Select Committee on Culture, Media and Sport Minutes of Evidence

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.


  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.


  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.


  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.


  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.


  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.


  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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