Examination of Witnesses (Questions 378-399)
ADAM SINGER,
HOWARD WATSON,
AND MALCOLM
TAYLOR
TUESDAY 26 FEBRUARY 2002
Chairman
Gentlemen, I am very sorry indeed for having
kept you waiting; we had some private business which took rather
longer than we expected. I will ask Derek Wyatt to start the questioning.
DEREK
WYATT
378. Good morning. I wonder if you could just
tell us exactly what you achieved in the Broadband Stakeholder
Group?
(Mr Taylor) I will start with that one, Derek; you
have obviously read the report fairly well. I think we achieved
quite a lot, at the end of the day. We presented the Government
with 15 recommendations, 14 of which they accepted, there was
one that was put to one side. But what it has developed into is
a group that is perpetuating the work, it is taking up the responsibility
for pushing forward those recommendations, and, in agreement with
Government, we have appointed an independent chairman of that
group, we have split it up into five working groups that are looking
at the specific areas, and, in essence, we want to keep the pressure
on.
379. In the course of those meetings, did you
present financial modelling to the Government as to how much broadband
would cost, especially in rural areas?
(Mr Taylor) There was some modelling that was undertaken,
as part of the original Broadband Stakeholder Group activity,
by Analysys, and by others, on behalf of the Office of the e-Envoy,
certain members of that particular group started some provisional
work, analysing what options might be, and, in fact, we are proposing
to take that work forward in the second stage of the Stakeholder
Group activity. And we have had some discussions with the Treasury,
but, at the end of the day, the econometric modelling and the
impact on GDP is a fairly complex thing, so we are looking at
work that the Office of the e-Envoy is doing in the context of
developing a model, and wanting to do some independent work ourselves.
380. Would it be fair to say that, and Malcolm
does not have to be the only one who answers this, at the end
of all your expertise and meetings, and what have you, the Treasury
feels the case has still to be made for broadband, and that that
really is the issue now?
(Mr Taylor) I do agree.
381. Therefore, can I move on. I was fortunate
to be asked to go to Sweden, last week, to talk about this area,
with various members of different Government groups, and non-Government
groups; there, in the poorest and in the most difficult terrains,
in the north, where the Arctic Circle is, which makes up 28 per
cent of the Swedish territory but only 3 per cent of the population,
the regional government has laid broadband, and it is now the
fastest-growing economic area in the whole of Europe. Well, I
am confused here; why does not the Treasury get this?
(Mr Taylor) Perhaps it has other priorities at this
particular point in time; perhaps the GDP impact modelling has
got some more sophistication to be built into it. I think that
we have got to continue to work down that particular track. Because,
again, similar to yourself, I have been involved in some of the
initiatives outside of the boundaries of the UK, and if I look
at the situation in France, for example, where the French Government
has mandated a bank, called CDC, to help them achieve their universal
broadband objective by 2005; so there has been intervention in
other areas. I think that there is more work to be done on the
GDP impacts of it, but that is very much the focus of the next
stage of the Stakeholder Group work.
382. So do you feel frustrated, as a company,
in that you want to roll out broadband as fast as you can, but
are you frustrated either by BT's arrogance, or indifference,
or pricing, or are you just frustrated with us?
(Mr Singer) Thank you. I think that helps. First of
all, I think there is a lack of emphasis on broadband and there
is a confusion within the Government. You actually have a situation
where people are worrying about the totally trivial issue of switching
analogue to digital, to release spectrum of little value, and
the real issue is how do you actually push broadband. Currently,
just for your information, Telewest passes five million homes;
4½ million of those homes in our franchise area we can supply
broadband to immediately. We have already over 100,000 broadband
customers; it is growing very rapidly indeed. And one of the issues
is, there is a lack of definition of what broadband is. You go
to Government and you say, "Well, what do you mean by broadband,
do you mean 128k, do you mean 512k, 1 megabit?", and they
say, "Oh, we need broadband." And it becomes one of
those rhetoric words, devoid of meaning. And one of the things
that would be really useful would be if Government actually set
a minimum standard and actually said, "Well, by `broadband',
we mean a minimum of 512 or 1 megabit;" anything less than
512 is just a racing Zimmer-frame, in the kind of broadband world.
But we need that kind of direction from Government.
Chairman
383. Could I intervene, before you go on, Derek.
Do you think that there is sufficient understanding within Government
of the implications of broadband?
(Mr Singer) I think one of the problems that we face
is that all the people, by and large, looking at this have a tendency
to come out of a television background, and one has a tendency
to look at broadband as kind of the web on steroids and an extension
of traditional television experience, in one form or another.
Broadband is not about that at all, it is far more than that;
it is about, as you know, as well as I do, how you can finally
take x-rays to doctors instead of doctors to x-rays, it means
that finally you can provide, as currently we are doing, a health
service to 50,000 households through a digital set-top box, where
they can pull down 22,000 pages of National Health Service information,
and, using their set-top box remote control, no keyboard, no PC,
they can make an appointment with their surgery. We can do that
now. They do not understand the importance. They do not understand
that broadband allows us, which we are doing at the moment, to
provide broadband capability to small businesses, fewer than ten
people, and it gives them the same IT functionality, through remote
web-hosting, through remote provision of applications, e-mail,
diary, that actually large companies can have, we start to level
the playing-field between the small and large, and pushing this
forward rapidly. There is not an understanding that actually broadband
allows those original 19th century public service broadcasters,
the museums, back into the game; you can suddenly digitise all
those collections and let them go straight back to schools, to
homes, instantly. That would be public service broadband-casting;
could not a licence help on that. These are the kinds of issues
we do not hear being debated; it is all seen as an extension of
a traditional television history. Now when you renew the Charter
of the BBC, most people under 35 will have been brought up in
a video games-playing ethos; and, I am sorry, forgive me, all
of us, maybe with one or two exceptions, are too old to be thinking
about this too much, but the way we actually use this and use
television and use broadband is completely different. Nothing
illustrates it better than the kind of advisors the Government
is getting, in terms of helping to advise them, because they all
come out of establishment television, they have never played full-contact,
digital network games. The real question for me is when does the
digital czar meet digital Ekaterinburg; we do not need a digital
czar, we need a digital Lenin.
384. Could I then, before returning the questioning
to Derek, ask you a couple more questions. Do you think that the
problems are affected by the division of responsibility between
two Government Departments, the fact that, for the first time
ever, we are going to have two Secretaries of State coming to
see us, fairly soon?
(Mr Singer) From where we sit, I think the honest
answer is, it is not helped, I think the clear answer from us,
to be candid; because we have found DTI to be very supportive,
we find that DCMS do not get it, frankly.
385. Tell us another. Could I ask you also,
because you have been coming to see us on a number of occasions,
Mr Singer, do you recollect the days, in the early part of the
last Parliament, when Mr David Clark was in charge of these matters
at the Cabinet Office, and when certainly there seemed, to this
Committee, to be a centralised focus on the harnessing of these
technologies for the very kinds of purposes that you mention,
not simply entertainment but things like the NHS, etc?
(Mr Singer) Yes. We believe passionately in this.
And I think one of the things where we need to see more cohesion,
we need some leadership from Government, we need Government to
stop worrying about whether ITV is going to live or ITV is not
going to live, it is one of the things that you cannot legislate
for. What we need is the technology. And it lowers barriers of
entry, and it actually starts to allow local television, local
services, which we have not had before; and there is no real integration,
in fact, the split between the two causes confusion.
Derek Wyatt
386. It seems to me that the real issue is,
just to comment before I get to the question, that the Treasury
has not yet had a case put to it to say that, "If you do
this, the cost of public services will go down and they will be
modernised at the same time;" and that is actually the issue.
That is an aside, in a way. I want to come to the regulator, the
new OFCOM. In what way do you think that the new regulator, I
know we have only got the Paving Bill, but the Bill is with us
shortly, to what extent will the new Chief Executive actually
be able to drive broadband?
(Mr Singer) To me, the real benefit of a single regulator
is the major economic power that that regulator will have to deal
with, it is the nature of the telecom networks, which are much
bigger businesses than television. Consequently, there will be
a culture created, whereby everybody will start to look at all
these issues as an interconnect issue, "How do we get signal
from cable onto satellite, how do we get channels from satellite
onto terrestrial?" Everything becomes a variation on an interconnect
theme. And, actually, that starts to create an economic telco
culture for analysing all of this, which starts to integrate it
all. Soon you see everything as an interconnect issue. Nothing
illustrates it better than the former Director General of OFTEL,
Don Cruickshank, when he wrote the paper on bank telling machines,
it was actually all about interconnection, he wrote the whole
paper from a telecom perspective. And once you start bringing
that kind of telco perspective you will start getting the integration,
which, Mr Chairman, you were mentioning earlier, in your previous
comment.
387. So is it your view, in a sense, that we
have had public service television and what we need now is public
service broadband, paid for through some Government medium?
(Mr Singer) I think there is an argument for saying
where is the remit for broadband-casting, and that we do, actually,
as I said, I mentioned museums would be a great example, National
Health, providing health information, so that people did not need
to go to their doctor as often, or actually took the stress off
the National Health Service, would be beneficial. All the things
that I have mentioned are things Government can actually do without
dictating necessarily how the market works, but these are good
things, something that could be provided for everybody, in one
form or another.
Mr Doran
388. In the absence of any Government support
for broadband, you make it clear in your paper that the market
approach is the only approach, and so far the market seems to
be a little bit variable. And we had NTL, one of your main competitors,
in here recently, discussing exactly that same thing, and we are
reading a little bit in the press about the difficulties that
they are facing. Can you say a little about the consumer side
of things; for example, what does it cost the consumer to take
your broadband service?
(Mr Singer) One small point, we do not compete with
NTL.
389. No, I appreciate that; geographically,
you are quite separate?
(Mr Singer) We are fellow travellers. But the answer
to your question is, if you take broadband from us at the moment,
it is £25 for 512k; that is if you take that along with our
telephone service, if you take it as a stand-alone service it
is £33. We have consistently kept our prices significantly
lower than BT's.
390. Until today; you will have seen today's
announcement from BT. How is that going to affect your approach
to the issue?
(Mr Singer) In a number of ways. One is that they
announced a reduction in their wholesale price; we will wait to
see what the retail price is. Two, we have been very aggressive
in pushing broadband; it is nice to see BT turn up at last and
provide some help. Because, actually, it is quite hard, pushing
a product just by yourselves. Fiat always claimed that the Fiat
500 never sold because they were the only people selling that
kind of car, in the fifties; it is the same issue, if you are
doing it by yourself. So we are pleased to see them turn up; it
will create national consciousness. Clearly, no longer will we
be quite the monopoly supplier in our franchise area, and, being
a good capitalist, I quite like that, but, nonetheless, competition
will be good for us and will drive that forward. So I do not think
that is bad at all; and, all in all, we welcome this. I would
say that there are some interesting questions about BT's pricing.
One is, how will other people be able to get onto their networks
and provide competition, which was always the thought; and I do
find it interesting that their prices have now come down today.
Last year, 18 months ago, when it was easy to raise capital to
compete with BT, they would not let you onto the networks, or,
at least, not easily; now, I am willing to bet you, they will
welcome competition like crazy, but nobody can raise the capital
to compete. So it will be interesting to see how that goes forward.
391. So the market-place is going to continue
to be interesting?
(Mr Singer) Yes; and your point about the market is
patchy is absolutely right. But, I would say, we have created,
off our own bat, in exactly the same way that the radio manufacturers
created a signal, back in the early 1920s, to create the British
Broadcasting Company, we have created a public service signal,
in the guise of Living Health, from various other products, to
help drive that forward. And we have actually already given the
first £8 billion to create a network which can provide broadband
service to 4½ million homes.
392. At £25, is your service profitable?
(Mr Singer) Yes, it is, it is highly profitable; it
is profitable because, of course, most of the infrastructure has
already gone on providing the telecom network and the television
network. And the way, I suspect, you will see us competing, going
forward, is not through price but through speed.
393. BT mentioned, in their press release this
morning, that, at their new price of £14.75, they think it
will take three years per customer for payback, but, from what
you are saying, you have had a much shorter period?
(Mr Watson) Yes; around 18 months' payback at £25.
(Mr Singer) And we do need to see what their retail
price is. I have to stress, that is a wholesale price, this morning.
Mr Bryant
394. The idea of a digital Lenin is a great
idea, but the danger is, of course, that he is then going to be
lying in frozen dead-boy for 80 years thereafter. I make a serious
point, which is that, clearly, when Governments second-guess technology,
there is a danger that they put something they buy, with lots
of money, that is not properly market-tested, a whole load of
technology, which then sits there and is unused. How do you meet
that?
(Mr Singer) Frankly, I stole the x-ray idea from you,
actually. But the reason we are not asking Government to guess
on what the winning technology is because we are supplying the
technology; we are asking Government to provide services, which
they would be doing anyway, for citizens, utilising that technology,
and actually to forget about traditional forms of distribution
and actually understand this is available, and actually understand,
as you start to have local area wireless networks, it becomes
cheaper and cheaper to deploy within Government's offices. So
we are not asking Government to dictate technology, we are just
asking Government to spend the money that normally it spends on
things.
395. So you are not asking Government to say,
"Right, we've worked out that there will be market failure,
the market will be unable to deliver broadband to the following
areas in the next three years, therefore, Government is going
to pay you to do it;" you are not asking Government to say
that?
(Mr Singer) No, we are not asking for that at all.
What I am asking for is Government to use the networks so there
is a greater need for the networks.
396. So it is about conglutinating, conglomerating,
public sector demand, so that there is actually a product that
will end up being laid out?
(Mr Singer) Yes. The museums was a good example; health
is a good example, which is available to everybody, which Government
does anyway.
397. Do you think competition regulation in
this country is robust enough, or fast enough, to be able to deliver
a competitive broadband market?
(Mr Taylor) Probably not, at the moment, no. I think
we have the issue of who applies the competition law, in any case,
and, I think, traditionally, we look to the regulator to have
concurrent powers to provide competition law support. But I am
not sure that necessarily it is strong enough or fast enough,
is probably the issue, the pace at which you can actually get
through potential concern over abuse of a dominant position.
398. So do you think we have a competitive broadband
market, as BT said that we have?
(Mr Taylor) I think it is rather hard, at the moment,
it is premature, I think, to get to that particular point. One
other point about aggregation though is, just coming back to your
previous question, it was one of the key themes of the Broadband
Stakeholder Group recommendations, it is a key theme of the Stakeholder
Group work going forward, to look to work with Government, to
try to make the case. And, in fact, taking Living Health as an
example, to try to build on the economics of that, as we understand
it, into the bigger picture of how it could be applied on a nationwide
basis, and it could benefit the funding of the Health Service.
399. To turn to the thorniest issue, I suppose,
between you and Government, that of `must carry' status; what
channels do you think should have `must carry' status in the future,
on cable? You are not allowed to say "None".
(Mr Singer) Channels which are actually supported
by public money, specifically the licence, on the BBC, we are
happy to give `must carry' status to; statement one. Statement
two: the BBC is breeding channels like no tomorrow, and when they
finally get to BBC Porn I do not actually wish to give that `must
carry' status, because clearly that is a competitive situation.
So I have no problem about `must carry', but I would suggest there
ought to be some kind of definition about the number of channels
that can be created, classic, linear, TV channels; in broadband,
we have no issue at all, as many as you like, but on linear television
there should be some limit to the number there should be, and
some question about the focusing of resources.
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