Examination of Witnesses (Questions 320-339)
MR STEPHEN
CARTER, MR
ALEX BLOWERS
AND MR
STEPHEN TEMPLE
TUESDAY 12 FEBRUARY 2002
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.
Chairman
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.
Chairman
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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