Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 340-358)



  340. That is to use one of the key areas of regulation because presumably your customers do not go out and buy the platform. What they buy is the content that arrives on that platform and therefore you really live or die by the content, even though that is not your business.
  (Mr Carter) Correct. One of the reasons we are retailing broadband at £14.99 is because in the internet world the content rules are very different. To a degree, people search for their own contents and it is a much more fluid market. In the television world, people do not buy platforms, although they do to a degree buy platform capabilities, interactivity being a good example. They buy content. If you have a player who happens to come in on another platform over-controlling the supply of content to a point whereby the margin to the alternative platform to provide it is so low that there is no reason to do it, you have a problem. Our point is simply speed. Identify the problem, analyse the issue and come to a conclusion; as opposed to identify the problem, debate it for a very long time and continue debating it.

Mr Flook

  341. Can you give us a breakdown where you have broadband going into a home in a medium town, United Kingdom, a breakdown between television, broadband usage and telephone for the average customer and what you project it to be in two years' time?
  (Mr Carter) We have today 2.3 million television customers and a slightly higher number of telephone customers. We have just over 600,000 narrow band internet customers.


  342. That is not a sum total, is it? Those three categories include a lot of the same people.
  (Mr Carter) Correct. Over 600,000 dial up internet customers and, as of our last published results, over 100,000 broadband internet customers. Our strategy, going back to the earlier questions about the cost of our capital infrastructure, is that we have built a state of the art future proof network. Why? Because we want to provide all of those services to every customer. In an ideal world, every single customer would take all three services.

Mr Flook

  343. All 100,000 are taking television and telephone?
  (Mr Carter) No, not exactly, but pretty close.

  344. The £15 is subsidised?
  (Mr Carter) The £15 is solely for the broadband.

  345. It is cross-subsidised?
  (Mr Carter) We look at the pricing of our products, both individually and collectively.

  346. Would that £15 be in Taunton in Somerset, where I represent, to a big city? Is it £15 across the country?
  (Mr Carter) Standard pricing across the country.

  347. How does that compare with Telewest?
  (Mr Carter) Telewest do not offer a 128K broadband product. I cannot comment on the specifics of the rest of their pricing.

  348. There is an element of loss leader. In your submission to us, you said that the markets are now driven by quite different priorities and companies must prove they can generate revenues from the customers they already have. How long until the £15 becomes a proper, economic crisis? A ballpark figure will do. Is it months, years, minutes?
  (Mr Carter) All new markets, particularly technology markets—recent evidence would validate this—have been developed in large part by the relevant players stimulating early take-up. In the digital television market, that was driven by three set top boxes, largely driven by BSkyB in the initial stages, followed by ourselves, ITV Digital and Telewest. The mobile market was pay as you go. Probably discounted handsets drove that. In narrow band internet, it was Freeserve, free or unmetered access. Broadband is no different. Different companies will adopt different strategies. We have a tiered set of pricing. The £15 is our lowest entry product. If you want faster speed, half a megabit, that is £25. Later this year, we will introduce a one megabit service. That will be a different price. Then you will have a tier for the mature market. As the market matures, people will choose their own speeds, in the same way as they choose different cars or different beers or different anything.

  349. Does that pricing strategy differ from Telewest's?
  (Mr Carter) I cannot comment on Telewest.

  350. You do not know what your competitors do?
  (Mr Carter) I do, although we do not compete as such with Telewest because we are in geographically discrete areas. I do not think it is my place in particular to comment on their marketing strategy.


  351. Why has the penetration of cable been so limited? If one looks at what cable has to offer, in many ways, it is the most attractive service. Interactivity is much more available. Unlike, say, Sky, which offers a discount service for people who subscribe to other telephone services, you provide your own telephone service. It was long ago anticipated that cable would dominate technological development and yet cable has about half as many subscribers as BSkyB. Why? I am not offering this as a criticism either of cable in general—far from it—or of you in particular, but it perplexes me that this is the way we have gone. Is it simply because people are entertainment led to the extent that the large availability of packages on Sky is what drives them forward or what?
  (Mr Carter) It perplexes me likewise. The cable industry has spent nearly 20 years consolidating to where we are today: two players that are largely geographically discrete. 20 years building an alternative infrastructure that still today is wholly owned and heavily controlled by an incumbent monopoly, British Telecom. BSkyB has essentially been one company since 1988. They have had 12 years' clear run at the market. This is a game of two halves and today it is the case that in the television market BSkyB have more subscribers than we do. They have over 5.7 million, I think. We have three million subscribers today but we have 5.0 million products and services provided to those customers. The world is interested in entertainment, but the world is getting very interested in the applications of technology. It is getting very interested in the internet and in interactivity. Our view is that, having built the infrastructure and done the consolidation, moving into that phase will mean that the second half of the game might show a different score line.

Miss Kirkbride

  352. For people like me who are not technologically literate, could you amplify your response about the "must carry"? Is it a long term threat or when the BBC has five digital channels is that going to be a threat to the real services you provide?
  (Mr Carter) We would not use the word "threat". The issue for us is more a philosophical and a economic one. The philosophical one is to do with public service broadcasting. We are not averse—neither should we be as a distributor to carrying public service channels. That is entirely appropriate but we would just like to know what public service channels are. It is difficult to know what they are because there is no definition of what is or is not a public service channel other than what is decided to be provided. Our view is that there is a need, given the world we are moving into, for there to be a clear, written definition of what a public service broadcaster's interests are. Without it, there could be 20, 30, 40 or 50 and that would be a threat. The economic issue is that, when someone is making a decision about whether to do a new channel, they do not today have to consider the full economic consequences of producing a new channel because we have to carry it. They do not have to carry the costs of that themselves. If that cost was borne by the provider of the channel, they might just think again about the economic equation that they put together when they were saying, "I will" or, "I will not." We would not today use the word "threat". We would just say there is a philosophical need, given the way the world is changing, and given that the world is moving from being very led by entertainment and television and being not led by interactivity and internet usage but it being an equal partner for looking at those debates around television proliferation in a different way.

  353. When we had Cable and Wireless here last week, they were very keen on dismantling British Telecom in its present form or separating out its various activities so that more people could get involved in the local loop. Is that a view you would share with them?
  (Mr Carter) The BT/BBC debate is a parlour game we could have for a long time. Our view is that the time is probably not right for that. The capital markets are probably not open to it. The amount of angst and energy and activity that would be consumed by that form of complete separation and disaggregation would get in the way of the other things that need to be done over the next two to three years. BT Wholesale needs to be completely operationally separated from BT Retail and needs to market itself in the market as though it were completely separate.

  354. Does that not require there to be two separate companies?
  (Mr Carter) That could be done through corporate governance, in our view.


  355. Coming back to the public service issue, it strikes some observers as odd that the public service channels should be defined by one provider in what might well be regarded as an idiosyncratic way. If you take the launching of BBC4, for example, what you find is that you are getting a channel which broadcasts all day replaced by a channel that is going to broadcast for five hours that will be doing the same things as the other channel but with less availability. It does strike me as odd that the BBC should define what public service broadcasting is and then have this ride with people like you. I do not expect you seriously to disagree with what I have just said.
  (Mr Carter) We would seriously agree with you. The time is definitely right in the current world in which we live to write a regulatory environment going forward where we look at these issues in a converged way. It is undoubtedly the case today, going back to the comments about our own financial position, that by contrast the BBC is in a strong financial position. We have a double jeopardy for the commercial sector, whereby there are limited funds in the commercial sector across the board. Advertising markets are in decline. Capital markets are in retreat. Equity markets are in decline and the BBC's own cash position has never been stronger. There is a kind of double jeopardy here today and there is the future regulation issue that you referred to.

  356. You as individuals have to contribute to the BBC's finances but our welcome guests Sir Christopher and Mr Dyke do not have to contribute to yours.
  (Mr Carter) Indeed.

Michael Fabricant

  357. We were discussing earlier all the reasons why maybe cable take-up has not been as rapid as we would have wished in this country. You gave very articulate and possibly right reasons, including that of British Telecom and various other factors, but I want to throw another factor at you and I would like your reaction. If broadband were as good as it ought to be, it is streets ahead of any other platform. I wonder whether broadband provided by NTL and the other cable providers in this country is as good as it could be. Am I right in saying that the system in this country, which is the way you do it with ADSL, is whereby you can have up to 50 subscribers and if all 50 in any one group are using it at the same time it is no quicker than ISDN which has a much broader spread in the United Kingdom than broadband has at present. The problem with that is all the advantages of broadband in theory cannot be enjoyed in practice, so people get disappointed about it and say, "What was all the hype about? Broadband is not that fast."
  (Mr Carter) Our ratios are geared in a different ways to deal with internet hogs, as they are called in chat rooms. If you or any Members of the Committee would like to see it in action, we have a demonstration suite a stone's throw away from the House at Dolphin Square where we display broadband in action. If any of you are interested in seeing its application, we would be delighted either individually or collectively to show you it, both in its own operation and by contrast to digital television or narrow band dial-up.

  358. Is not the Dolphin Square thing unique in that they are delivering fibre optics to each flat and unique in the whole of the United Kingdom, so it is hardly typical.
  (Mr Carter) Dolphin Square is unique in many ways.
  (Mr Temple) The key thing in terms of customer experience with speed is the bit that we govern in the local access network with our cable modems, and BT for their ADSL. Both technologies are contended access media. You have more subscriptions per unit of capacity provided. It is really how well you engineer the "contention" that governs the speed experience. In the early days in the States, the cable companies overloaded their cable modem networks and gained for cable modems the reputation of slowing up in the busy periods. The Bell companies engineered their ADSL networks with better (lower) contention. We have completely stood this on its head in the UK. As far as the NTL network is concerned, we load 20 subscriptions on one unit of capacity. The last time we made an inquiry, I think British Telecom were loading 50 subscribers on one unit of capacity with their ADSL residential service. In terms of local access experience, the customers get a much better experience with broadband cable than they would in the residential offering for ADSL. However, this needs to be put into context. For the most part, particularly in the evening and afternoon periods, it is not the local access network that is governing the speed experience; it is the over popular sites in the States that just are not man enough to take that number of hits they receive in peak periods. If you dial a site in the morning through ADSL or cable modems, you tend to get through very quickly. In the afternoon when the east coast of America wakes up, it starts to slow up a bit and in the evening when the US west coast wakes up and popular sites are hit by customers from Europe and the east and west coast of the US at the same time things become very slow.

  Chairman: Gentlemen, thank you very much indeed. That was very educational and we are most grateful to you.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 25 March 2002