really articulate what the nature of public service broadcasting,
and hence role of the BBC and obligations on commercial broadcasters,
is going to be in the future. This is a policy "time bomb"
waiting to go off.
20. NTL is concerned for the long-term health
of content creation in the UK, on which we rely. This means getting
the balance right between public and private provision, though
we continue to believe in the validity of the "mixed economy".
The concern at present is that the BBC finds itself in an extraordinarily
strong position vis a vis its commercial rivals as a result of
a generous licence fee settlement on the one hand, and the advertising
downturn on the other. This has created a mismatch between the
BBC strategy, which is to extend its areas of activity and build
market share in the anticipation of a very hard battle for survival
at charter renewal—and the true external reality in which
the BBC is already beating its rivals hands down.
21. Under the circumstances, the last thing
that is needed is for the BBC to lavish £70 million on a
channel which will compete with Sky One and E4 for the 20-35 audience,
as set out in the revised BBC3 proposals. However, the Government
could square the circle by motivating the BBC to recalibrate its
proposals so as to address the part of society which is crying
out for a reason to switch to digital services, the older viewer,
who generally is undervalued by advertisers and hence purely commercial
broadcasters.
22. For NTL, a very important knock on effect
of getting PSB right would be to establish a credible basis on
which to impose "must carry" obligations on cable companies.
The Committee should consider in particular how representative
of "joined up Government" it would be for cable companies
to have to set aside capacity that would otherwise be available
to provide broadband connections to customers, in order to facilitate
BBC3's ratings clash with Sky One and E4.
OTHER MATTERS
23. The invitation to comment mentioned
some other issues of concern to the committee:
The implications of the delay to the communications
legislation: We are disappointed by this. As already noted,
it sends the wrong signal to the investment community about the
strength of the Government's commitment to the sector. In addition
serious failings in existing regulation are emerging and there
does not seem to be the scope to address them ahead of the legislation
itself.
Progress towards analogue switch-off:
We remain a long way from achieving the conditions that would
allow analogue services to be switched off. NTL supports Government
efforts to galvanise this process, but with a very strong caveat
that this should not tip over into blatant favouritism towards
the DTT platform. Not only would this breach an important principle
of platform neutrality, but it may also be self-defeating, given
that it is satellite and cable who are currently driving the process
of digital take-up. What is clear is that there is a significant
rump of digital "refuseniks", particularly older people.
The BBC has a role to play here but (as noted above), this would
require some changes to its digital plans.
Cross-media ownership: The political
dimension to this debate should not blind us to two salient facts:
First, it is highly unlikely that Carlton and Granada would currently
be allowed to merge even under a straight competition law regime,
because of the Competition Commission's explicit view that FTA
advertising is a separate market, in which, clearly, the resultant
"single ITV" would be dominant. Second, attempting to
restrict foreign ownership of broadcast companies is an act of
protectionism, which is unjustified in the modern global environment.
The Government should instead open its own borders and press for
reciprocal access through WTO negotiations.
Progress towards universal internet access:
The Committee will doubtless have seen OFTEL research suggesting
that internet usage dipped towards the back end of last year.
We believe that this result should be treated with caution (the
reduction was well within the statistical margin of error and
it is equally likely that internet usage went up during the quarter).
However, it is undoubtedly the case that the rate of increase
in internet usage has now slowed, mirroring developments in other
countries. This reflects different business priorities (as mentioned
before, less focus on "hell for leather" customer acquisition)
but also (we suspect) a natural break point in consumer demand.
Something similar occurred with mobile phones, and it took pay
as you go tariffing to restart the growth in the mobile market.
NTL does not believe that this signals a serious market failure.
The UK has an enviable range of different internet tariff packages
including unmetered and partially metered options. Two other pieces
of good news are the continued growth and strengths of the "schools
internet" market in which NTL is strongly active, and the
availability of an open internet access product via the TV from
NTL, which should extend the reach of the internet into some households
which do not currently own a computer.
16 January 2002
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