Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 320-339)



  320. Of 2.5 million?
  (Mr Carter) Three million.

  321. I was talking to the Countryside Agency last Monday. Their concern is that broadband will not reach 30 per cent of the community in Britain. Where do you not reach? What initiatives have you where you have a cable to countryside and rural areas?
  (Mr Carter) The cable industry was built largely in the urban areas for reasons of economic sense, largely. It is where the larger residential groups are. Therefore, the absolutely appropriate requirement to roll out future communication services to rural areas is not going to be done through traditional cable networks as they have been built. There will be a requirement for other technology applications. The legitimate view of the Countryside Agency is a legitimate public policy issue. The debate about providing it everywhere is a legitimate debate but the more important debate, we believe today, is that there are many millions of homes that are capable of taking broadband services that are currently not. One of the things that would encourage new technologies into the space to make the investment, to be able to provide applications to rural areas is if there was a volume of other customers already in there taking those products and services. We think the debate should not be about new applications and new technologies that may or may not come along in the future but should be about how we encourage take-up of the available capacity that is there and that has been built at substantial cost by providers like ourselves.
  (Mr Temple) From the perspective of the technologies, it is true for ourselves with our broadband and British Telecom with their wire line, as you start to reach out into rural areas, you get hit from both sides in the sense that the costs are going up and the number of customers to share the costs goes down. There comes a point where it just becomes uneconomic against a certain demographic density. In the rural areas, the most effective technology would be satellite technology. The great power of satellite technology is you can cover large areas very easily and instantly. The other side of the coin is what it is good at is also its weakness. It has not got huge capacity since its large visibility precludes very intensive re-use of the frequency spectrum. This is why the satellite and the cable modem ADSL technology are complementary.Where you have a very high density of people you have the two wireline based technologies that can intensively re-use their frequency spectrum to build up to support huge numbers of subscribers. Where they become uneconomic, you have the satellite technology to scoop up the relatively fewer people who are widely dispersed geographically. What I would see as a good basis for the UK in the fullness of time is a mix of technologies that provide a national capability.

  322. When telephony was introduced, it was introduced by the government and therefore lines were sponsored so that the rural areas could get them because the cost was amortised. You have had this Broadband Stakeholders' Group. As the Government does not want to put a cent into making broadband work, how will broadband go to the areas like rural areas? What financial modelling have you done in that group and presented to the Treasury or the DTI to say that the cost in the urban is Y but the cost externally is Y whatever?
  (Mr Blowers) The e-envoy's office has asked a series of consultants to produce economic modelling on precisely that question. What that reveals is very consistent with the key message you have had from Stephen, which is that there are two issues that need to be addressed. The first is to create a mass market broadband proposition and the second is to deal with the areas which are left outside of the footprint of that mass market proposition. It is undoubtedly the case that on the numbers today a significant proportion of the population are probably uneconomic to serve with the technologies that we have today, but the issue is how do we create the conditions which bring down the price to those people. Technology may make a difference over time as the costs start to come down and the satellite providers are arguing that their costs are coming down but once we have a mass market for these services that will make it more attractive from the demand side. The group are looking at a two stage process. We believe that in the short run the challenge is to get the mass market for broadband out there.


  323. I read in The Daily Telegraph city pages that they have a new story about a wireless experiment that you are carrying out on a limited basis with 2,000 people. I am very far from being a technological expert but I was somewhat surprised to find the vulnerability, taking into account the advances in technology you discussed with Mr Wyatt, of this experiment to the weather. For example, if it is raining, the communication might be impeded. I would be grateful for a greater explanation.
  (Mr Temple) It is true that all wireless systems that they are inherently affected by the weather but well designed wireless systems take account of this. The key is to put enough margin in so that if it is raining there is still a thumping good signal that is coming through. Part of this is also tied in with how far we reach out from a given wireless site. In the way we designed our wireless system in London, we reach out to five kilometres but we could get out to seven, eight or nine in good weather. It will be a less robust signal at these extended ranges. But we say we will only serve customers out to five kilometres to create enough margin so that even when it rains there is still a very solid signal.

Mr Doran

  324. You will be aware of the collapse of Atlantic Telecom which was based in my constituency in Aberdeen. They provided telephone and cable services across Scotland and in Manchester. There has been a crisis of confidence in the cable industry, particularly in Scotland, as a result of that. One of the reasons is because of the low protection which it would seem that consumers have, particularly when a telephone provider collapses. Have you had any impact on your business? Have you any thoughts following the collapse of Atlantic Telecom and the lessons that might be learned?
  (Mr Carter) We are aware of the issues around Atlantic Telecom and, much like the analogy with the Channel Tunnel, it is not one that we welcome. Our business and Atlantic Telecom's is quite different. The financing structure of the businesses is equally different. The scale of businesses is incomparable. We have hundreds of thousands of customers in Scotland, in the Glasgow area. As you may know, one of the original franchises in the NTL structure was in Glasgow. It is one of our most mature businesses. In some parts of Glasgow, we are not the number two telephone company; we are the number one telephone company. Going back to my answer to Mr Wyatt, there is an understandable concern but a need to separate the issues around our financing structure and the issues around our operating business. We are and will remain providing secure telephone and other services to our customers, whether they be in Scotland or in other places.

  325. You think there is an argument for the regulator or the government to provide more protection, particularly for telephone customers in this new market?
  (Mr Carter) My understanding is that the regulator already has powers in that area. The regulator has been constant in his inquiries as to our position and we have been reasonably open and forthright in our communications with the regulator.

  326. Moving on to broadband, you are a bit more upbeat than some of the people who have given evidence to us, but we can take it I think from your written submission that you are fairly critical of some aspects of broadband. In particular in your submission you say that one of the tasks of government will be to address anti-competitive abuses by incumbent companies. Can you expand a little on your views?
  (Mr Carter) We are more upbeat about broadband. Our view is that the market is poised to have a substantial increase in broadband take-up during 2002 and 2003. We believe there has been somewhat of a hair shirt, glass half empty view of what is happening and we have been at pains to draw people's attention to the comparable take-up rates of mobile telephones or dial up internet which were slower and smaller than the take-up of broadband and high speed internet. We have demonstrated that by the way in which we have gone to the market at speed with attractive retail prices we have driven take-up. Having said that, any observer or analyst looking at the telecommunications infrastructure in this country would observe that the process of so-called local loop unbundling and the access prices and mechanisms around getting a wholesale product from British Telecom have been troublesome to say the least. That has undoubtedly negated the number of companies who felt able to attach their sales and marketing machines to that infrastructure. To date, the only people in the market in the last year building broadband Britain have been ourselves and Telewest. We have had considerable success. Hence the reason why we are leading the market. Would we like other players in that market encouraging take-up, explaining the benefits, putting attractive retail prices to encourage people to come in? Absolutely.

  327. Can you explain why you can offer a service at £15 a month which will cost a BT customer £40 a month, given that they control the network anyway?
  (Mr Carter) One of the essential differences between our network and British Telecom's is that our network was built more recently than theirs with a convergent communications future in mind. Therefore, when you put an NTL pipe into your house, you can off that pipe receive copper based telephony services, coaxial cable television services and narrow band or high speed internet services. That makes the economics of the bundled proposition for us considerably different from the economics of a single proposition from British Telecom.

  328. Is your £15 a month profitable?
  (Mr Carter) It is a strategy to gain customers. As a stand alone, economic proposition, it would depend how you looked at it.

  329. You make it sound as though it is a lost leader.
  (Mr Carter) It is a strategy to gain market share.

  330. The answer is yes?
  (Mr Carter) You could say that.

  331. Are you saying that, because your system is independent of British Telecom, anything that happens in local loop unbundling does not concern you? You can offer your own service and your own facilities direct to your own customers?
  (Mr Carter) Correct.

  332. You have the opportunity to grow at a larger rate than, for example, a company like AOL, which depends on—?
  (Mr Carter) Access to British Telecom's infrastructure. Correct.

  333. Moving to the question of ownership, we mentioned earlier some rumours about the future of your own company. I am not particularly concerned with that but clearly you are becoming a fairly substantial player in the communications industry which either could make you the object of a takeover or you may be thinking of taking other people over. Have you any specific views on the government's proposals on cross-media ownership?
  (Mr Carter) We have no specific views. As you would probably expect, I cannot and neither should I comment on the specifics of our own position.

  334. There are rules which are going to be put in place which may affect your company either as a target or as a targeting company.
  (Mr Carter) We would wait to comment on those rules as and when they were published.

  335. They have been published in a consultation document.
  (Mr Carter) In our view, the ongoing debate about cross-media ownership, scale and rules—our view is if you look at the United Kingdom media sector it is dominated largely by United Kingdom based companies. A more flexible approach to cross-media ownership is broadly to be welcomed.

John Thurso

  336. Can I come back to the issue of competition? In your memorandum you said on the first page, "Government should remain above the competitive frame." You went on to say on the following page that one of the key tasks and challenges for Government is to address anti-competitive abuses by incumbent companies. Could you reconcile those two statements for me?
  (Mr Blowers) The distinction we would try and draw is we think it is important, particularly at a time when there clearly is some unease about whether the country is going to achieve its key targets. It is still very important for the Government to avoid picking winners or stepping in and saying, "This technology seems to be superior, so we will load the dice in favour of this particular solution." One of the things we have learned as a company over the time that we have been in business in the United Kingdom is that it is a fiendishly complex environment and we need a number of players and a number of different offerings out there to get the full benefit from the technology developments that we are seeing in the competitive process. It is important in that sense that the government does not step in too quickly in the ordinary operation of the market. However, it is absolutely correct that the Government should have a role to set the boundaries and to set the rules in place which ensure that competition takes place on a level playing field. That is the area where we believe the Government has a role; we believe this Committee has a role, to scrutinise the proposals that are now coming forward for new competition rules and to make sure that we do not repeat the mistakes that have been made in the past. It is certainly not NTL's intention to dwell on too much of the history of who did what to who and when, but we believe that as we take forward the new Communications Bill the Government needs to take a very clear lead in establishing a strong framework for dealing with anti-competitive behaviour.

  337. In those boundaries that you mention is there anything particularly that you see disadvantages NTL, that you would like to see changed?
  (Mr Blowers) It is a truism that the market is developing at a great speed. It is developing at a rate which is faster than we see in most other industries. Products are brought onto the market much faster; anti-competitive abuses arise a lot faster and have to be dealt with therefore in a timely fashion. At the moment, we are struggling with a regulatory regime that was designed in 1984, before many of these issues were conceived of and we are fighting with the Competition Act. The speed with which the OFT is examining the issue of Sky's alleged anti-competitive behaviour and the period of time that they have been looking at that is no longer than the period of time of the alleged abuse, which seems to us somewhat unfortunate. The timeliness with which regulation can be applied, which is a function of the nature of the regulatory rules and the resources thrown at them, is very important. We have to learn that lesson. We need to be rather quicker out of the box in dealing with these problems. Secondly, there are still one or two historical legacies of the old telecoms and broadcasting rules which need to be looked at very carefully. We always make a point of highlighting the iniquity as we see it of the must carry rules that cable companies face. It is not that we have a fundamental problem with carrying public service broadcasting but at the moment the rules are out of kilter both with the rules that apply to other platforms, which puts us at a competitive disadvantage, and also with the whole debate on where we are going with public service broadcasting. There is an automatic assumption at the moment that anything which is seen to be a good thing should attract must carry rules.


  338. What do you mean when you talk about the role in this of the definition of public service broadcasting? How does that affect the discussion?
  (Mr Carter) The issue that Alex is alluding to is that, as and when the BBC, to take them as an example, commission and produce a new channel, because it is a public service channel, it carries a `must carry' requirement which means that in our television product we are required to allocate capacity to that channel. Going back to the question from Mr Doran about the difference in our technology, capacity that we allocate to additional television channels is capacity we do not allocate to, for example, the provision of broadband services. The point is that the two are interrelated.

John Thurso

  339. You mentioned Sky. When they gave evidence to us I put it to them that the industry is perhaps arriving at the point at which platform providers and content providers should be separated. What would your views be on that?
  (Mr Carter) We are not a content provider. We are a platform. We are a distributor. We provide access and a multiplicity of communication services. BSkyB are undoubtedly in a relatively unique position. Telewest are to a degree a content provider but less so than BSkyB. Our view would be that each case should be dealt with on its own merits and, where there is a competitive issue or a foreclosure issue, that should be subject to regulation and review. Our observation would be that when those issues arise—and they undoubtedly will when you have a conflict of interest—they need to be dealt with swiftly and effectively. The current example is just taking too long and that creates economic problems for all parties and all players. The debate about the rate card pricing of Sky's content has been running now for nearly two years. It is an untenable position going forward. In principle, we would not say that they should not have them but in practice they need to be regulated swiftly and effectively.

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